Senior bank executives said any lending differences most likely are caused by factors beyond their control, including poor quality housing and lack of home sales in black neighborhoods, fewer applications from blacks, and limitations in the federal lending data. They also pointed out that lending patterns are influenced by real estate agents, appraisers, federal loan programs and other factors.
For example, banking officials said they would make more loans to blacks if real estate agents sent them more black applicants. Real estate brokers who work in black neighborhoods confirmed that they often don't send black homebuyers to banks or savings and loans, but said that is because those institutions have not been responsive and do not solicit their business.
A federal law, the Community Reinvestment Act of 1977, says deposit-gathering institutions have an "affirmative obligation" to solicit borrowers and depositors in all segments of their communities.
As part of a five-month examination of compliance with the Community Reinvestment Act, the Journal-Constitution used lenders' reports to track home-purchase and home-improvement loans made by every bank and savings and loan association in metro Atlanta from 1981 through 1986 -- a total of 109,000 loans. The study focused on 64 middle-income neighborhoods: In the white areas lenders made five times as many loans per 1,000 households as in black areas.
A companion study of 1986 real estate records for 16 of the neighborhoods yielded similar results: Banks and savings and loans financed four times as many of the home purchases in middle-income white neighborhoods as in middle-income black neighborhoods.
With the banks largely absent, home finance in metro Atlanta's black areas has become the province of unregulated mortgage companies and finance companies, which lenders say commonly charge higher interest rates than banks and savings and loans.
The two lending studies form the foundation of the Journal-Constitution's examination of home finance in metro Atlanta. Among the other findings, which will be discussed here and in subsequent articles in this series:
-- Banks and savings and loans return an estimated 9 cents of each dollar deposited by blacks in home loans to black neighborhoods. They return 15 cents of each dollar deposited by whites in home loans to white neighborhoods.
-- The offices where Atlanta's largest banking institutions take home loan applications are almost all located in predominantly white areas. Most savings and loans have no offices in black areas.
-- Several banks have closed branches in areas that shifted from white to black. Some banks are open fewer hours in black areas than in white areas.
-- Meanwhile, a black-owned bank in Atlanta, which makes home loans almost exclusively in black neighborhoods, has had the lowest default rate on real estate loans of any bank its size in the country.
-- Federal bank regulators give passing grades to 98 percent of the nation's financial institutions -- 99 percent in the South -- on compliance with the Community Reinvestment Act. But in recent testimony before Congress, heads of the regulatory agencies conceded that they have not enforced the law as well as they should.
-- Community groups around the country are exerting increasing pressure on banks and savings and loans to lend in their neighborhoods. Those protests have ranged from legal challenges to "bank-ins," where protesters tie up teller windows changing dollars into pennies and then changing pennies back into dollars. Two groups are organizing in Atlanta.
`It's institutional racism'
The differences in bank lending to whites and blacks in metro Atlanta did not surprise some government observers.
"I think it's obvious that some areas of Atlanta have more trouble than others getting credit," said Robert Warwick, vice president of the Federal Home Loan Bank of Atlanta, which regulates savings institutions. "It's perfectly obvious."
"It's institutional racism," said Marvin Arrington, president of the Atlanta City Council. "While we are patting each other on the back about being a great city and a city too busy to hate, they're still redlining."
Redlining is an illegal practice of refusing to lend in certain neighborhoods on the basis of race, ethnic composition or any standards other than creditworthiness. The definition comes from the alleged practice of drawing a red line on a map around certain neighborhoods to designate them as off-limits.
Senior bank executives said they welcome black borrowers. They also point out they have contributed to many efforts to improve housing in Atlanta, from giving money to build Southside houses for blacks in the 1960s, to forming a mortgage loan pool for lower-income homebuyers in the 1970s, to supporting the Atlanta Neighborhood Housing Service effort to revive Grant Park in the 1980s.
"It's a myth that banks have a map with a red line on it," said Jim Graham, vice president of SunTrust Banks, the parent of Trust Company Bank. "We don't avoid any area."
