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Ellen Belcher is the Dayton Daily News opinion pages editor. She writes about state government, education, the environment, higher education and all things Dayton.
Martin Gottlieb is an editorial writer and columnist for the Dayton Daily News opinion pages. He focuses on the political process itself and does such national issues as war, the economy, taxes and Social Security, as well as a hodge-podge of local and state issues.
Scott Elliott is an editorial writer and columnist for the Dayton Daily News opinion pages. He writes about education, city and suburban issues, politics, business, workforce and consumer issues.Home > Blogs > A Matter of Opinion > Archives > 2010 > April > 14
Wednesday, April 14, 2010
Editorial: Lender can bring down neighborhoods
There are a lot of people today who don’t know the word “redlining.” That’s because the practice was exposed, criticized and made illegal.
In the 1970s and into the ’80s, it was a word that was much in the news. In some places, it was as understood as the phrase “driving while black” is today.
The word was shorthand for a practice by banks and real estate agents whereby they didn’t lend money for mortgages, or try to sell homes, in certain neighborhoods, usually black and/or poor neighborhoods. The offense limited home ownership, and it promoted segregation. And it was discrimination.
On Sunday, April 11, the Dayton Daily News published stories about an analysis of a half-million Ohio home loan applications. Staff writer Ken McCall did both shoe-leather and computer-assisted reporting to determine who is getting home loans and who is not, based on data that banks are required to submit to federal regulators.
The findings: Blacks are much more likely to be denied home loans than whites, and that finding is true even after accounting for income.
In fact, blacks were refused loans at a rate more than 10 percentage points higher than whites at every income level. Often the determining factor was where the home is situated.
Is redlining back?
Even those who have been denied loans said they didn’t believe someone was looking at the race of a applicant and rejecting those from blacks. In most institutions, there would be safeguards against that sort of illegal, repugnant behavior.
The better explanation is that many banking decisions are dictated by rigid formulas or computer programs.
From home loans to credit cards, lenders routinely make decisions that mystify customers. How often have you heard about people who can’t get a loan because they’ve never had debt (so the bank isn’t sure if they’ll make their payments) and others who can’t get credit because they owe too much, though they’ve never missed a payment?
The recent collapse of the credit markets and the attention that’s brought have exposed all sorts of reckless and nonsensical banking policies.
For example, even at the same time that subprime lenders have been targeting poor and minority neighborhoods for high-cost loans in amounts beyond borrowers’ ability to repay them, traditional banks (some of which have subprime affiliates) have driven hard bargains with those who could afford mortgages and refinancings. They blame the neighborhoods borrowers live in or want to buy in.
Even people with good incomes have been denied loans because of foreclosed on or dilapidated properties nearby.
Of course, banks want to know they can get their money back, should a homeowner decide to sell a property. But if their credit policies all but forbid loans in struggling or marginal neighborhoods, those neighborhoods might never rebound. Credit drives investment.
Appraisals play a big role, too, in determining what level of credit is available. There’s no question that, nationally, banks have, in the past, accepted ridiculously inflated appraisals for properties in well-off neighborhoods. But when it came to poor neighborhoods, they were more demanding about proof of a property’s worth.
That practice opened the floodgates to subprime scoundrels who were all too happy to overstate the worth of properties in low-income neighborhoods, which resulted in literally millions of foreclosures.
Now homeowners who have stayed put through all of this are being punished because abandoned houses are driving down the worth of their properties. If they want to get a new roof or windows, they can’t get a home equity loan; if they want to sell, buyers can’t get loans.
The indisputable point is that lenders can determine whether whole neighborhoods live or die. Bankers are not setting out to bring them down, but the unintended consequences of their policies can still ensure that the poor stay poor or get poorer.
Congress is trying to wrestle with how much to regulate lenders and how to make sure they aren’t allowed to run amok again. The influence they have over the viability of communities and cities has to be part of that discussion.
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