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How a legal loophole benefits neighborhood newcomers while leaving longtime residents behind

Since banks constricted credit after the 2008 housing bust, they have been slowly increasing the amount they’re lending. But this economic prosperity has not reached everyone. Watch part two of a two-part series by Aaron Glantz of Reveal.

Read the Full Transcript

  • Judy Woodruff:

    Tonight, we continue a two-part series investigating why blacks and Latinos seem to have a harder time getting home-related loans.

    Since banks constricted credit immediately after the 2008 housing bust, they have been slowly increasing the amount they’re lending. But this financial leg up has not reached everyone.

    From Reveal at the Center for Investigative Reporting, Aaron Glantz returns to Philadelphia.

  • Aaron Glantz:

    Point Breeze is undergoing a transformation. Named by Zillow as the hottest neighborhood in Philadelphia in 2017, it is one of the only majority black communities where banks are doing a lot of lending.

    Banks are even making special loans on generous terms to people here, thanks to the 1977 Community Reinvestment Act, a landmark law designed to get banks to extend all types of loans to low-income borrowers and in low-income neighborhoods.

    But some longtime residents here say they’re being left behind.

  • Adrienne Stokes:

    It’s not balanced. It should be equal. You understand what I’m saying? And just — for me, that is just discrimination. It’s not right.

  • Aaron Glantz:

    Adrienne Stokes has owned her Point Breeze home for decades. She lives here with her pit bull, Bootz (ph). There is a lot of new investment in the area and property values have skyrocketed. But normal wear and tear has taken a toll on her house.

  • Adrienne Stokes:

    See how this window is off-track? They’re off-track.

  • Aaron Glantz:

    So, she went to a local bank, Firstrust, the only one with a branch in the neighborhood.

  • Adrienne Stokes:

    I went there to get a home equity loan, OK, because I wanted to fix up my home.

  • Aaron Glantz:

    She was looking for $30,000 and, because of rising property values, had $200,000 of equity in her house. She was current on her mortgage, and she has a steady income.

  • Adrienne Stokes:

    Never, you know, did no refinancing the home. I just wanted a home equity loan to fix up my house. And I couldn’t believe they denied me.

  • Aaron Glantz:

    She was told her credit score wasn’t good enough. Without the loan, she’s afraid the condition of her house will only get worse.

  • Adrienne Stokes:

    Here you go. Look. Yuck. All these wires drive me crazy. It’s like, oh, my God, I don’t know what’s going on. I’m just scared.

  • Aaron Glantz:

    We reached out to Firstrust, but company officials declined to be interviewed.

    Under the Community Reinvestment Act, banks are required to make loans to qualified buyers in low-income neighborhoods, like Point Breeze, provided the bank has a branch that takes deposits anywhere in that city.

    But banks don’t have to give them to the people who already live there. The 40-year-old law didn’t anticipate that historically black neighborhoods would be sought out by young white homebuyers.

    While it’s hard for longtime residents, who are overwhelmingly African-American, to get loans, it’s much easier for white newcomers like Beth Warshaw.

  • Beth Warshaw:

    I was definitely aware that I was like, I’m a white person moving into this neighborhood that is historically not white, and what is that going to look like?

  • Aaron Glantz:

    Warshaw realized that she had some financial challenges. Since moving back to Philadelphia, she’d been unemployed for nine months and only just found a job. So, she couldn’t show a stable work history.

  • Beth Warshaw:

    I needed someone who understood the limitations of my bank account. Even the amount that I had is still, like, a very small amount when it comes to buying a house in this town or in any town.

  • Aaron Glantz:

    Banks can pass their Community Reinvestment Act test by lending to anyone in a low-income neighborhood, regardless of race. Here in Point Breeze, federal lending data show that financial institutions granted 806 loans to whites between 2012 and 2016 and rejected them 152 time. On the other hand, African-Americans got 275 loans, and were rejected 471 times.

