Skip to ArticleSkip to Radioplayer

We bring you the facts about COVID-19.

Support Reveal
Feb 23, 2019

The red line: Racial disparities in lending

Co-produced with PRX Logo

This episode originally was broadcast Feb. 17, 2018. We’ve updated with news about the impact the story has had since it aired.

Forty years ago, Congress passed the Community Reinvestment Act, requiring banks to lend to qualified borrowers in blighted neighborhoods. Together with the Fair Housing Act passed in 1968, the legislation aimed to eliminate the practice known as redlining. But it is full of loopholes: It doesn’t apply to mortgage brokers or cover internet banking, and it allows banks to claim credit for loaning to white applicants moving into historically black neighborhoods – supposedly lifting up low-income areas, but also enabling gentrification.

Today, a new epidemic of modern-day redlining has crept quietly across America. The gap in homeownership between African Americans and whites is now wider than it was during the Jim Crow era.

Our reporters analyzed 31 million government mortgage records and determined that people of color were more likely than whites to be denied a conventional home loan in 61 metro areas, including Atlanta, Detroit and Washington. That’s after controlling for a variety of factors, including applicants’ income, loan amount and neighborhood.

No city better exemplifies the trend than Philadelphia, where so-called up-and-coming neighborhoods abound – and where African American applicants were nearly three times as likely as whites to be denied a home loan. That’s where reporters Aaron Glantz and Emmanuel Martinez tell the story of two loan applicants – one black, one white – whose experiences raise larger questions about who gets to buy a home, and who doesn’t, in America.

Read: For people of color, banks are shutting the door to homeownership & Gentrification became low-income lending law’s unintended consequence & 8 lenders that aren’t serving people of color for home loans

Credits

This week's show was reported by Aaron Glantz and Emmanuel Martinez, produced by Katharine Mieszkowski and Laura Starecheski, and edited by Deborah George.

Our production manager is Najib Aminy. Our sound design team is Jim Briggs and Fernando Arruda, who had help from Kaitlin Benz.

Support for Reveal is provided by the Reva and David Logan Foundation, the Ford Foundation, the John D. and Catherine T. MacArthur Foundation, the John S. And James L. Knight Foundation, the Heising-Simons Foundation and the Ethics and Excellence in Journalism Foundation.

Transcript

Reveal transcripts are produced by a third-party transcription service and may contain errors. Please be aware that the official record for Reveal's radio stories is the audio.

Reveal transcripts are produced by a third-party transcription service and may contain errors. Please be aware that the official record for Reveal's radio stories is the audio.

 

Al Letson:

The best way to get all of our stories without anything in between is just an email in your inbox. Our investigations changed laws, minds, and sure, we'd like to say it, the world. Be among the first to read them. To sign up, just text "NEWSLETTER" to 63735. Again, text the word "NEWSLETTER" to 63735. I'll see you in your inbox.
Al Letson: From the Center for Investigative Reporting and PRX, this is "Reveal." I'm Al Letson. It was April, 1968.
Speaker 3: Dr. Martin Luther King, the apostle of nonviolence in the Civil Rights Movement has been shot to death in Memphis, Tennessee.
Al Letson: The country erupted. There was civil unrest from Washington, D.C. to Detroit.
Lyndon  Johnson: Of course, all America is outraged at the assassination of an outstanding negro leader.
Al Letson: That's President Lyndon Johnson. At the time of King's death, he was frustrated. Congress was fighting the passage of proposed civil rights legislation on housing.
Lyndon  Johnson: And indeed, this bill has had a long and stormy trip.
Al Letson: Congress had held up the Fair Housing Act for two years. Even with King's death, many law makers like this one still wanted to preserve segregation.
Speaker 5: The death of Martin Luther King is a tragic thing, but no legislation should be passed as a memorial to anyone.
Al Letson: But King's death finally gave Johnson the leverage he needed to get it passed.
Lyndon  Johnson: I do not exaggerate when I say that the proudest moments of my presidency have been times such as this, when I have signed into law the promises of a century.
Al Letson: Housing discrimination was totally legal until the '60s. The Fair Housing Act outlawed it. But the law didn't solve the whole problem. While it banned landlords and people selling homes from discriminating, banks still weren't making home loans to African Americans. It took another nine years for Congress to pass a second law, the Community Reinvestment Act, which required banks to lend to qualified borrowers and so-called blighted neighborhoods, code for neighborhoods where mostly minorities lived.
Al Letson: So where are we now? We spent a year going through millions of mortgage records to find out who can get a home loan and who can't. We first reported our findings last February. Our reporters Aaron Glantz and Emmanuel Martinez, along with producer, Kathy Mieszkowski dug into the story. Later in the show, we're gonna tell what lawmakers did after hearing what our reporters found. But first, we head to a neighborhood in West Philadelphia, where Aaron picks up the story.
Aaron Glantz: I'm in a part of West Philadelphia that's not far from the University of Pennsylvania. It's what realtors call a neighborhood in transition. They are blocks pockmarked with vacant lots and houses with peeling paint and sagging front porches. This part of West Philly is mostly black. Aunts, cousins, grandparents often live right on the same block. Families have lived here for decades, settling has far back as the 1940s.
Aaron Glantz: But there's a lot of remodeling and construction going on. Newcomers are moving in, attracted by the affordable price of housing and proximity to the university. I'm gonna tell you about two of these newcomers. One's black, one's white, they each wanted to buy a home in the same neighborhood. Situations like this are playing out all over the country. Let's start with Rachelle Faroul.
Rachelle Faroul: I am from Brooklyn, N.Y. by way of Barbados.
Aaron Glantz: Rachelle had graduated from Northwestern and had done a stint in the Peace Corps. She was in her early 30s teaching computer coding at Rutgers University. And renting an apartment here in Philly, when she decided to buy a house.
Rachelle Faroul: My mom and her siblings have been obsessed with home ownership and just ingrained this idea in all of us. My brother and I and my three cousins, no matter the cost, buy a home.
Aaron Glantz: You can hear how determined Rachelle is but here's the other thing, she's super organized and prepared. Her mom was a public schoolteacher, who sent her to an elite boarding school. Rachelle went on scholarship and was one of the few African Americans there. She's a high achiever but buying a house turned out to be a lot harder than Rachelle expected. Her first stop was Philadelphia Mortgage Advisors. It's part of a new breed of independent lenders that are not banks but are making an increasing share of the loans in the economic recovery. Rachelle told us her broker was a woman named Angela Tobin.
Rachelle Faroul: Anybody who works in the mortgage arena here in Philadelphia, seems to know who she is.
Aaron Glantz: At first, the broker was enthusiastic. Her emails to Rachelle were full of exclamation points. Angela reviewed Rachelle's credit score, income and savings and told her everything was on track. But then suddenly, Rachelle's application was turned down. Rachelle wasn't on staff at Rutgers. She was teaching there on a contract. Angela told her she hadn't been doing it long enough. She told Rachelle she would have to wait two more years or get a full time job. Rachelle didn't think that was the real reason. I wanted to know what Angela thought. So I called her up.
Angela Tobin: Hey great Aaron, how are you?
Aaron Glantz: I'm doing well, thank you for taking the time to talk, I appreciate it.
Aaron Glantz: First I asked her about the company's performance in Philly. The government keeps track of who gets loans and who doesn't.
Aaron Glantz: Well, we looked at the data, we found that your company Philadelphia Mortgage Advisors had made 250, 300 conventional mortgage loans in 2016 and only 10 of them were to African Americans.