"I've never known of anybody redlining areas," said W.D. Hosford Sr., president of DeKalb Federal Savings and Loan. "I believe that any qualified borrower can get a loan today."
"Since the 1950s forward, we've had no prohibitions, no implied rules. We didn't pay any attention to black or white," said Thomas Boland, vice chairman of First Atlanta. "We advertise, `Please borrow money from us.' We send our mobile information center to the black side of town and on and on and on. If I spent the time and money on the Northside that I've spent on the Southside . . . . If you could locate these people . . . . It's an imponderable. Somebody's making the loans. It's just not the banks."
Measuring impact of race
The impact of race on lending patterns was easier to measure in metro Atlanta than in some other cities, since housing patterns almost always follow racial lines here and since Atlanta has a substantial and identifiable black middle class.
The study focused mainly on 64 middle-income neighborhoods: 39 white, 14 black and 11 integrated. Middle income was defined as between $12,849 and $22,393 in 1979, the base year for the 1980 census.
The study was controlled to ensure that neighborhoods were comparable in income and housing growth. All judgments about which data to include were made conservatively.
For example, to account for Atlanta's rapid suburban growth, the study excluded any neighborhood that grew by more than 10 percent in the number of single-family houses from 1980 to 1987.
Even with these controls, distinct and growing differences appeared. Banks and savings and loans made 4.0 times as many loans per 1,000 single-family structures in white neighborhoods as in comparable black neighborhoods in 1984, 4.7 times as many in 1985, and 5.4 times in 1986.
Banking officials, while not questioning the accuracy of the lending figures, offered a variety of explanations for the differences.
Some bankers cited the aging of structures in the city.
"Much of the housing in predominantly black areas is substandard, requiring rehabilitation to qualify for mortgage lending," said Willis Johnson, spokesman for Trust Company Bank. "As a result, this cannot be handled through conventional mortgage lending channels."
Officials at Atlanta's black-owned bank disagreed.
"I have difficulty believing that most of the housing in black neighborhoods is substandard," said Ed Wood, executive vice president of Citizens Trust Bank. "That is where the black community of Atlanta really got its name nationally. People who come from outside are amazed: `Black folks got these kinds of houses here?' "
Several banking officials also said the difference might be caused by more home sales in white areas.
The bankers were partly right. To check the demand, the newspaper analyzed real estate records of all home sales in 1986 in 16 of the 64 middle-income neighborhoods. Homes did sell twice as often in white areas as in black areas.
Of the homes that were sold, banks and savings and loans financed four times as many in the white areas as in the black areas. In middle-income white areas, banks and savings and loans made 35 percent of the home loans. In middle-income black areas, banks and savings and loans made 9 percent.
Even lower-income white neighborhoods received more of their loans from banks than upper-middle-income black neighborhoods. Lower-income white neighborhoods (those with a median income below the $12,849 household income in 1979) received 31 percent of their loans from banks and savings and loans. Upper-middle-income black neighborhoods (those above the metro area's median of $18,355 in 1979) received 17 percent.
In Cascade Heights, where Mayor Andrew Young and other prominent blacks live, 20 home-purchase loans were made in 1986. Of those, two were made by banks and savings and loans, and two by mortgage companies owned by banks. The rest were made by unaffiliated mortgage companies. Blacks rejected more often
If sales differences do not account for most of the lending pattern, banking officials said, then the number of applications probably would. However, federal law does not require financial institutions to make public the number of applicants of each race, nor the number from each area.
Only two of the 88 institutions in the study divulged application figures by race. These figures, from the two largest savings institutions in Georgia, suggest blacks make proportionately fewer loan applications than whites. But they also show that black applicants for home-purchase loans are rejected four times as often as whites.
