May 13, 2010

Contact: Barbara van Kerkhove,  (585) 454-4060
Ruhi Maker,  (585) 454-4060

Press Release: Paying More for the American Dream IV

Study Finds TARP-Supported Banks Reduced Lending to Communities of Color Dramatically in Rochester, New York and Six Other Cities Across the Nation:

Re-emerging redlining patterns the norm as banks pull out of prime mortgage lending in communities of color

ROCHESTER, NY—A report released today by a multi-state collaboration of regional research, policy and advocacy organizations, including Empire Justice Center in Rochester, documents a dramatic decrease in low-cost home loans made between 2006 and 2008, and highlights that communities of color were hardest hit by the drop-off in lending.

The report, Paying More for the American Dream IV, examines the mortgage lending patterns of banks, including the nation’s four largest financial institutions, in seven metropolitan areas in the United States: Boston, Charlotte, Chicago, Cleveland, Los Angeles, New York City, and Rochester, NY.

“After inflicting harm on neighborhoods of color through years of problematic subprime and option ARM loans, banks are now pulling back at a time when communities are most in need of responsible loans and investment,” said Geoff Smith, Senior Vice President of the Woodstock Institute. “We are concerned that we have gone from a period of reverse redlining, to a period of re-redlining.”

Key findings of the report include:

• Prime mortgage lending in communities of color declined more than twice as much as it did in predominantly white communities. While prime lending decreased between 2006 and 2008 in all seven metropolitan areas, the decline in lending was much greater in neighborhoods where people of color comprised 80% or more of the residents. These neighborhoods experienced a 60% decrease in lending, compared to a 28% decrease in lending in neighborhoods where people of color comprised less than 10% of the residents. In Rochester, prime lending in neighborhoods of color declined by 53%, compared to a 25% decline in white neighborhoods.
• The drop in prime lending for neighborhoods of color was even steeper for refinance loans that allow borrowers to take advantage of lower interest rates or access home equity. Among the seven cities, such lending declined by 66% in neighborhoods of color, but declined by a mere 14% in white neighborhoods. Refinance lending in Rochester neighborhoods of color declined by almost 71% while declining by only 20% in predominantly white neighborhoods.
• Between 2006 and 2008 the share of prime refinance loans made in communities of color dropped 35% whereas the share of these loans made in predominantly white communities increased 11%.
• The nation’s four largest banks—Bank of America, Citibank, JPMorgan Chase and Wells Fargo—demonstrated similar lending patterns, targeting white communities for new refinance loans while pulling out of neighborhoods of color. Prime refinance lending by these four banks in white communities among the seven cities increased by 32.2% between 2006 and 2008, but decreased in neighborhoods of color by 33.1%. In Rochester, prime refinance lending by these four banks declined by a relatively modest 15% in white communities compared to the 89% decline in communities of color.

“We are deeply troubled by the findings of this report.  Banks that took TARP funds made significantly fewer loans in the very neighborhoods most in need of credit,” said Barbara van Kerkhove, Researcher/Policy Analyst at the Empire Justice Center. “Part of the rationale for giving taxpayer funds to the banks was so they would continue to lend and invest in these neighborhoods.”

Key Report Recommendations include:

• Expanding and modernizing the federal Community Reinvestment Act (CRA) so financial institutions cannot evade its goal of increasing lending, investment and services in low and moderate income neighborhoods, consistent with safety and soundness.
• Creating a strong national Consumer Financial Protection Agency (CFPA) to protect families and communities from abusive financial products and to prevent a future crisis from further destabilizing already struggling families and their communities.
• Updating the federal Home Mortgage Disclosure Act (HMDA) to include additional data necessary to keep pace with changes in the financial services industry and to achieve its stated goal of helping to identify discrimination in lending.
• Prioritizing federal and state fair lending enforcement in lending and loan modification programs to ensure that historically redlined neighborhoods are not subjected to continuing redlining practices.
• Pushing banks to focus on repairing neighborhoods hard hit by foreclosure by working to keep families in their homes, mitigating the harmful effects of foreclosure, and significantly increasing investment in neighborhoods so that residents, small businesses and community institutions can thrive.

Collaboration
The Paying More for the American Dream series is a collaborative effort of the California Reinvestment Coalition, Community Reinvestment Association of North Carolina, Empire Justice Center, Massachusetts Affordable Housing Alliance, Neighborhood Economic Development Advocacy Project, Ohio Fair Lending Coalition, and Woodstock Institute. This is the collaboration’s fourth annual report examining systematic inequalities in the housing finance system and their impact on lower-income neighborhoods and communities of color. The first report, released in March 2007, examined disparities in mortgage pricing by several of the country’s largest mortgage lenders that offered both prime and subprime loans. The second report, released in March 2008, looked at the geographic lending patterns of a set of defunct subprime lenders whose loans largely fueled the wave of foreclosures that is currently devastating communities across the country and found that these loans were highly concentrated in communities of color and lower-income communities. The third report, released in April 2009, analyzed and compared the lending patterns of lenders that were covered by the Community Reinvestment Act with lenders that were not covered by the CRA.

About Empire Justice Center
Empire Justice Center is a nonprofit legal services organization in New York that provides support and training to legal services offices statewide, undertakes policy research and analysis, and engages in legislative and administrative advocacy. Empire Justice also represents low-income individuals, as well as other classes of New Yorkers, in a range of poverty law areas including consumer law.

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For more information or to arrange interviews, please contact one of the following collaborative organizations:

Charles Bromley, Ohio Fair Lending Coalition (216) 410-3879
Tom Callahan, Massachusetts Affordable Housing Alliance (617) 822-9100
Alexis Iwanisziw, Neighborhood Economic Development Advocacy Project  (212) 680-5100
Tram Nguyen or Kevin Stein, California Reinvestment Coalition (415) 864-3980
Adam Rust, Community Reinvestment Association of North Carolina  (919) 667-1557 x31
Geoff Smith, Woodstock Institute  (312) 368-0310 x2027
Barbara van Kerkhove, Empire Justice Center (585) 295-5815

Supporting Documents

• Paying More for the American Dream IV- Final