And if the Fred Steeds of Westwood can’t get loans, the neighborhood doesn’t stand a chance.
A Dayton Daily News examination of data from the Home Mortgage Disclosure Act shows black loan applicants are twice as likely to be turned down for loans even when their incomes are comparable. The newspaper also found that high-income black applicants are turned down more often than low-income whites. And the disparity in lending is most prominent in neighborhoods like Steed’s, where 99 percent of the residents are black and almost 80 percent who apply for loans are rejected.
Steed’s story illustrates the problem.
In 2006, he took out a $27,000 mortgage and an equity line of credit on the circa-1920, three-bedroom, one-bath home to do some renovations. He gutted and completely remodeled the ground floor of the house.
For that loan, he said, the 1,344-square-foot home was appraised by a firm working for Fifth Third Bank at $70,000. Two years later, the six-year reappraisal by Montgomery County Auditor Karl Keith’s Office came in at $63,600.
But when he applied for a refinance with Fifth Third last summer, the appraisal was a jaw-dropping $14,000. The local bank official who first offered him the loan said his application was denied.
“Well, you can imagine how I felt sitting over there in that office,” Steed said, shaking his head. “That house is worth only $14,000? Get out of here.”
Steed has talked to a number of bank officials about his situation, and although his initial shock and outrage has dissipated somewhat, he said he’s still plenty “annoyed.”
But he doesn’t think overt racism played a role in the denial.
“These decisions are not being made in the local communities,” he said. “I think these decisions are coming out of Cincinnati based upon these computer models.”
Steed said he was assured by the bank that redlining — refusing loans to minority communities — wasn’t taking place. But he’s not convinced.
“If the question is, is there racial profiling on an individual basis? I would say no,” he said. “But is there racial profiling based on communities? That’s open to debate.”
What the banks say
Lea Ann Stevenson, marketing director for Fifth Third Bank, said redlining was “absolutely not” being used by the bank.
She could not comment specifically on Steed’s case, but said Fifth Third uses “very standard policy and procedures” in evaluating loan applications. Every denied application, she said, gets a secondary review to make sure all eligible, qualified applicants get credit at the best terms possible.
“I really feel strongly that we’re absolutely not, we would never consider race or any other factors in that credit decision,” Stevenson said. “We want to lend to people. But we want to do that responsibly, too.”
But Fifth Third, which reported the largest number of loan applications in the eight-county Dayton region during 2008, had significant racial disparities in its denial rates and high-cost loan rates, the Daily News analysis found.
For example, blacks were denied home purchase loans at a rate more than 10 percentage points higher than whites at every income level. In addition, upper-income blacks were denied loans 20 percent of the time, while low-income whites had a denial rate of 17 percent. Several banks studied by the newspaper showed similar or even worse disparities.
One of them was Wells Fargo Bank. At Wells Fargo, seven in 10 blacks in the upper-income bracket were denied, while only 35 percent of low-income whites were denied, the newspaper found.
Stevenson and Wells Fargo spokesman Tom Goyda did not dispute the newspaper’s findings but said race does not play a part in their lending decisions.
Stevenson said a “whole host” of factors other than race — such as credit history, debt-to-income ratio and loan-to-value ratio — play into the differences.
The newspaper analyzed information lenders are required to report about each loan application. The public does not have access to the other criteria cited by bank officials.
“Most of the factors that would come into play aren’t part of the HMDA data,” Goyda said.
Experts doubt lenders
Some housing experts are skeptical of the banks’ explanations.
“I’m sure it explains some of the disparities, but it doesn’t explain all of it,” said Jeff Dillman, executive director of the Cleveland-based Housing Research & Advocacy Center. “And I don’t want to go with this, ‘Just trust us. We know what we’re doing. This is too complicated for you.’
“The banks haven’t earned trust in the last few years about what type of lending is going on and who’s getting what types of loans.”
Dillman said his organization has consistently found in Ohio’s metropolitan areas racial disparities similar to those uncovered by the Dayton Daily News.
“The federal government has known about this for many years,” he said. “And these disparities exist not only in Ohio, but in most metropolitan areas in many states of the country.
“The fact that there haven’t been vigorous investigations of this I think is very disturbing.”
Richard Stock, director of the Business Research Group at the University of Dayton, also questions the answers given by banks.
“The banks persist in saying, ‘Well if you had credit scores, then you could easily see why it is,’ ” said Stock, who annually conducts an analysis of the HMDA data for the city of Dayton. “But of course, that is in the context of them having fought tooth-and-nail against the reporting of credit scores as part of the ... process. So one has to be suspicious of the claims being made.”
Stock said many studies have clearly established that blacks are treated differently in the home-buying and lending process. But what is “most frightening,” he said, is that banks have cut off virtually all lending to minority neighborhoods, even subprime loans that allow homeowners with troubled credit histories a chance to borrow money at a higher interest rate.
“That means we’re right back where we started from in these profound racial differences,” he said.
Whatever the reasons behind it, the credit squeeze prevents homeowners like Jeanette Pryor from consolidating debts and lessening their financial burdens.
The 75-year-old retiree from Citizen’s Federal Savings and Loan was denied a refinancing loan with Bank of America.
Pryor, who lives up the block from Steed, was hoping to lower her 7.5-percent interest rate, because her monthly mortgage payment of $640 is more than half her income.
“By the time I pay that and DP&L and Vectren and telephone and a couple other little bills, I have nothing left over,” said Pryor, who lives with her daughter in the house her parents left her.