Georgia Federal Bank in 1987 rejected 241 of 4,990 white applicants, or 5 percent, but 51 of 238 black applicants, or 21 percent. Fulton Federal Savings and Loan, from 1985 through 1987, rejected 1,301 of 12,543 white applicants, or 10 percent, but 363 of 1,022 black applicants, or 36 percent.
Banking officials also said the racial disparities in the study might be caused by limitations in the lending data. The federal records include only loans made directly through the banks and savings and loans, not through mortgage companies owned by the large banks. All but one bank declined to provide information on loans by their mortgage companies.
However, real estate records show that mortgage companies owned by banks rarely made loans in black areas of any income. In white middle-income areas, 20 percent of loans from mortgage companies were made by those owned by banks. In black areas of the same income, the figure was 3 percent.
Finally, banking officials said home lending is not their primary business. Traditionally, banks made most of their loans to businesses, and still often call themselves "commercial banks." A home loan was a favor for a commercial customer.
In recent years, however, changes in federal and state laws have blurred the lines between banks and savings and loans. Banks across the country are doing more home lending. Metro Atlanta's banks now make more than $1.5 billion annually in home loans, according to 1986 annual reports compiled in an industry directory, Sheshunoff's Banks of Georgia.
Law requires fair lending
Equitable lending practices are required under the Community Reinvestment Act, which says banks and savings and loans have "continuing and affirmative obligations to help meet the credit needs of their local communities, including low- and moderate-income neighborhoods, consistent with safe and sound operation."
The law strives for a balance: Banks and savings and loans should protect the money of depositors and make a profit for shareholders. But the law also says they should seek that profit in every neighborhood.
Banks and savings and loans face this obligation because they receive privileges, particularly government permission to operate and federal insurance of their deposits.
Federal appeals courts have said banking is so "intimately connected with the public interest that the Congress may prohibit it altogether or prescribe conditions under which it may be carried on."
Bankers said they bend over backward to obey the laws, and some said they are eager to make more money in black areas.
"If I could make $10 million or $20 million in these loans, I'd make them," said First Atlanta's Boland. "I don't think a black borrower brings me any more risk per se."
First Atlanta placed last in the Journal-Constitution's ranking of 17 banks and savings and loans based on the percentage of home loans made to minority and lower-income neighborhoods. And it placed 12th of 14 institutions in a ranking based on lending to comparable middle-income black and white areas.
Only the city's two black-owned financial institutions, Citizens Trust Bank and Mutual Federal Savings and Loan, made more home loans in black areas than white.
These institutions, although small, appeared not to be suffering for lending mostly to blacks. Citizens Trust had a lower default rate on real estate loans than the six largest banks in the city and the lowest of any bank its size in the country in 1986, according to the Federal Financial Institutions Examination Council, a government agency that produces reports for bank examiners.
"I don't see our default ratio being any higher because we're working in the black community," said Wood of Citizens Trust. "I wouldn't be in banking if I gave money away."
Several of the institutions that ranked low in the Journal-Constitution lending study capture the largest share of black customers, according to a 1986 market study for the Journal-Constitution. First Atlanta, Trust Company, Citizens and Southern (C&S) and First American, in that order, had more than half the black customers. All placed seventh or below in both lending rankings.
In all, metro Atlanta's blacks have an estimated $765 million deposited in financial institutions. That estimate is made by multiplying the number of non-white households in a 15-county metro area (204,802, according to the U.S. Census Bureau) by national black households' average balance of accounts at financial institutions ($3,734, according to a 1984 Census Bureau survey).
The banks and savings and loans appear to invest little of black deposits in black neighborhoods, at least in home loans.
In middle-income black neighborhoods, each single-family home received an average of $339.27 in home-purchase loans from banks and savings and loans in 1986. Using the census estimate of $3,734 in deposits per black household, that's an estimated 9.1 cents on the dollar in lending.
In middle-income white neighborhoods surveyed, each single-family structure received an average of $2,432.82 in home-purchase loans from banks and savings and loans in 1986. Using the census estimate of $17,812 in deposits per white household, that's an estimated 13.7 cents on the dollar in lending -- a rate of return 50 percent higher than in the black neighborhoods.