  • Angela McIver:

    It’s a bit disheartening to hear that the very people who were probably the ones that were excluded or redlined are the ones that are not benefiting from the banks’ corrective actions.

  • Aaron Glantz:

    Angela McIver heads the Fair Housing Association of Southeastern Pennsylvania. She says the way these banks meet their community lending obligations feeds gentrification and leads to displacement.

  • Angela McIver:

    It is forcing African-Americans out of their homes. African-Americans aren’t able to move in at the same rate as whites. And, you know, it’s unfair.

  • Aaron Glantz:

    And that’s not the only gap in the law. Here in Philadelphia, an increasing share of the home loan market is controlled by mortgage brokers, who are not regulated by the Community Reinvestment Act at all. Warshaw got her loan from one, Trident Mortgage Company.

  • Man:

    Remember, your Trident Mortgage consultant is there to answer all your questions.

  • Aaron Glantz:

    It helps more people buy homes in Philadelphia than anyone else. They made nearly 1,000 conventional home purchase loans in 2016, and only 28 of them were to African-Americans.

  • Beth Warshaw:

    It makes me angry. Somebody is not asking themselves the right questions, including me. I wasn’t asking those right questions either.

  • Aaron Glantz:

    And rather than getting their business through a local bank branch, it gets most of its clients through referrals, which can lead to a lack of diversity, and ultimately racial imbalances.

    So, you’re white. Your real estate agent was?

  • Beth Warshaw:

    White.

  • Aaron Glantz:

    And your broker at Trident was?

  • Beth Warshaw:

    Definitely white.

  • Aaron Glantz:

    So, everyone in the whole chain?

  • Beth Warshaw:

    Yes.

  • Aaron Glantz:

    Here in Philadelphia, there’s been a dramatic growth of lending from unregulated mortgage companies. An overwhelming majority of those loans are going to white homebuyers in a city that is 40 percent black.

  • Beth Warshaw:

    It struck me how white everything was. I don’t think I realized I had any other alternatives.

  • Aaron Glantz:

    We asked Trident, which is part of Berkshire Hathaway, why a lender with offices all around the city grants so few loans to African-Americans. But company officials declined to be interviewed.

    The Community Reinvestment Act applies to only banks with branches, so mortgage companies like Trident don’t have the same requirements to lend in low-income communities.

    Tom Curry was in charge of enforcing that act for five years under President Obama as comptroller of the currency.

  • Tom Curry:

    I think after 40 years, it’s shown its age. A lot has changed in the banking industry.

  • Aaron Glantz:

    This month, the newly-appointed comptroller, Joseph Otting, said he would be seeking formal input to update the law. We requested an interview with Otting. He declined to comment, but said in a statement he was interested in modernizing the 40-year-old act so that it would encourage banks to invest in and meet the needs of their communities.

    Otting is no stranger to the banking industry. From 2010 to 2015, he served as CEO of OneWest Bank. When he was in charge, government lending records show only 1 percent of home purchase loans went to African-Americans and 3 percent to Latinos. This month, the Comptroller’s Office met with the American Bankers Association at the Treasury Department to get their recommendations on how the act should be changed.

    In a report the association submitted in December, they complained of overly restrictive concepts of community and economic development under CRA and said the rules should be loosened.

    All of that lobbying is likely do little to help Adrienne Stokes in Point Breeze. While you can see construction on just about every block, very little lending has been going to longtime residents of the neighborhood.

    The home two doors down, where a black family lived for three decades, has been demolished, is now a hole in the ground, sold to a local developer, who plans to build a three-story house with a roof deck and a cellar. If the trends of recent years hold, this house will likely go to a white newcomer.

  • Adrienne Stokes:

    But for me, I’m not going anywhere. I will be right here. Maybe they might change their mind, and I might get this loan. And that would be a blessing.

  • Aaron Glantz:

    Stokes says, like her neighbors, her house gets offers from developers, but she won’t sell the home she’s fought so hard to keep.

    For the “PBS NewsHour,” I’m Aaron Glantz in Philadelphia.

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