Angela Tobin: I don't know where your data's coming from.
Aaron Glantz: Yeah, our data is coming from the government. Your company and every other company is filing information through the Home Mortgage Disclosure Act and when we look at the data for your company, we see a much larger proportion of borrowers who are white and a much smaller portion of borrowers of color.
Angela Tobin: I can't really speak to that because that is not at all who my particular clients are. If you would like to speak to someone at my office, I'm happy to give you a contact information.
Aaron Glantz: I told Angela I'd be happy to talk to anyone from the company. But first, I asked her about Rachelle's application. Why had Angela turned her down?
Aaron Glantz: She was concerned that it might have something to do with her race, that she was turned away.
Angela Tobin: No, that's not at all accurate.
Aaron Glantz: Why do you say that? Well, they hung up on me.
Aaron Glantz: After Angela hung up on me. I tried to set up an interview with an executive at the company. But no one would talk. Instead, they sent a statement. Philadelphia Mortgage Advisors didn't dispute the numbers that had reported to the government. But they said an outside auditing firm had found there was, "No elevated risk of unfair lending practices at the company."
Aaron Glantz: Rachelle still wanted to buy a house.
Rachelle Faroul: I was like, "Okay, I need to get a full time job."
Aaron Glantz: Rachelle got a job. Associate Director of the South Asia Center at the University of Pennsylvania. An Ivy League institution. She found a two story house that needed some work and for a loan she went to Santander Bank. The U.S. outpost of a Spanish bank with original headquarters in Boston.
Rachelle Faroul: My experience was so horrible.
Aaron Glantz: The process dragged on for months.
Rachelle Faroul: I had a fair amount of savings and still I had so much trouble just left and right.
Aaron Glantz: Her loan officer kept asking for new information or sometimes the same information again. Rachelle answered all their questions.
Rachelle Faroul: Didn't matter, none of it mattered.
Aaron Glantz: She felt like she was getting the runaround.
Rachelle Faroul: I was really sad, I remember there was one day where I just sat on the couch and was just so defeated.
Aaron Glantz: The process went on so long that eventually an unpaid electric bill showed up on her credit report. It was for an apartment in New York where Rachelle didn't live anymore. She'd sublet it to another tenant. When Rachelle found out about the bill, she paid it right away but it still plunged her good credit score down 50 points. And Santander said that was a deal breaker. Rachelle's story is all too familiar to real estate broker, Arlene Wayns-Thomas.
Arlene W.: It's one thing after another, one thing after another. It's just like pulling layers off an onion.
Aaron Glantz: Arlene's the president of a local chapter of African American real estate brokers. She's been helping people buy homes in Philadelphia for 30 years. And she says her black clients are treated differently by lenders.
Arlene W.: The things that happen behind the scenes is what is disturbing. While they may not like what happened between the last time you worked on this particular job to this one, they may say there was a gap. I have seen situations where they've asked people for the children's birth records, they want to know how old they are ...
Al Letson: In this neighborhood in West Philly, black people have been having trouble buying homes for generations. It's a part of a bigger story of housing discrimination in America called redlining. It dates back to the Great Depression. The federal government drew lines on maps and shaded some neighborhoods red, warning banks not to make loans there. They said it would be financially hazardous because some areas where and I quote, "Infiltrated by Negros. Immigrants too." Other neighborhoods like the one in West Philly, where Rachelle wanted to buy, were shaded yellow, the government said, it was definitely declining because the infiltration of Jewish people had depressed values and that the neighborhood was "threatened by Negro encroachment."
Al Letson: Today the maps are gone but the lines of disparity are still intact. When we come back a white couple without a whole lot of cash gets the loan of a lifetime. In the same neighborhood where Rachelle is trying to buy a house.
Meghan: We could easily get pre-approved for a mortgage up til almost 500 thousand dollars.
Aaron Glantz: They were willing to offer you a half a million dollar mortgage even though you had almost nothing to put down and you're a radio producer and a graduate student?
Meghan: Mm-hmm (affirmative).
Laura S.: Correct.
Meghan: After a five minute phone call.
Al Letson: That's next on "Reveal."
Al Letson: Hey, hey, hey, it's Al Letson, your favorite host in the entire universe. Wait, I'll take that back. Your favorite host in the entire multi-verse. That's right, in every alternative reality, you love me and I love you. That's just facts. So you already know the stories we tell here make a difference. They change laws and lives and we want to know, which "Reveal" stories from the past year changed you. So leave us a voicemail with your answer. The number is 510-269-7485. That's 510-269-7485. And we may use your voice on air. Again that number is 510-269-7485. We cannot wait to hear from you.
Al Letson: From the Center for Investigative Reporting and PRX, this is "Reveal." I'm Al Letson. This hour we're re-airing our show about home ownership in America. Who can get a mortgage? Who can't and why not? "Reveal" spent a year looking into this question.