"We're talking about disinvestment, capital flight from the Southside," said Sherman Golden, assistant director of the Fulton County Department of Planning and Economic Development. "When the banks disinvest, the governments also find themselves disinvesting. To accommodate the growth on the Northside, all the public funds flow north. Southside residents put money in the bank and pay taxes, but their money is spent on the Northside."
Lower-income also affected
Although the Journal-Constitution study focused on middle-income neighborhoods, the results concern groups working to solve Atlanta's shortage of decent housing for the working class and the poor.
"As long as they won't lend in Cascade Heights, I don't know how we'll get them to lend in Cabbagetown or Ormewood Park or Pittsburgh or South Atlanta," said Lynn Brazen, a director of the Georgia Housing Coalition, a group that encourages housing efforts.
Neighborhoods say they need investment by financial institutions now more than ever because federal housing aid is rapidly dwindling -- from $33 billion in 1980 to less than $8 billion in 1987, according to a study by the National Association of Realtors. Atlanta's share of federal housing and community development money dropped from $8 million in 1983 to $4 million last year. The city also earmarked half of that money for its tourist-entertainment complex, Underground Atlanta.
With less federal money, neighborhoods searching for other deep pockets have turned to the banks. And Atlanta has some of the most profitable banks in the country.
Last year First Union Corp. of North Carolina and SunTrust Banks of Atlanta, parents of First Union and Trust Company respectively, led all U.S. banks in net income. First Atlanta, C&S and Bank South have consistently been in the top half of their peer groups nationally in profits, according to the federal examination council.
Neighborhood leaders say they don't want to cut those profits.
"We're not asking the banks to do anything that's not banking. We just want them to make money on the Southside too," Mrs. Brazen said.
Without equal access to credit, community leaders say they watch their neighborhoods slide. When people cannot borrow money to buy or fix up houses, property values decline. Real estate agents direct their best prospects elsewhere. Appraisers hedge their bets by undervaluing property. Businesses close. Homeowners sell to speculators.
Homeownership is the linchpin in the American Dream, the main way that families accumulate and hold wealth. Americans borrow against their homes for education, for vacations, for emergencies, for retirement. The family home often forms the bulk of parents' bequest to their children.
White families are more likely than blacks to build that wealth. They own homes more often, and their homes grow in value faster.
The Census Bureau said in 1984 the income of a typical white family in America was twice the median income of a black family, but the median household net worth of whites was nearly 12 times that of blacks. That's $39,135 versus $3,397.
"It takes money to make money. The problem we have in the black community is there is no base with which to make money," said the Rev. Craig Taylor, a white Methodist minister and Southside housing developer.
Redlining and disinvestment were hot issues in the nation's cities in the mid-1970s, when Congress approved disclosure laws and the Community Reinvestment Act.
A decade later, activists claim red lines are being redrawn, and Congress is considering legislation to enhance enforcement of the law.
"Let's face it: Redlining hasn't disappeared," said Sen. William Proxmire (D-Wis.), chairman of the Senate Banking, Housing and Urban Affairs Committee. "Neighborhoods are still starving for credit."
Ranking banks on black vs. white loans
Comparing lending to middle-income neighborhoods
|Rank and institution ||Black-white loan ratio |
|1. Citizens Trust Bank* ||All black |
|2. Mutual Federal Savings and Loan* ||11:1 |
|3. First Federal Savings and Loan ||1:2 |
|4. Liberty Federal Savings and Loan ||1:2 |
|5. DeKalb Federal Savings and Loan ||1:2 |
|6. Trust Company Bank ||1:3 |
|7. Anchor Savings Bank ||1:3 |
|8. California Federal Savings and Loan ||1:3 |
|9. Georgia Federal Savings and Loan ||1:4 |
|10. C&S Bank ||1:5 |
|11. Fulton Federal Savings and Loan ||1:5 |
|12. Decatur Federal Savings and Loan ||1:7 |
|13. Home Federal Savings and Loan ||1:8 |
|14. First American Bank ||1:10 |
|15. First Atlanta Bank ||1:14 |
* Black-owned institution | Sources: Home Mortgage Disclosure Act reports by financial institutions, 1985-86; U.S. Bureau of the Census, 1980; Atlanta Regional Commission census update, 1987.
