Urban Redlining

Armed with the added impetus of a new federal law, the Home Mortgage Disclosure Act of 1975, city officials and state legislators are zeroing in on the practice of "redlining", hopefully to end the menace once and for all.

Redlining is a method used by banks, savings and loan associations, and mortgage companies- aided by some insurance firms- to systematically deny mortgages, home repair loans, and home insurance to residents in black and poor minority neighborhoods, and to steer potential home buyers away from what they have labelled "poor risk" areas.

For many years, Detroit has been beset with growing neighborhood decay and property devaluation as a result of redlining. And now, as evidenced by the Congressional mandate, it is a well-publicized fact that redlining is widely practiced in many cities throughout the nation and the effect is devastating.

Lending institutions and insurance firms have been aided in their redlining practices by some real estate agencies and appraisers, black and white, who found the market lucrative. But blacks in the real estate field later learned that the market became more and more restricted, and many black realtors were not accepted in suburbia.

One of the major culprits in the redlining practice is the Federal National Mortgage Association (FNMA), which is supposed to be regulated by the U.S. Department of Housing and Urban Development. But, from all indications, FNMA- popularly known as "Fannie Mae"- is in the "boss" role. Most of the single-family mortgages n the U.S. are bought through the free market system. FNMA s offered mortgages by lending institutions at a given price, based on various bids - according to the going interest rate. FNMA decides what portion of bids to accept, and apparently selects those which offer acceptable yields.

FNMA buys mortgages from primary lenders and reportedly gets them below market rate, since it must operate on a profitable basis. City Council President Cari Levin severely criticized FNMA in a letter earlier this year to the Michigan Congressional delegation and asked for a Congressional investigaron of FNMA's practices.

He pointed out that "It is clear to me from reliable sources that FNMA generally limits its purchase of conventional mortgages to areas where there is little FHA activity. In other words, it makes relatively few purchases in large areas of the city. Thats also a form of redlining."

Levin also cited in his letter FNMA's Form 1004 (a Residential Appraisal Report) which contains "subjective questions" such as those about the "quality of the schools," the answers to which "can easily mask negative attitudes about the city, instead of requesting objective information determining the fate of a loan application."

Levin also referred to FNMA official Gordon Nelson's testimony at a public hearing last January, when he admitted, under questioning by Levin, that there are areas where, in someone's judgment in FNMA, the risks are too high to grant loans. Yet, Nelson refused to identify those areas on a map, as Levin requested.

The redlining practice was conducted on a more subtle basis until integration began creeping into the more affluent white neighborhoods. Even though the blacks who moved in the better all-white areas were so-called "upper middle class," their intrusion was resented. Stories of crossburning and other harassments that took place are documented.

But the influx of other blacks and poor minorities from inner-city areas, where urban renewal had taken its toll, brought on a situation of panic, and the redlining practices became more identifiable. The real jolt came when whites who preferred to remain in Detroit soon discovered that they could not get mortgages and improvement loans.

It was under Councilwoman Erma L. Henderson's leadership that the redlining issue was dramatized last year by the Women's Conference of Concerns, which she founded and serves as Director.

The battle was launched at the Women's Conference on Land Use in April 1975, when a delegation of women who had been selected to look into the redlining situation in Chicago reponed what they had learned to the Conference. Besides citizen activities there, they found that city legislation had been enacted to make public information concerning which banks perpetuate redlining. Moreover, they reported that the law also dictates that the city will not deposit city funds in banks which are guilty of redlining.

That Land Use session was followed by public meetings, including a public hearing, called by the Detroit City Council, where scores of mostly white middle-class citizens testified that they were told by banks and other lending institutions that they would not issue loans anywhere in the inner city. Many other glaring examples of loan denials were reported. These and other facets of the redlining issue were reported in the Feb. 5 edition of the SUN.

(Mrs. Henderson's organization of women - and some men - has won acclaim for stirring the bureaucracy into action regarding the people's rights. Last week, the Women's Conference Proclamation on Human Rights and Dignity was entered into the State of Michigan Archives, during a special ceremony in the office of Speaker of the House Bobby Crim.)

The new federal Home Mortgage Disclosure Act, sponsored by Sen. William Proxmire, became effective June 30, 180 days after it was enacted by Congress last December.

The act falls far short of what opponents of redlining had hoped to achieve. One glaring example is that while it mandates disclosure of the number and dollar amount of each mortgage and home improvement loan made by lending institutions, it does not order disclosure of the loans they deny. Nor does it regulate, in any way, FNMA's activities.

However, the section on Findings and Purposes acknowledges that the problem of redlining exists. It states as follows: "The Congress finds that some depository institutions have sometimes contributed to the decline of certain geographic areas by their failure, pursuant to their chartering responsibilities, to provide adequate home financing to qualified applicants on reasonable terms and conditions.

"The purpose of this title is to provide the citizens and public officials of the United States with sufficient information to enable them to determine whether depository institutions are filling their obligations to serve the housing needs of the communities and neighborhoods in which they are located, and to assist public officials in their determination of the distribution of public sector investments in a manner designed to improve the private investment environment.

"Nothing in this title is intended to, nor shall it be construed to, encourage unsound lending practices or the allocation of credit."

The measure mandates that each lending institution which has a home office or branch office located within a standard metropolitan statistical area, as defined by the Office of Management and Budget, shall compile and make available to the public for inspection, the total number and dollar amount of each mortgage loan.

The new law states that: "This title does not annul, alter, or affect, or exempt any state chartered depository institution subject to the provisions of this title from complying with the laws of any State or subdivision thereof with respect to public disclosure and record keeping by depositor institution."

