Market, government join to make new homeowners

July 08, 1996|By Neal R. Peirce

WASHINGTON -- Government regulation, detested villain of the Republican Congress and free-market ideologues, is producing homeownership miracles for millions of low-income African Americans, Hispanics, Asians and immigrants across America.

The vehicle of victory is the 20-year Community Reinvestment Act, originally passed by Congress in response to bitter complaints from urban neighborhoods of being ''red-lined'' for home mortgages and business investment by indifferent, hostile banks.

For years, the Community Reinvestment Act produced clear but modest results as banks -- especially those seeking permission to merge with competitors -- responded to the law's requirement that they demonstrate service to their full market areas, low- income neighborhoods included.

But the mid-'90s is bringing a surge in lending to minorities and low-to-moderate-income individuals. The country's homeownership rate rose to 65.1 percent at the end of the first quarter of 1996 -- highest level since the early '80s. Just in 1995, there were 1.4 million new homeowners. The Wall Street Journal found that home-loan approvals for blacks soared more than 38 percent just from 1993 to 1994.

What's behind the change? A tougher law, to start with. Congress in 1992 ordered public disclosure of individual banks' ratings under the act. The Clinton administration took office, stepping up enforcement. A surge in bank-merger efforts required special clearance under the act.

None of this pleased the new Republicans, who viewed the Community Reinvestment Act as heavy government control akin to affirmation-action laws. The House Banking Committee last year backed legislation to shred the act by exempting banks with a ''satisfactory'' rating from any more regulation at all.

But President Clinton threatened to veto any bills weakening the act. His Justice Department has begun some of the toughest fair-housing enforcement ever.

Market forces have turned friendly to homeownership. The country has been experiencing a 20-year low in interest rates, making mortgages more affordable to more people.

High rents

The banks have discovered that the market pool for high-income mortgage buyers is relatively stagnant, that their best growth opportunities lie with the nation's millions of low-to-moderate-income buyers. Often these potential customers are minorities and immigrants, now paying the highest rental rates of the last quarter-century.

Then there are two big players for homeownership expansion that weren't on the national stage in the '70s but are today -- a national network of thousands of sophisticated community-development corporations and other nonprofit neighborhood developers, and big secondary market organizations like Fannie Mae and Freddie Mac developing special loan products.

Virtually all these groups last year joined in a new National Partnership for Homeownership, sparked by the Department of Housing and Urban Development, plus more than 50 partners, public and private, federal, state and local.

The partnership, which aims to boost homeownership to a historic high of 67.4 percent by 2000, includes players ranging from Fannie Mae to the Neighborhood Reinvestment Corp. and its ''NeighborWorks'' network, from the American Bankers Association to the National Council of La Raza.

While the average American home buyer spends $137,600 to buy a home, families assisted by the Campaign for Homeownership pay an average of $60,956. Their median income is $24,000, compared to $38,105 for the average U.S. buyer. Sixty-one percent are minority buyers, compared to 15 percent of all home buyers.

Trillion-dollar pledge

Just one player, Fannie Mae, has made a commitment to target $1 trillion in loans to new-type lenders, including more sensitive underwriting guidelines and consumer outreach materials now printed in Spanish, Chinese, Vietnamese, Korean, Haitian-Creole and Russian.

Still, without the controversial hand of Community Reinvestment Act regulation in the first instance, a lot of this wouldn't be happening. His bank's first reaction, says Hugh McColl, CEO of NationsBank, was that it ''was interfering with our business.'' Eventually, he notes, NationsBank ''made a business out of community investment'' -- and a profitable one, too.

But would NationsBank have invested the billions it has in low-income mortgages in recent years? Mr. McColl's reply: ''I don't think we would. Banks had overlooked the market that was there all along.''

Is there a danger low-income people will be unprepared for the discipline, the demands of homeownership? Of course. But groups like Neighborhood Housing Services, with their intensive counseling for first-time home buyers, report good credit results -- families succeeding, even with heavy monthly housing costs, in managing their finances well and having low loan delinquency and default rates.

With homeownership rising, will the banks be allowed to rest on their oars? Not if John Taylor, president of the National Community Reinvestment Coalition, has his way. Under the recently expanded regulations, banks will have to report on their small-business lending by geographic area -- and then show if irregular patterns appear that they're not red-lining low-income areas.

Community reinvestment ''is about more than housing,'' says Mr. Taylor. ''It's also about economic development, job creation, small-business lending, opportunity for people in all our neighborhoods.''

Neal R. Peirce writes a column on state and urban affairs.

Pub Date: 7/08/96

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