Bulk of Agency Loans Are ‘Problem’

Nearly 60% of the Los Angeles Community Development Bank’s portfolio consists of “problem loans,” where borrowers are either more than a month behind in payments, have bounced a check or are experiencing cash flow or other problems, according to a bank report to the Los Angeles City Council.

The council requested the report last month after a Times story outlined difficulties at the bank. While acknowledging “growing pains,” the report defends the record of the bank, created in response to the 1992 riots to make loans to businesses rejected by conventional lenders and to create jobs for the city’s poorest residents.

The report also outlines recent changes the bank has made to better monitor risky loans by grading them, link residents with jobs, and offer borrowers incentives to seek technical help. Bank officials “have learned a good deal from our setbacks,” the report said.

The bank is the federal government’s biggest loan fund, capitalized with $430 million, much of it guaranteed by the city’s future federal grants for community programs. The Times story revealed that more than a third of the bank’s largest loans were in trouble, that it faced complaints from borrowers of loan-processing delays and micromanagement by loan officers, and that one lawsuit alleged fraud. Further, it had created only 132 jobs for the residents it was designed to help.

City officials contacted Friday had not yet reviewed the report and declined to comment. It will be discussed at a joint meeting of the Community and Economic Development Committee and the Housing and Community Redevelopment Committee, but that meeting has not been scheduled, said Barry Glickman, spokesman for Councilman Rudy Svornich, who called for the report.

According to the report, at the end of January, 15% of the $48 million in outstanding loans was more than a month past due, and 59.4% was classified as troubled.

The report said the bank is “looking to upgrade the quality of its new loans.” In addition, a program implemented last month offers $7,500 vouchers to troubled borrowers as an incentive to seek technical assistance, bank spokesman Robert Alaniz said.

Other community lenders said the percentage of problem loans is remarkably high.

“For any kind of fund to have 60% problem loans is a major concern,” said Roberto Barragan, vice president of business lending for the Valley Economic Development Center, which generates and underwrites many of the bank’s smaller loans.

According to the report, the bank has approved 132 loans, totaling $73 million, a substantial jump over the 64 loans presented in its annual business plan in November.

While the loan activity has increased, the report says the bank is constrained by “unrealistic” federal regulations for job creation and is hampered by the reluctance of big commercial banks to make good on co-lending commitments. Big banks that pledged $200 million when the bank was formed have come through with only $28 million, the report said.

In addition, a robust economy has caused conventional lenders to make riskier loans, leaving the bank with fewer viable deals to choose from.