Al Letson: Heading over to the data cave to talk to Emmanuel Martinez.
Emmanuel M.: Hey, what's up, Al?
Al Letson: Side note, the data cave is just a row of desks that are catty corner to mine.
Emmanuel M.: The data cave can be a dark, dark, place once you're buried in those numbers.
Al Letson: Don't bury me.
Emmanuel M.: I've been looking at the Home Mortgage Disclosure Act data.
Al Letson: This giant government database has information on nearly every home loan application in America. It tells you a lot about who's trying to buy a house.
Emmanuel M.: You have the race and the ethnicity of the applicant. How much money they make, how much money they want to take out. And then you have the location of where they're looking to get that loan.
Al Letson: So looking here right, I see applicant race and I see like, five, five, five, five, five, five, five, fives. Who are fives?
Emmanuel M.: Five is white.
Al Letson: Emmanuel went through 31 million mortgage records, covering two years, 2015 and 2016, which was the most recent data available at the time. And he honed in on loans where someone was trying to buy a house with a conventional mortgage.
Emmanuel M.: I did a statistical technique called a logistic regression. We were wondering if someone was gonna get denied a mortgage or not.
Al Letson: He looked at nine different factors that banks might use to decide if they want to give someone a mortgage.
Emmanuel M.: Things like income and race. And demographics of the neighborhood.
Al Letson: And in Philly where Rachelle lives ...
Emmanuel M.: Black applicants there are nearly three times as likely to be denied a conventional home mortgage than white applicants. Even after we control for things like income and how much money they're wanting to take out.
Al Letson: So in Philadelphia because I'm African American, I am way more likely to be turned down for a loan. And that's true in many places across America. We found dozens of metro areas where this is happening. In 61 cities, lenders were way more likely to deny conventional mortgage loans to people of color than whites. Even after we accounted for how much a person made or how much they wanted to borrow.
Emmanuel M.: I've mapped those metros if you wanna take a look.
Al Letson: Yeah, show me.
Emmanuel M.: So here's the map.
Al Letson: African Americans were more likely to be turned down in most of these cities. But we also found the same pattern of denials for Latinos in two dozen metro areas. And there were parts of the country where banks were more likely to turn away Asians and Native Americans.
Emmanuel M.: You can see that the problem is everywhere. You have these large metro areas like Orlando, Philadelphia, Jacksonville, Washington D.C. where this is a problem. And you have smaller places like Santa Fe, New Mexico, Chico, California.
Al Letson: Atlanta, Georgia, Saint Louis, Missouri, Tacoma, Washington. In all of these places and dozens more, people of color were significantly more likely to be denied a conventional mortgage to buy a house. If you're wondering what's happening in your neighborhood, you can find out more information right now. All you have to do is text HOME to 202-873-8325, that's HOME to 202-873-8325. And here comes the legal lingo, standard texting rates apply. And if you want to stop getting the texts, just text STOP.
Al Letson: Okay, so we've been talking about one woman, Rachelle Faroul, who wanted to buy a house in West Philly.
Rachelle Faroul: My mom and her siblings have been obsessed with home ownership and just ingrained this idea in all of us. My brother and I and my three cousins to, no matter the cost, buy a home.
Al Letson: One reason that's so important is because in America, home ownership is the ticket to wealth. But African Americans are being left behind. Their rate of home ownership is the lowest since the 1960s. That's a big reason the media net worth of white families is 15 times as much as a black one. So Rachelle wondered whether her race had something to do with why she was having trouble getting the loan. Now, it turns out that the home Rachelle wanted to buy was just one street over from where one of "Reveal's" producers, Laura Starecheski lives. Aaron Glantz stopped by Laura's and got a house tour.
Aaron Glantz: Laura bought her home last year after it had been gutted remodeled and flipped.
Laura S.: The yard is a work in progress.
Aaron Glantz: There's an old oak tree that shades Laura's backyard. It's around the corner in the yard of the house Rachelle wanted to buy. Laura and her wife, Meghan, a grad student, are both white. And their house is almost exactly the same as the one Rachelle wanted.
Laura S.: This is super standard Philly, twin, shared front porch, shared wall with a breezeway between every other house so you get some light.
Aaron Glantz: The houses may be similar but the experience Laura and Meghan had getting a mortgage was totally different from Rachelle's. Meghan said banks were falling all over themselves to get their business.
Meghan: We could easily get pre-approved for a mortgage up to almost 500 thousand dollars.
Aaron Glantz: That was from Wells Fargo. They were willing to offer you a half a million dollar mortgage even though you had almost nothing to put down and you're a radio producer and a graduate student?
Meghan: Mm-hmm (affirmative).
Laura S.: Correct.
Meghan: After a five minute phone call.
Aaron Glantz: They ended up going with TD Bank. A big East Coast bank. So this was 200 thousand dollars?
Laura S.: 205.
Aaron Glantz: 205 and what did you put down?
Meghan: Six thousand.