How the rankings were determined:
Each lender's service rate -- home-purchase loans per owner-occupied structure -- was calculated for comparable white and black areas. The ratio shown here is the black rate divided by the white rate. For example, Mutual Federal was 11 times as likely to make a home loan to a household in a black area as in a white area. First Atlanta was 14 times as likely to make a home loan to a household in a white area as a black area.
Loans were counted only in stable neighborhoods. Loans were excluded in high-growth areas, as measured by an increase of more than 10 percent since 1970 in single-family housing; declining areas, as measured by any decrease in single-family housing; and purely commercial areas, as measured by census tracts with fewer than 500 owner-occupied homes. If these loans had been included, the disparities for most lenders would have been greater.
All loan figures are an average for 1985-86. Deposit figures are for 1986. Black areas are those that are at least 80 percent black.
Loan figures for banks, with the exception of C&S, do not include mortgage companies owned by banks. Other banks declined to provide this information. Without those numbers, First Union Bank and Bank South did not report enough loans for service rates to be calculated.
Ranking lenders on black, working-class loans
Measurement of bank lending to black and/or low-income neighborhoods
|Rank and institution ||Score (0-100) |
|1. Citizens Trust Bank* ||90 |
|2. Mutual Federal Savings and Loan* ||80 |
|3. Liberty Federal Savings and Loan ||21 |
|4. Anchor Savings Bank ||18 |
|5. DeKalb Federal Savings and Loan ||14 |
|6. California Federal Savings and Loan ||13 |
|7. First Federal Savings and Loan ||12 |
|8. First Union Bank ||11 |
|9. Decatur Federal Savings and Loan ||10 |
|10. Home Federal Savings and Loan ||9 |
|11. C&S Bank ||9 |
|12. Georgia Federal Savings Bank ||8 |
|13. Bank South ||8 |
|14. Fulton Federal Savings and Loan ||7 |
|15. Trust Company Bank ||7 |
|16. First American Bank ||7 |
|17. ||First Atlanta Bank |
* Black-owned institutions | Sources: Home Mortgage Disclosure Act reports by financial institutions, 1985-86; U.S. Bureau of the Census, 1980; Atlanta Regional Commission, 1987.
How the rankings were determined:
Loan information reported by banks and savings and loans for 1985-86 was analyzed by The Atlanta Journal-Constitution and the Hubert H. Humphrey Institute of Public Affairs at the University of Minnesota; rankings were determined using a method adapted from similar studies by a researcher at Johns Hopkins University.
The rankings are based on a point system that rewards lenders for loans to minority and lower-income areas. Points were awarded for each loan based on the census tract in which the home was located. Census tracts in the seven-county metro area were categorized by race (white, black and integrated) and income (high income, upper-middle income, middle income, lower-middle income and low-income). White areas are those that are at least 80 percent white; black areas are at least 80 percent black; the rest are integrated.
For example, a lender that made all of its home-purchase loans in poor black areas would receive a 100 score. A lender that made all its loans in rich white areas would receive a 0 score. A lender that made all its loans in middle-income integrated areas would receive a 50 score. Race and income were valued equally.
Loans were counted only in stable neighborhoods. Excluded were high-growth areas, as measured by an increase of more than 10 percent since 1970 in single-family housing; declining areas, as measured by any decrease in single-family housing; and purely commercial areas, as measured by census tracts with fewer than 500 owner-occupied homes. If these loans had been included, the scores for most lenders would have been lower.
Figures for banks, with the exception of C&S, do not include mortgage companies owned by banks. Other banks declined to provide that information.