Loophole in law for the poor spurs gentrification
PHILADELPHIA » Jonathan Jacobs had almost no savings, a modest income and a credit report marred by a disputed cellphone bill. But he easily bought a newly renovated row house in Point Breeze, a South Philadelphia neighborhood that’s historically African American.
“It took about 15 minutes” to fill out the paperwork, the career counselor said. “Now I pay less to own a house than I did to rent an apartment. That’s the American dream.”
Jacobs, who is white, got a special home loan from New Jersey-based TD Bank that is designed to help lowincome people and blighted neighborhoods, where banks are required to lend under the landmark Community Reinvestment Act of 1977. The law was designed to correct the damage of redlining, a now-illegal practice in which the government warned banks away from neighborhoods with high concentrations of immigrants and African Americans.
But the law didn’t anticipate a day when historically black neighborhoods would be sought out by young white homebuyers. So instead of lending to longtime black residents of Point Breeze, most of the loans there are going to white newcomers such as Jacobs.
The Community Reinvestment Act “is based on geography, so it’s perfectly possible to comply with CRA and have that pattern,” said Patricia McCoy, a law professor at Boston College who oversaw mortgage policy initiatives for the Consumer Financial Protection Bureau under President Barack Obama. “That’s not the idea, of course, but the law allows it.”
The result is nearly all financial institutions nationwide have passed their Community Reinvestment Act inspections since 2009, even though racial disparities in lending remain as pronounced as ever.
Reveal from The Center for Investigative Reporting analyzed 31 million mortgage records made available under the Home Mortgage Disclosure Act and found 61 metro areas across America where people of color — African Americans, Latinos, Asians and Native Americans — were denied conventional home purchase loans at significantly higher rates than whites. That was true even after controlling for nine economic and social factors, including applicants’ income, the size of the loan they sought and the neighborhood where they wanted to buy.
African Americans or Latinos were more likely to be turned away in major metropolitan areas such as Philadelphia, Detroit, Atlanta and Washington and smaller cities such as Iowa City, Iowa; Sumter, South Carolina; Tacoma, Washington; Vallejo, California; and Little Rock, Arkansas.
“We’re talking about the same issues in 2017 that we were talking about in the 1940s,” said Arlene WaynsThomas, president of the Philadelphia chapter of the National Association of Real Estate Brokers, which represents African American real estate professionals.
In Point Breeze, signs of gentrification abound. White homebuyers stretch at a new yoga studio and brunch at a Zagat-rated bistro where the grilled cheese costs $11.95 and includes shaved apples and quince membrillo.
Banks meet their Community Reinvestment Act obligations by marketing affordable loan products to the neighborhood’s newcomers, who typically are able to get a conventional mortgage with a 3 percent down payment, compared with the industry’s gold standard of 20 percent.
Jacobs’ bank, TD Bank, goes even further, waiving costly mortgage insurance requirements for low down payment loans. But government data analyzed by Reveal — independently reviewed and confirmed by the Associated Press — shows black and Latino borrowers have a tougher time.
Government data shows TD Bank denied a larger percentage of African American and Latino applicants than any other big U.S. bank in 2015 and 2016. During that time, it turned away 54 percent of African Americans trying to buy homes and 45 percent of Latinos — far higher than the industry averages of 16 percent and 13 percent, respectively. In Philadelphia, TD Bank denied twice as many loan applications from African Americans as it made to them.
But none of that is mentioned in the bank’s most recent Community Reinvestment Act assessment, a 362page document released by the Treasury Department’s Office of the Comptroller of the Currency in October 2016. The comptroller called TD Bank’s lending performance good in Philadelphia and rated it as high satisfactory for the whole country. In its review, the agency cited the kind of low down payment conventional loan Jacobs got as having a “positive impact” on its rating.