Resident In One of These Chicago Areas? No Chance for Home Loan
By Lucia Maffei
West Englewood, Austin and New City are the three Chicago community areas that received the scarcest amount of bank loans from top lenders in Cook County in 2014, according to an analysis of Home Mortgage Disclosure Act data.
In other words, African-Americans and Latinos — the majority of residents of these areas — still struggle to receive mortgage loans from banks. West Englewood, for example, has five census tracts among the top 20 most neglected census tracts (meaning, most neglected by bank loans). In West Englewood, 92.4 percent of residents are African-American.
History
In 1975, Congress enacted the Home Mortgage Disclosure Act (HMDA), a federal law that requires some financial institutions — the ones who originated at least 25 closed-end mortgage loans or at least 100 open-end lines of credit in each of the two preceding calendar years — to report HMDA data to the public. Every year by March 1, national data are collected by the Consumer Financial Protection Bureau, an independent agency, and later published on the web. The mortgage industry uses the data to inform business practices. Local communities check the data as well to ensure that “lenders are serving the needs of individual neighborhoods,” as it stated on the Bureau website.
Data
In the case of the Cook County, a 79,029-record dataset is available for the year 2014 according to the following criteria.
- Mortgages are for first-lien and 1–4 family homes (including manufactured housing);
- The property can be owner-occupied as principal dwelling or not;
By filtering the dataset appropriately, it’s possible to determine who are the top lenders in Chicago, and where are the most neglected census tracts in the city — meaning, small geographical subdivisions that receive less money than others.
Results show that the most neglected census tracts are located in community areas such as New City, West Garfield Park, Chatham, Roseland, Austin or West Englewood. In such community areas, residents are mostly African-Americans and, in some cases, Latinos.
But, first things first.
Top Lenders
Not surprisingly, the top mortgage lender in Cook County in 2014 is also the largest bank in the U.S., JPMorgan Chase & Co. According to the dataset, the New York City-based financial services holding company originated mortgages for over $2.44 billion, or less than 56.4 percent compared to $5.6 billion in 2003. Ten years ago, the bank was criticized for the lack of loans to minorities by former National Training and Information Center (now National’s People Action, a Chicago-based association for economic justice). In that occasion, JPMorgan replied that $1.3 billion of the total $5.6 billion was to minorities home loans.
For the purpose of this article, JPMorgan Chase spokeswoman Christine Holevas declined to comment.
Number two in the top lenders ranking and close to the top is national mortgage company (headquartered in Irving Park, Chicago) Guaranteed rate, with over $2.06 billion in home loans. “We decided that unfortunately we aren’t able to provide a statement at this time,” Sarah Amundsen, communications specialist at Guaranteed Rate, wrote in an email after having received the data.
With almost $1.32 billion, Wells Fargo Bank closes the ranking of lenders having an annual total amount of home loans over $1 billion. Asked for a comment on this story, Wells Fargo Communications Director Steve Carlson wrote in an email: “Applications are underwritten individually and decisions are made based on a broad range of objective factors. It’s not possible for us to generalize.”
Others top lenders are Barrington Bank & Trust (almost $873.8 million), Citibank ($720.5 million), Chicago-based Perl Mortgage ($626.4 million), Associated Bank ($602.6 million), Bank of America ($584.5 million) and Quicken Loans ($555.9 million).
Illinois-based 1st Advantage Mortgage ends the ranking with $493.5 million.
Mark Rodgers, director of Citi public affairs, said in an email that Citi considers each mortgage applicant by the same objective criteria: “These objective criteria, which are blind to race, ethnicity, gender and any other prohibited basis, include credit scores, loan to value (LTV) ratios, debt to income (DTI) ratios and other key factors. Using these and other objective criteria allows us to set rates that are consistent with the risk profile of each borrower.”
Bank of America spokeswoman Diane Wagner declined to comment for this article.
In April 2016, the average 30-year fixed-rate mortgage in Chicago for applicants with credit score 740+ was 3.74 percent, according the personal finance website Bankrate. The higher mortgage rate at 4.292 percent was offered by Armed Forces Bank; the lowest at 3.531 percent, by Reliance Bank.