Several bills have been introduced in Michigan by State Representatives George Cushingberry, Jr., Perry Bullard, and Dennis Hertel. Two, which deal with insurance, would prohibit, as an unfair trade practice, using the location of an insured's residence to determine the rate for a policy issued or offered, and require the Insurance Commissioner to revoke certificates of authority of an insurer who redlines when making or denying mortgage loan applications.

Other bills, in a group of six, would make the same demands and penalties applicable to credit unions and other lending institutions, require disclosure to applicants of the reason for denial of a loan, as well as the name of the lending officer and name of the persons reviewing the applicant. The bills would also allow for an appeal process for the applicant, and would impose penalties on lending institutions which participate in redlining practices.

The penalty for a violation, which would be a felony, would be up to a $50,000 fine, and the lending institution could be prohibited from doing business in Michigan.

While the City Council is in support of the proposed House bills, and has a local ordinance now in the hands of its legal staff in preparation for adoption, several Council members told the SUN that they want the Governor to issue an executive order outlawing redlining, such as the one issued in California.

Council President Levin and Councilwoman Henderson have already been interviewed by Gov. Milliken's Task Force on Redlining and have stressed the need for him to take action.

"The California legislature's Act requires disclosure," Levin said, "but it doesn't regulate. Governor Brown's Executive Order has some teeth in it. Gov. Milliken can do more than anybody with just a stroke of his pen. He has the power to initiate regulation without litigation or legislation."

While Mrs. Henderson agrees that there should be an executive order, she feels state legislation and a city ordinance "won't hurt a bit." "Every little bit helps," she says.

On the Senate side of the Michigan Legislature, a resolution (S. 511 ) establishing a special Senate committee to investigate the practice of redlining has been adopted. The measure, which was introduced by Sen. Earl Nelson of Lansing, gives full authority and subpoena power to the Committee.

Nelson is chairman of the special committee, and members include Senators William Faust of Westland; David S. Holmes of Detroit; Gary Byker of Hudsonville; and Richard Allen of Alma.

Several cities suffering the problems of redlining have reportedly made progress because great numbers of people became fully involved.

One example, according to reports coming in, is Grand Rapids, where citizens mobilized without any federal or state funding. They formed an organization called The East-Town Community Association of Grand Rapids, and began compiling documentation on redlining practices in the southeast section of that city.

According to a spokesperson for the group, a sample of four census tract areas within the same ZIP code area was established. Two of the census tract areas were in working-class, lowerincome neighborhoods. The other two were in middle-class, higher-income areas.

They obtained from the 1969-1975 editions of the Kent County Legal News the names of the homebuyers, the legal description of the homes and lots, and who financed the homes.

Through simple tabulation of the number and dollar amount of the mortgages in the test areas, the group came to the conclusion that redlining does occur and that banks do, indeed, invest in the newer parts of the city. The group found that in the higher-income area, banks had invested nearly $9 million, as opposed to $3 million in the working-class area. Because the test areas were in the same ZIP code area, the group came to the conclusion that tabulating the amount of mortgages by ZIP code areas was ineffective, compared to tabulations by census tracts.

According to L.S. Moore, President of the Deiroit Chapter of the National Association of Real Estate Brokers, many cases which people believe to be redlining are not redlining cases at all. He explained during a SUN interview that in many instances there are problems of bad credit ratings-or no credit rating-which could be overcome by having a co-signer to a mortgage.

Moore called for the gathering of data and statistics which would prove that many areas are safe investments for lending institutions. He said this would be "a solution without funneling attacks on the banks." He said banks have to balance on a thin line of risk and servicing their customers. "They do have logical reasons for the things that they do."

Some 17 Detroit lending institutions have responded affirmatively to a letter from Council President Levin, on behalf of the Council, asking them to sign a pledge against redlining. Four did not reply.

Following responses to the Council letter, the NAACP announced that it would "greenline" any banks who fail to change their redlining practices, meaning that they would ask people to withdraw their funds.

Last week, Joseph Madison, Detroit NAACP executive secretary, told the SUN that two banks, the National Bank of Detroit and Bank of the Commonwealth, would be publicly named by the organization as "the least guilty" of redlining, and that those who do not comply will be greenlined.

He was not certain how many other banks are in the category of the above two. But he said, explaining the NAACP action, "Bank of the Commonwealth set up an ombudsman office to investigate all charges of redlining."

Citing NBD as the largest bank in the State and about 15 th in the nation, Madison added, "NBD has enough money, has contributed to community projects, and doesn't overtly practice redlining as inuch as others do.

"This is not a racial thing, it's bi-racial," Madison said. "Whites are trapped in the city, and now they can't get mortgages or improvement loans. This opens it up for land speculators who buy up the land at the people's expense. People have a right to go into a bank and ask how much money they have for loans by census tract, not by ZIP code."

It all boils down to one that people can make things happen, as evidenced by the people involvement in the Women's Conference of Concerns, and the Grand Rapids group. There is nothing greater than the power of people.

This map of Detroit indicates, by zip code areas, the number of home appraisals and commitments by the Federal Housing Administration between January 1 and April 30, 1976, along with the percentage for each area, of the total tor the city. The figures are for applications to buy homes under two federally-insured mortgage programs for low-income people, 203 (for single persons, no money down) and 221 D2 (for families, 3 per cent down).

The FHA appraises homes to make sure the amount of their insurance coincides with the lendingcompany's mortgage. Since the agency acts on applications received from these companies, it can be assumed that the buyers had already secured their financing.

In each of the eight central-city zip code areas indicated, FHA appraisals for the four-month period amounted to less than one per cent of the total appraisals in the city.

In each of the shaded areas, appraisals amounted to five per cent or less of the city's total appraisals.

In the two far west side areas, appraisals were less than one per cent of the total because they're stable, high-income neighborhoods where buyers would seldom qualify for the government's low-income programs.