The chairman of a local bank has already said it best: "Those numbers are damning," said Frank Burke of Bank South. "Those numbers are mind-boggling."
The numbers Burke was referring to came from an exhaustive study by The Atlanta Journal-Constitution of home-purchase and home-improvement practices of local banks and savings-and-loan institutions. A series by reporter Bill Dedman showed a disheartening gap in the number of loans received by white residents and black residents from the city's major banks and savings and loans. Not only do the financial institutions shun low-income minority neighborhoods; they neglect affluent black areas. Whites receive five times as many home loans as blacks of the same income.
The study was careful to compare neighborhoods of similar homes, rates of growth and levels of income. Still, the figures are astonishing. Financial institutions return about 9 cents of each dollar deposited by blacks in home loans to black areas. They return 15 cents of each dollar deposited by whites in home loans to white areas.
Only two of the 88 institutions studied agreed to disclose their racial figures on home loan applications. While blacks made proportionately fewer applications for those loans, they were also rejected four times as often as whites by the two banks.
Banks shouldn't lend money to poor risks, should they? No. But that doesn't appear to be the problem in affluent black neighborhoods. Citizens Trust Bank, a black financial institution, makes the majority of its home loans in black areas. And it has had a lower default rate on real estate loans than the city's six largest banks.
The effect of racially uneven practices is devastating. Home ownership is the main vehicle by which American families accumulate wealth. The practices of the city's major financial institutions result in a myriad of financial setbacks for blacks: 1) They must go to unregulated mortgage companies, which often charge higher interest rates. 2) They cannot easily get the money to improve their property, so some neighborhoods decline. 3) The tendency of white appraisers to undervalue property in black areas -- whether of modest income or high -- means that those black homeowners cannot accumulate much equity. That helps explain why the net worth of the typical American white family is 12 times greater than that of the average black family.
If residents of affluent black areas have trouble securing real estate loans, then those in low-income neighborhoods have much more. While the banks shouldn't make bad loans, they do have an "affirmative" obligation, under the Community Reinvestment Act, to help meet the credit needs of their local communities, including low- and moderate-income neighborhoods. Think how much the inner city could contribute to the metro area if it could repair its aging housing stock (adding to the tax base), make homeowners of renters and turn those apartments over to those now homeless.
The problem isn't hard to fix. The chief executive officers (CEOs) of the major banks and savings and loans can call in their loan officers and say they wan t a drastic increase in their home-improvement and home-purchase loans in black areas. The CEOs can reopen branches in black neighborhoods. They can insist their loan originators court real estate agents who work in black areas. If racism isn't the motive of the current disparities, then CEOs have it in their power to show quickly that it isn't.Go to the next article or back to the Color of Money index or Power Reporting
Reprinted with permission from The Atlanta Journal and The Atlanta Constitution. Further reproduction, retransmission or distribution of these materials without the prior written consent of The Atlanta Journal and The Atlanta Constitution, and any copyright holder identified in the material's copyright notice, is prohibited.
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