Most neglected areas
In the ranking of 20 most neglected census tracts, five of them are in community area West Englewood, four of them are in Austin, three of them of New City and two of them in West Garfield Park. Other community areas such as Chatham, Roseland, Riverdale, South Chicago, Fuller Park and Greater Grand Crossing have one census tract each in the top 20.
Legal Precedents
In 2015, the County of Cook sued for issues related to lending activities two banks that also figure among the 2014 top lenders: Wells Fargo and Bank of America.
In County of Cook v. Wells Fargo & Co, the County of Cook alleges that Wells Fargo and other 375 unnamed Wells Fargo entities issued “predatory subprime mortgage loans” that went into default and drove the mortgaged properties into foreclosure. Among more than 61,000 mortgage loans made by Wells Fargo in Cook County from 2004 to 2007, more than 25,000 (41 percent) were made to minorities.
In the lawsuit, Wells Fargo argued that there were a whole host of reasons — including the recession and the unemployment rates — that invariably affected the number of defaults and foreclosures.
The Wells Fargo’s motion to dismiss was granted by the court. But regarding another case involving Bank of America, the court’s decision was different.
In County of Cook v. Bank of America Corporation, the County alleges that the bank “targeted minority borrowers and made approximately 95,000 home loans with less favorable terms and conditions than loans made to similarly situated white borrowers.”
Bank of America’s motion to dismiss was denied. The lawsuit stated that the County’s claim is “cognizable” and “identifies specific practices that allegedly caused minority borrowers to receive a disproportionate share of high cost home loans.”
However, the judge added: “Whether the County can prove this claim on the merits is a question for another day.”
Are The Banks The Mean Guys?
The current mortgage rate situation in Chicago is directly related to the Great Recession of 2007–2009, and specifically to the subprime mortgage crisis, said Tassos Malliaris, professor of Economics at Loyola University. Between 2002 and 2007, the standards to give loans were not strict, because investment banks were making huge profits by combining loans — even, and mostly, high-risk loans — in packages and then selling those packages (called Collateralized Debt Obligations, or CDOs) to speculators.
“It was good and easy,” said Angie, 46, a West Englewood resident who got a $65,000 mortgage in 2002. At that time, she explains, Northern Trust was financing mortgages as a part of a program for targeted areas. “If you agreed to buy in West Englewood, they would give you a special interest rate,” Angie said. In her case, the interest rate was 6 percent.
Things have changed after the financial crisis of 2007–2010. After having witnessed how millions of people had lost their house and jobs, in 2010 Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. “The act essentially says that people who deal with banks are protected by law,” said Malliaris. “As a result, banks are legally obligated to make careful decisions when it comes to loans; solid proofs that the applicant has a job and money are now required.”
“As a result of the Dodd-Frank Act, banks are legally obligated to make careful decisions when it comes to loans; solid proofs that the applicant has a job and money are now required.” — Tassos Malliaris, Professor of Economics at Loyola University, Chicago
As a consequence, said Malliaris, a decline in loans should not necessary be explained as a decision of the banks not to lend to minorities. A change in loan methodology due to law enforcement could be an explanation as valid as a claimed banks bias against minorities. “If an applicant is unemployed, or has a low income, there are reasons to suppose that a potential rejection is due to fundamental reasons. If people are qualified to receive a loan, any banks would love to have them; after all, it is banks’ mission to make profits through loans,” concluded Malliaris.
The Recession’s effects
There are several others technical reasons involved in the application process that could lead to loan rejections, according to Geoff Smith, Executive Director at the Institute for Housing Studies at DePaul University.
When it comes to examine the applicant’s financial situation, banks take into account several factors. They investigate parameters such as the applicant’s credit score, the value of the property compared to the amount of potential loan, the applicant’s income compared to the loan monthly payment, other financial obligations the applicant might have (for example, student debt), the history of the applicant’s employment, the amount of savings and the general condition of the property.
“If the appraisal process is not successful, a loan is undoubtedly subject to denial.” — Geoff Smith, Executive Director at the Institute for Housing Studies at DePaul University, Chicago
Some of those parameters suffered because of the recession. A reduction of the income, for example, and a reduction of the overall value of the property are among the effects of the recession that might decrease the likelihood of the applicant to get a loan.
