Lenders, politicians react differently to loan disparity data

By Timothy Pratt (contact)

Thursday, Oct. 30, 2003 | 11:22 a.m.

Public- and private-sector reactions to the Las Vegas area's dismal ranking for mortgage loans to the poor ranged this week from concern to it-can't-happen-here.

A national study, released last week, ranked Southern Nevada second worst in the nation in loans to low- and moderate-income people.

The ranking was based on the finding that 23 percent of the region's neighborhoods in 2002 fell into that income bracket, but only 4.3 percent of all conventional mortgage loans went to those neighborhoods. The data came from lender reports required by federal law and census numbers.

Valerie Coffin, who authored the study for the Washington-based nonprofit Association of Community Organizations for Reform Now, said the statistic "would tend to point to redlining," the illegal denial of loans.

Political and industry figures said there was no redlining going on in Nevada, but they offered little to no explanation for the study's results.

The news of the low ranking was "extremely troubling" to State Treasurer Brian Krolicki, who Tuesday issued a press release announcing his intention to consider whether banks are meeting the credit needs of all Nevadans when it comes to choosing who the state will contract to do business with next year.

"I plan to use the state's cash flow -- which is billions of dollars -- as an inducement for them to do business in a fair way," Krolicki said.

The official said 5 percent of the score assigned to competing proposals for the state's 2004 contract will be based on what is called the Community Reinvestment Act (CRA) rating. The federal act, passed in 1977, was intended to encourage banks to meet the credit needs of all people. Compliance with the act is regulated by several federal agencies, Coffin said, including the Federal Reserve.

Krolicki said he "didn't think redlining (was) going on since you would see this in (the banks') CRA rating."

At the same time, the treasurer said he had no explanation for the study results. "I'm curious as to why these statistics are the way they are," he said.

Each of Nevada's three major banks -- Bank of America, U.S. Bank, and Wells Fargo -- said they were making efforts to develop programs that would meet the needs of people shopping for homes with annual earnings of less than $43,000, the study's cut-off point for moderate income.

They also categorically denied that they were engaged in redlining.

But Coffin said that enforcement of the CRA left a lot to be desired, calling it "an imperfect system ... based in part on comparisons to peers.

"If none of them are doing a good job, then what's the sense of rating based on a comparison?" she said.

Ken Preston, Bank of America media relations manager for Las Vegas, said "while there's room for improvement, we're doing everything possible to make sure we're reaching as many people as possible."

In a five-person conference call, the bank's officials listed such efforts as offering mortgages through so-called multicultural marketing programs and lending to people with "nontraditional credit and savings histories." Bank of America has 74 branches statewide.

When asked how to reconcile those efforts with the results of the study, Preston paused then said, "That's a good question."

Nancy Hamilton, Wells Fargo vice president for CRA management, said that her bank offers loans at below-market interest rates to people earning less than 80 percent of median income -- $54,300 in 2002 -- and gives help with down payments to those who qualify. Wells Fargo has 105 branches statewide.

Karen Greenwood, spokeswoman for U.S. Bank, would not comment on the study, but pointed to the bank's website for a list of programs and said, "We're very sensitive to low- and moderate-income housing." U.S. Bank has 39 branches statewide, with 7 scheduled to open in late 2003.

The industry group representing mortgage brokers also responded to the study.

"Our organization is trying to straighten out this whole thing with borrowers and lenders," said Michael Radde, president of the Nevada Association of Mortgage Brokers, with 230 members statewide.

Radde said that a bill passed in the 2003 Legislature will require licensed brokers to take 10 hours of continuing education every year -- including information on programs to reach low- and moderate-income borrowers. Also, for the first time, a state agency will regulate the trade and a commissioner will be chosen in the coming months "so that discrimination doesn't occur," he said.

At the same time, however, the industry spokesman said he hasn't seen any redlining in his organization.

"Our files are open ... at all times," Radde said. "If we were doing any redlining, they'd be all over us."

The broker also said he thought part of the reason so few conventional loans went to low- and moderate-income people in the Las Vegas metropolitan area was that many of the valley's residents work in the service sector and earn a significant part of their income from tips.

"Strippers, dealers, valets -- everywhere you go they're making tips, but they don't report it to the IRS," he said.

"So their income doesn't qualify for conventional loans."

Frank Spady, executive director for the state mortgage brokers association, said he found the study troubling.

"It really bothers me," he said. "It's like the taxicabs that won't go into bad neighborhoods ... and they should."