Lending to Poor, Minorities Pays Off for Thrift : Finance: American Savings in Irvine, once targeted as a redliner, earns praise and profit for its loan record turnaround.
A coalition of minority groups had targeted American Savings Bank for several years as one of the state’s worst “redliners”--lenders that avoid poorer and minority areas--and wanted to extract a written pledge that the thrift would provide more loans in such neighborhoods.
Members of the Greenlining Coalition picketed an American branch in downtown Oakland in 1989 and finally won a meeting in early 1990 with Mario J. Antoci, who had been brought in as chairman a year earlier.
The meeting went nowhere. Antoci promised that the Irvine thrift would quickly do better, but he would not give in to the coalition’s demands for a written agreement, funding quotas or anything else.
“I said, ‘Absolutely not. We’re going to do it because it’s the right thing to do, not because you told us to do it,’ ” Antoci recalled recently. “I didn’t want to have the Greenlining Coalition later taking credit for what we were going to do just in the normal course of business--what we felt was good business.”
Coalition representatives walked out, ending the meeting abruptly. Its members continued to badger the thrift and testified against it in congressional hearings.
Now, with the latest data in, Antoci has delivered on his promise. American Savings provided both poorer households and minority borrowers in 1992 with more than the Greenlining Coalition could have hoped for.
American Savings has become the state’s premier mortgage lender in low-income neighborhoods, devoting a greater percentage of its loan money than any other major financial institution to such areas. It also is the second biggest provider of home loans to low-income families and one of the top lenders to African Americans, Latinos, Asians and other minorities.
Moreover, American has shown the industry that there is gold in those neighborhoods. Contrary to what some banking regulators believe, American has found that such loans are both safe and profitable--so much so that loans to low- and moderate-income households constituted 37% of the $3.8 billion in loans that the thrift funded last year.
“They have done the biggest about-face we have ever seen,” said John C. Gamboa, co-chair of the Greenlining Coalition. “It’s one of the few times that a promise has been more than kept.”
So thorough has the changeover been, Antoci said, that American already meets the Clinton Administration’s proposal for stiffer requirements in the Community Reinvestment Act, the federal law that mandates lending in poor and minority communities.
While the coalition fumed about the thrift’s poor record, Antoci quietly overhauled how the institution looked at low-income borrowers and how the S&L;’s employees sought their business.
It put branches in East Los Angeles in 1990 and in the Crenshaw District of South-Central Los Angeles in 1991, making it the first financial institution in nine years to open a branch in that African American community.
It altered lending criteria to fit the cultures: Latinos were not rejected as too risky because they held numerous jobs, and African Americans with no credit history were encouraged to show other proof that they were a good credit risk.
American’s new program was never set in stone. It evolved over time as loan officers found new ways to help borrowers qualify for mortgages. Procedures still change as the savings and loan helps fund such unique concepts as nonprofit apartment complexes for the poor.
American’s lending record is but one aspect of its effort to reinvest in the communities in which its 165 branches operate.
It has formed partnerships with various companies to develop and help revitalize inner cities. It was also among a host of companies providing additional money and services in South-Central Los Angeles after the 1992 riots.
“The staff is especially user-friendly,” said Lori Gay, president of Los Angeles Neighborhood Housing Services. “You get the sense that community reinvestment is important at every level. It’s Mario Antoci’s dream of (American) being a community reinvestment bank that reaches down to all levels. He’s concerned about what happens here.”
American’s employees serve on community housing panels in South-Central Los Angeles and they turn out for such neighborhood spruce-up events as “paint-a-thons.” They also help in other ways.
One executive formed an employment program for the YWCA in Santa Ana so the organization could begin arranging jobs for residents of its Hotel for Homeless Women.
The thrift has been “most generous,” said Mary Douglas, the YWCA’s executive director. American has provided $100,000 over two years to help the Santa Ana YWCA meet its operating costs.
Officials at the Federal Home Loan Bank of San Francisco, a federally chartered funding source for thrifts and banks that make home loans, praise Antoci and American’s directors for their leadership.
“When you have that focus at the top, then everybody throughout the institution has it,” said Gary Curley, an executive at the San Francisco bank. “They are aggressive in exploring ways to get the product out. They’re making it part and parcel of their business line.”
He rates American at the top of the list for reinvesting in the communities it serves.
Minority rights advocate Robert Gnaizda of San Francisco, Greenlining Coalition’s lawyer, pointed out that American accomplished its changeover in just three years, disproving assertions by bankers that such lending programs take up to 10 years to show any results.
Last month, the coalition in its annual report used American as a yardstick to measure how California’s biggest banks addressed their communities. The banks had abysmal records in lending to poorer households and to minorities, the coalition concluded.
Gamboa and Gnaizda now urge federal regulators to hold American up as a model for other banks and S&Ls; that fall short of fulfilling their low-income lending obligations under the Community Reinvestment Act.
Other financial institutions, particularly thrifts such as Home Savings of America and Great Western Bank, do exemplary jobs at meeting their CRA obligations. But none has come so far in so short a time.
Formed at the end of 1988 from the rubble of the failed American Savings & Loan--then the nation’s largest and most troubled thrift--American Savings Bank started out the new year without a coordinated effort at low-income lending.
In fact, it did not even have a community outreach department, something Antoci was used to working with during his long tenure as president of Home Savings in Irwindale. So, he created one and placed John Nunn, a senior vice president for retail banking, in charge. Nunn was well qualified; he is also an African American.
“If you want to bring focus to this thing and you want to get things done in the minority areas, running it with a white person will never get it done,” Antoci said. “That’s reality. You can have the most socially minded person in the world, and it won’t happen. They just won’t be able to open the doors that a minority can open.”