Also, the recession had a negative impact on the “appraisal process,” another step of the loan process. The appraisal process is basically an expert’s assessment of the value of a property; it can be influenced by the condition of the house itself, but also by the value of the properties surrounding the one under inspection. In the areas neglected by home loans, the average value of houses dropped significantly over the last few years because of — again — the recession. As a result, any appraisal process for a particular property had very few chances to be successful. “And if the appraisal process is not successful, a loan is undoubtedly subject to denial,” said Smith.
West Englewood
One of the first things that stand out by passing through West Englewood and Englewood is the huge number of churches. They are everywhere and, in most cases, they look like pawn shops. But what they may lack in architecture, they compensate with the variety of confessions and the creativity of names: New Joy Missionary Baptist Church, The Shining Light Apostolic Church, Nazarene All Nations Church, Spirit Redeemed Baptist Church, True Church of Christ Divine and New Generation Harvest Church.
On Ashland Avenue, the busiest street of the neighborhood, there are almost as many churches as laundromats. Liquor stores, small grocery stores and currency exchange stores are the only options available for residents in order to buy food and have access to financial services. Best deals? Only $19.97 for a cellular phone at “Family dollar,” which sells also canned soups, or $1.69 for a McDonald’s carrot muffin. Banks and supermarkets are out of sight, together with parks and public playgrounds for kids. In front of the door of private homes there are usually small gardens, where bystanders can spot countless dandelions and, sometimes, a tricycle. No American flags on display around here.
Since the only active businesses are car wash stores and car sales vendors, guessing that many residents have to leave the neighborhood to go to work seem plausible. And the choice of film director Spike Lee to shoot in Englewood his movie “Chi-Raq” — which explores the gang’s violence in the South Side of Chicago — makes probably some sense.
“That’s all they do: fire and shoot,” said Stef, 33, a West Englewood resident who was born and raised in the South Side. She explains that West Englewood gangs are used to gather in Lindblom Park and that she’s scared of walking outside. “I want to get out of here,” she said, referring to the entire neighborhood.
“That’s all they do: fire and shoot.” — Stef, 33, West Englewood resident
Other residents, however, feel safe. “My children go to summer camp in Lindblom Park,” said Tiffany Sommerio, a 35-year-old teacher who live with her three kids and her parents on Damen Avenue. A high police presence in West Englewood, together with the fact that she knows everybody around her block, are the reasons she would not move. However, she admits that a couple of blocks from her house, “there are more vacant lots and trash, and it gets worse: the entire area feels unsafe.”
Denise King, a retired 62-year-old woman who worked for 24 years at the admission office of the University of Illinois Medical Center, has witnessed the changes the neighborhood has experienced. “School around here used to have big auditoriums, but not anymore,” she said. King has been renting in West Englewood for 25 years, always dreaming to own a house. When asked if she had ever tried to get a mortgage, she shook her head: “People around here never qualify for anything.”
“They gave me nothing”
Even though the Great Recession, the Dodd-Frank Act, a failed appraisal process or a bad credit score might be reasonable explanations of loan denials, some people think that racism is the real reason they did not get a loan.
In 2010, Perida Davis tried to get a $10,000 loan from Citibank to repaint her house located a couple of blocks from West Englewood. At that time, she was living with her son, an engineer, and she had a job as well: she was a cook at the Henry O. Tanner Elementary School, in Park Manor. However, her application for a loan was denied. “They tell me that the recession was the reason,” she explained.
But she thinks the reason might be a different one. “We were denied a loan because of the color of our skin. Banks simply don’t give loans to black people.”
“We were denied a loan because of the color of our skin. Banks simply don’t give loans to black people.” — Perida Davis, rejected applicant for home loan at Citibank
Born and raised in Oakland, Davis said that she has been living near West Englewood for 17 years, after having bought a house for $80,000 in 1998. When asked about her credit score at the moment of the loan application, she didn’t report a number; she said that her credit score was “pretty decent.”
