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How a legal loophole benefits neighborhood newcomers while leaving longtime residents behind
Ten years since the economic recession, lending has returned for many Americans. Yet the gap between white and black homeownership is wider now than it was in 1960, with signs of modern-day redlining showing up across the country. Special correspondent Aaron Glantz reports as part of a year-long investigation by Reveal from The Center for Investigative Reporting.
It's been 10 years since the economic recession, and credit has slowly returned for most Americans.
By 2016, the number of conventional mortgages had risen 95 percent since the housing bust. And yet some Americans are still being left behind. The gap between white and black homeownership is wider now than it was in 1960.
Tonight, the first of a two-part series, results of a yearlong investigation from Reveal, a program produced by the Center for Investigative Reporting.
As Reveal's Aaron Glantz reports, black and Latino homebuyers in some cities seem to have a harder time getting a home mortgage.
Brooklyn native Rachelle Faroul moved to Philadelphia in 2015 hoping to buy a home here.
I was like, I'm going to try this thing. I have got a lot of gumption.
She made a good income as a computer programmer and had enough for a down payment. Her potential lender, Philadelphia Mortgage Advisors, was encouraging at first.
But the lender worried her income could be unstable, since she was a contractor. So, Faroul suggested her mother co-sign.
Because she is a retired schoolteacher. Specifically, she worked in New York City for 35 years. Her pension is great.
But Faroul was told that wasn't enough to offset her mother's student loan debt from a Ph.D.
I got shot down left and right.
Lenders look for applicants with debt payments roughly 36 percent or less of their income. So, Faroul got a new job with the University of Pennsylvania with a salary allowing her to afford the two-story row house she found a short walk from the university.
I wanted this really badly.
But that still wasn't enough. When she applied for a loan again, this time with Santander Bank, they also rejected her. Her credit score had plunged 50 points because of a single delinquent electric bill.
She paid the bill as soon as Santander flagged it, but the bank still said no. Faroul started to suspect this had to do with her race.
You know, black people in this country have to be twice as good to get half as much. And I couldn't even get half, you know? They wouldn't give me anything.
Turning Faroul down because of her race would be illegal. It's been illegal for 50 years.
President Lyndon Johnson:
Fair housing for all in this country is now a part of the American way of life.
The 1968 Fair Housing Act was a response to redlining, a racist lending practice where the federal government colored minority neighborhoods red on maps, labeling them hazardous to lend in.
In 1977, President Carter went further with the COMMUNITY REINVESTMENT ACT, requiring banks to lend to qualified borrowers in low-income communities in cities where they had branches.
But these laws have not solved the problem. After the 2008 recession, banks tightened their lending standards. Ten years later, while lending has return for many Americans, Reveal's analysis shows what looks like modern-day redlining is showing up across the country.
We have places like Washington, D.C., places like Tulsa, Oklahoma, Santa Fe, New Mexico. These are the places where they are more likely to be denied because of who they are.
Nearly 50 years after the Fair Housing Act, Reveal data journalist Emmanuel Martinez found some significant racial disparities.
We looked at nearly 31 million mortgage records, nearly every loan application filed with the government in 2015 and 2016. In 61 metros across the country, applicants of color are more likely to be denied a conventional mortgage.
Banks don't share credit scores. They say that is proprietary. But by using other information the government requires be disclosed, Reveal found statistically significant differences by race.
My analysis includes nine different factors. Among them are the applicant's income, the size of the loan, and specific information about the neighborhood that they are looking to buy in.
Here, we have the likelihood of denial. So, black applicants in Philadelphia are almost three times as likely to be denied a conventional mortgage.
Reveal found this pattern in dozens of cities. Philadelphia was one of the largest. That means that a black applicant and a white one with similar financial profiles will likely have very different outcomes.
This wasn't true for just for one bank, but for the lending industry as a whole. The Mortgage Bankers Association wouldn't go on camera for this story, but in a statement, it said that the data available under the Home Mortgage Disclosure Act is not sufficient to make a determination regarding fair lending.
And the American Bankers Association said that without access to borrowers' credit history, the data cannot paint a complete picture.
Unfortunately, credit score and an applicant's total debt-to-income ratio aren't part of this publicly available data set, but it's those same financial institutions that have lobbied from keeping it away from researchers, from academics, from journalists like me, who want to study those disparities.
Sen. Tom Scott, R-S.C.:
I believe that we are better off having more information released in aggregate on credit scoring and those folks who get loans to make sure that there is no discrimination.