Antoci staffed the department with Latinos, African Americans, Asians and other minorities. “It just doesn’t work any other way,” he said.
From the outset, American’s directors wanted the outreach department to be the best at fulfilling CRA obligations, Nunn said. That meant getting loans to the inner city and other poorer neighborhoods, not simply throwing money at community organizations.
“We had a really in-depth business plan,” Nunn said. “It called for opening new branches (in low-income areas), implementing new initiatives, setting up partnership programs.”
But the results for 1990, the first year federal law required detailed statistics to be kept, were not very impressive. Though American devoted a fifth of its loans to low-income neighborhoods, the amount actually loaned to low-income families was only 1.1% of its total loans. Worse, when moderate-income borrowers were thrown in, the total grew only to 5.8%.
“Until we were forced to file records, I didn’t realize how poorly we were doing in the inner cities,” Antoci said.
The reason, Nunn figured out, was that American’s loan officers going into South-Central Los Angeles, for instance, were based in Hollywood and also covered middle-class areas, where they found it was easier to make home loans.
In addition, Nunn said, executives learned that when the thrift turned down white or Latino applicants, they asked why and what they could do to qualify. When the thrift turned down African Americans, they just left.
The steps American took to correct those and other problems transformed the S&L; quickly.
Its 1992 results, released four months ago, put it on a pedestal. American again poured 20% of its mortgages in low-income areas, but that was four percentage points ahead of its closest competitor, Great Western. In addition, its loans to low-income families grew to 8.3% of total loans, second only to Great Western’s 10.5% and well ahead of the 6.7% statewide average for all lenders. American’s loans to both low- and moderate-income households grew to 25.1%.
Antoci said that 1993’s results will show that the thrift put more than 10% of its home loans in the hands of poorer families and provided an additional 27% of its mortgages to moderate-income households.
Banking consultant David L. Smith of Los Angeles said that American’s loans to poorer neighborhoods--not just to poorer families--are significant because much of the housing in those neighborhoods are apartments, and loans to landlords help to provide housing.
Many of the changes that American instituted were not new ideas. Loan officers, for instance, often checked to see whether prospective first-time mortgage borrowers had been paying rent, utility bills and other recurring payments on time.
It instituted a “second look” to review rejected African American applicants, and now is rolling out that review process to other minority groups to become more active in helping them to qualify for mortgages.
What American did was to institutionalize such alternative lending standards, giving them a stamp of approval so that all loan officers could use them.
Meantime, it found such lending immensely profitable. Poorer households--which devote more of their life savings to housing than more affluent families do--were more motivated to make monthly payments and keep their homes, so fewer borrowers were delinquent on their loans. As a consequence, the S&L; had to set up fewer reserves to cover possible loan losses, lessening the drain on profits.
In addition, most low-income borrowers can only make a down payment of 10% of the sales price instead of the conventional 20%. Such loans are considered riskier and justifies an interest rate that is a quarter of a percentage point higher. All lenders typically charge higher rates for such loans.
“So all in all, we’re getting a higher yield in general, maintaining lower loss reserves and facing fewer foreclosures,” Antoci said.
The biggest factor in American’s success, he said, was putting branches in the inner cities. “You can’t do it from the outside looking in,” Antoci said.
Even before the branches opened, Nunn said, American sent loan officers into the neighborhoods talking to religious, business and community leaders, holding lending fairs to acquaint would-be borrowers with the loan process and helping families plan ahead so that they someday would qualify for mortgages.
American, with $17.3 billion in assets, will continue to make more mortgage loans to inner-city neighborhoods, Antoci said. But he knows the S&L;’s percentages will likely drop as the economy improves and the thrift starts making more and larger loans in middle-class and affluent areas.
So far, though, he is quite pleased with the results--and results, he notes, are all that really matters.
Years ago, he rescued an old paperweight from a trash pile, and now proudly displays it on his desk. The slogan on it admonishes: “Don’t Confuse Effort with Results.” It is pop wisdom that has guided his actions whenever a project needs attention.
“The problem with all these things is that if you don’t have focus, you just end up with a lot of effort, and no results,” he said.
Eradicating Redlining
Irvine-based American Savings Bank lending record is cited as a benchmark in efforts to stop loan discrimination and redlining, the practice of denying loans to those in predominantly low-income or minority neighborhoods.
Lending in Low-Income Neighborhoods
More than 20% of home loans originated by American Savings in 1992, the most recent year for which information is available, went to low-income areas. That’s twice the statewide level and higher than many large commercial banks. American Savings: 20.2% Great Western: 15.9 Home Savings: 13.4 World Savings: 12.9 Western Federal: 12.5 Directors Mortgage: 11.0 Bank of America: 9.2 California Federal: 8.2 American Residential: 6.9 North American Mortgage: 6.8 Wells Fargo Bank: 5.9 Countrywide Funding: 4.5 Statewide average: 9.5
Lending to Low-Income Applicants
Of the top 10 lenders to low-income applicants in California, American Savings ranked second in the percentage of its total loans granted to low-income borrowers in 1992. Low-income loans as a percentage of total loan portfolio*: Great Western: 10.5% American Savings: 8.3 Bank of America: 6.4 Directors Mortgage: 6.3 Home Savings: 5.4 World Savings: 5.2 Western Federal Savings: 4.9 American Residential Mortgage: 4.8 North American Mortgage: 4.2 Countrywide Funding: 1.6 Statewide average: 6.7 *For mortgage classifications, low-income households make less $31,228 annually in Los Angeles and less than $41,015 in Orange County. Source: KPMG Peat Marwick, Greenlining Coalition, American Savings Bank. Researched by JANICE L. JONES / Los Angeles Times