She admits her credit is damaged. She co-signed car loans for her granddaughters, who then defaulted. But she said she’s never been late on a mortgage payment, which is taken directly from her bank account.
“It’s hard at my age,” she said. “My income is limited. I can’t get any credit. I’d like to do a lot of things around here, but I just can’t afford it.”
A block away on Anna Street, Bartina Wortham is unable to get credit to keep her grandmother’s house out of foreclosure.
Wortham, who works a full-time job as a security officer and a part-time job with Senior Resources, needs only $13,000 to settle the defaulted loan of her grandmother — who is ill. In January, Wells Fargo rejected her loan application.
“She (the loan officer) said my credit score wasn’t bad, but that I had two judgments on my credit report,” Wortham said.
Now Wortham, her children and her older brother are going to have to move out.
“Pretty soon the bank is going to take it,” she said. “It will go up to foreclosure if they don’t receive the settlement money.”
Wortham said she didn’t sense race was the issue.
“I guess because I don’t want to believe that people are still racist,” she said. “I don’t know. No, I don’t feel that way. But it could just be not wanting to believe it.”
Real estate broker Veronica Bedell-Nevels said she’s seen subtle differences in how lenders treat people of color.
“I cannot give you the name of someone who was actually denied for racial reasons,” Bedell-Nevels said. “I can tell you people are denied because of the stipulations that are put on the terms of loans.”
Home values nosedive
Plummeting home values may be a familiar story in many neighborhoods, but in Dayton’s predominantly black neighborhoods the drop is precipitous, making it even harder to get a loan.
Bedell-Nevels blames what she calls low-ball appraisals — such as valuing Steed’s house at $14,000 — for some of the lending disparities in black neighborhoods.
She said she has had several deals where a buyer has agreed to a purchase price, but then a low appraisal scotches the loan and the deal.
“Appraisers are allowed to denigrate properties in black communities,” she said.
After Steed got the $14,000 appraisal, he appealed his tax valuation with the county auditor’s office — and got it lowered to $51,700.
Sam Braun, a spokesman for Montgomery County Auditor Karl Keith, said he’d “have to question” the bank’s appraisal.
“If he put $27,000 in that property, and we have it valued over $50,000 and it’s in great condition.... I mean, a vacant, boarded up house is worth $14,000? The bricks are worth something.”
Ron Stickelman, owner of the firm that appraised Steed’s home for Fifth Third, sticks by the appraisal.
The problem, he said, is the Westwood neighborhood where Steed lives. Stickelman, who owns the Dayton-based Stickelman, Schneider & Associates, the largest appraisal firm in Ohio, provided data on sales during the last 15 months in that neighborhood. The average sales price of the 85 properties sold there was $8,077. The maximum sales price was $46,000.
Steed’s house may be better maintained than all those sold, he said, but “a property is not an island in itself.”
Looking at sales data from four years ago, Stickelman said his firm would have appraised Steed’s house at between $35,000 and $40,000.
“So Mr. Steed gets exploited,” he said. The appraisal that he said was inflated in 2006 gave Steed an exaggerated estimate of his home’s worth and allowed him to borrow too much against a property that, according to Stickelman’s estimates, is deeply underwater. Blacks are more likely to be denied loans than whites, he said, not necessarily because of the color of their skin, but because of where they live.
“Typically African-Americans live in urban Dayton,” he said. “And since urban Dayton is most impacted by this type of practice, then African-Americans are most affected.”
Overt racial discrimination in lending was outlawed in 1968 by the Fair Housing Act. Continued discriminatory lending practices, including redlining, caused Congress in 1977 to pass the Community Reinvestment Act.
Discrimination today is more subtle, said Alfred Patterson, housing manager for CountyCorp., the county’s nonprofit housing arm.
“I won’t doubt for one moment that there still exists racially motivated discrimination in the way homes are sold or the way mortgages are structured,” Patterson said. “But I think at this point the discrimination stems from opportunity more so than institutionalized racism. I think the housing market reflects a lot of the residual effects of discrimination.”
Stock, however, said both appear to be occurring.
“We know that black borrowers do differentially face discrimination,” Stock said. “Whether the people who are doing the discrimination are aware they’re doing it is, at one level, irrelevant.”
Stock said a young black couple may not have the family wealth to help them get started, because they are the first generation to make a qualifying income.
“Where did the mortgage down payment come from when my wife and I went to buy our first home?” Stock said. “Well, her parents lent us the money. So that’s what’s not happening for that black couple of the same income.”
Jim McCarthy, executive director of the non-profit Miami Valley Fair Housing Center, said the 33-year-old Community Reinvestment Act needs to be modernized.
“How we financed housing then was dramatically different from what it is today, and the legislation has never caught up with that,” he said. “We need to expand the scope of the CRA to include non-bank financial institutions that make mortgage loans, such as credit unions, consumer finance and even insurance companies.”
In the interim, he said, the federal government has “failed tremendously” to systematically address the problem.
And they’re not the only ones.
“It’s obvious that our lending institutions continue to fail to meet the obligations to African-American and other minority communities, without any legitimate explanation as to why,” McCarthy said.
For now, Steed will have to live with his existing mortgage of 6.1 percent interest.
He can afford it, and that’s partly what makes him angry. Banks — especially those bailed out by taxpayers — have an obligation to invest in all neighborhoods, he said.
“They got money from the federal government. Maybe they need to commit certain dollars to make loans to those who are credit-worthy.”
Contact this reporter at kmccall@ DaytonDailyNews.com or (937) 225-2393.