Republican Senator Tim Scott of South Carolina says releasing that data would make the industry more transparent.
But it wouldn't solve a different problem. He says credit scores penalize people of color. He's introduced a bill to fix that.
So what we're trying to do is bring to light all those folks who are paying those bills on time, and yet it's not showing up on their credit scores. Your electric bill, unless you're doing something bad, doesn't show up. Your cell phone, unless you do something bad, doesn't show up.
People of color are typically the folks who will be disproportionately impacted.
In almost every city in America, African-Americans and Latinos were denied home loans at higher rates than whites. We could not statistically prove a relationship between race and denial in many, but, in 61, including Philadelphia, our analysis found race played a role.
Neighborhoods with very few loans had the highest proportion of black and Latino residents.
You see, there are beautiful homes up here, and people work very hard to maintain their properties.
Angela McIver heads the Fair Housing Association Of Southeastern Pennsylvania. In the era of redlining, the government shaded this neighborhood, Germantown, blue and green, marking it as a desirable area to lend in.
Over the decades, the demographics shifted from white to black. And, today, banks deny more loans here than they approve.
You see beautiful stone facades. You see garden patios, all of the trappings of middle-class life. And the banks are just MIA.
It's like a glass ceiling. It's like, OK, we will allow you to go this far, but then you hit the top of the ceiling, you're not going to go any further. And that's upsetting to me.
After Rachelle Faroul began to wonder if race factored in her loan denial, she decided to use a new strategy.
In order to be a be considered a good applicant, I needed to have a white person or someone who's white-adjacent vouch for me.
This time, she asked her girlfriend, Hanako Franz, who is half-white and half-Japanese, to apply with her. Franz was working part-time at a grocery store. One of her most recent biweekly paychecks was $162.
And, at the time, your financial situation was unstable.
Oh, yes, it was terrible.
It was so bad.
It was terrible. I was borrowing money from my sister. Rachelle paid my health insurance at one point because I didn't have enough money to pay it.
But, for Santander Bank, the final lender Faroul tried, none of that seemed to matter. Franz had a good credit score. And once she came on board, it all went smoothly, even though Franz couldn't provide proof of a stable work history.
They were like, we need two years. And I was just like, I can't give that to you. And they were like, all right, we will move forward.
We reached out to the two places that Faroul approached for loans. Santander says that, while they sympathize with Faroul, her loan application was managed fairly.
Philadelphia Mortgage Advisors declined to comment specifically on Faroul's loan application. Both companies say they are committed to fair lending and adhering to existing laws.
The Treasury Department's comptroller of the currency is charged with ensuring major national banks follow the Community Reinvestment Act. Tom Curry held that job for five years under President Obama and conducted more than 1,600 community lending reviews on banks.
Nearly every one, 99 percent, got a satisfactory or outstanding rating.
How can everyone be getting this satisfactory rating?
I think you have to look at each individual bank and their individual record to see how well they're serving their communities.
But Curry wouldn't discuss any individual banks or their records with us. Since stepping down as comptroller, he's been working at a law firm advising some of the same banks he regulated. He says he still wants make sure banks are lending responsibly.
You have an obligation to lend in low- to moderate- income communities, but you have to do it in a safe and sound manner.
Mobile, Alabama; Ocala, Florida; Greenville, North Carolina, all of these cities where our statistical analysis shows the reason you would be denied for a loan is the color of your skin.
I think that the results from your studies are not acceptable from the standpoint of what we want as a nation and to make sure that everyone shares in economic prosperity.
We also shared Reveal's analysis with Senator Scott.
Well, we certainly have made a lot of progress over the last 50 years. The question is, is there more progress to be made? The answer is yes.
One of the ways you make progress is looking at the current foundation on which progress has been made. And if it needs to be updated, we update it.
Faroul and Franz closed on their house a few weeks after Franz signed on. Last winter, they both started moving into their new home. But with the good news, there is a reminder of the barriers Faroul faced.
I have a hard time telling people that we bought a house, because their response is always, congratulations. This is not a feel-good story.
And the whole point about this is that there is hidden privilege and hidden discrimination, you know, that still exists and makes people's lives harder every single day.
Faroul says her biggest fear is that, years from now, she will look around and be the only black person left on the block.
For "PBS NewsHour," this is Aaron Glantz in Philadelphia.
Tomorrow, our series with Reveal continues with a report on how the gentrification of neighborhoods is making it difficult for some longtime residents to take out home equity loans.
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