Aaron Glantz: You put six thousand dollars down? So that's like-
Laura S.: 3%.
Aaron Glantz: 3% percent down.
Aaron Glantz: They got a great deal. Thanks to the Community Reinvestment Act. The 40 year old law requires bank to lend to low income people. But it also requires them to lend to anyone buying in poor neighborhoods. In order to meet it's obligation under the law, TD Bank offered Laura and Meghan great terms.
Laura S.: We have this special mortgage, you can put a really small amount down, which was good for us 'cause we barely had anything to put down. We had to put down the minimum.
Aaron Glantz: The Community Reinvestment Act was designed to lift up communities but it was written back in the '70s and didn't anticipate gentrification. This part of West Philadelphia is 70% African American but "Reveal" found most of the loans here are going to white people like Laura and Meghan.
Laura S.: Okay, so basically you've got two white women with barely any savings to make the lowest possible contribution to get a conventional mortgage and they gave it to us.
Aaron Glantz: We found that TD Bank, where Laura and Meghan got their loan, out of all the big banks in Philadelphia, it was the most likely to deny home loans to African Americans. Nearly two thirds of all black applicants over a five year period. I showed Laura a list of everyone who applied for a loan from TD Bank. Sure enough there were many African Americans who made more than 100 thousand dollars a year, who got turned down.
Laura S.: They're denying two thirds of black mortgage applicants.
Aaron Glantz: Right, even when the African American applicants actually make more money.
Laura S.: Oh god.
Aaron Glantz: And I told Laura another thing we learned about TD Bank. At the time it had 36 branches in Philly.
Aaron Glantz: Do you want to guess how many of them are in majority African American neighborhoods?
Laura S.: I would guess zero or one?
Aaron Glantz: Yeah, zero.
Laura S.: Zero.
Aaron Glantz: They don't have a single branch in a black neighborhood.
Al Letson: So TD Bank didn't have a single branch in a majority black neighborhood. But still calls itself America's most convenient bank. And Aaron, how did they compare with other banks?
Aaron Glantz: All the other big banks in Philly had at least one or two branches that served the black community.
Al Letson: So what did TD Bank have to say for themselves?
Aaron Glantz: They wouldn't talk to us. But they sent a statement, "TD's denial rates for all lending products across all races, ethnicities and consumer segments show similar patterns. This demonstrates that TD Bank makes credit decisions based on each customer's credit profile. Not on factors such race or ethnicity."
Al Letson: So they claim they don't discriminate.
Aaron Glantz: Right, but here's what's not in their statement. When you look at all the large banks in America, TD Bank was the most likely to deny a loan application from a black person or a Latino.
Al Letson: So Laura and Meghan who are both white, they got a loan really easy but after a year and a half of trying, Rachelle, who's black, was still struggling to get a loan.
Aaron Glantz: Hey there.
Rachelle Faroul: Hi Aaron, how are you?
Aaron Glantz: Thanks for having me over. When I meet back up with Rachelle, she tells me about her latest attempt to get a mortgage. It was with Santander Bank and again she was having trouble.
Rachelle Faroul: I understandably was really upset because I had been looking for awhile. And so I was like, "Well, what do I do?"
Aaron Glantz: Rachelle lays all her documents out on the table. Stacked and clearly labeled manila folders.
Rachelle Faroul: This is our loan, one of many loan documents.
Aaron Glantz: Despite everything she's been through to buy a house, she hasn't lost her cool. She tells me she tried to bring on a co-signer to help get the mortgage approved. Rachelle's mom said she'd do it. Her mom is a retired schoolteacher, who owns property and has a good pension. But the bank said no. So Rachelle's partner, Hanako Franz, suggested they apply together. The two had been dating for less than a year and Hanako didn't even have a full time job.
Hanako Franz: I worked very part-time at this grocery store and that was it.
Aaron Glantz: But they decided to go for it. Because Rachelle had been trying to get a loan for so long, her credit score had taken a beating. When a lender pulls a credit report, the score goes down. The unpaid electric bill hadn't helped either.
Rachelle Faroul: But the time we started the application, and I was ready to put an offer on the house, they had done so many pulls that my credit score dropped to 635. And I love you, I love you so hard but what was your credit score?
Hanako Franz: Mine was high, it was like 744 or something.
Rachelle Faroul: And you have no money.
Hanako Franz: Yeah, we did this after I was a schoolteacher for four years, quit my job, moved to Japan, was making nine dollars an hour at-
Rachelle Faroul: Selling french fries.
Hanako Franz: Yeah, selling french fries.
Aaron Glantz: Hanako's most recent paycheck was only $144. But she had something else going for her. She's white adjacent as Rachelle puts it. Her mother is Japanese and her father is white. Hanako identifies as Asian but she wondered if the loan officer saw her that way.
Hanako Franz: Legally my first name is Mary. And nobody calls me Mary, my email is Hanako. He would call me Mare. And then towards the end, just completely stopped answering Rachelle's phone calls. Just ignored all of them. And then I called and he answered almost immediately and is so friendly.
Aaron Glantz: At this point, Rachelle had been trying to buy a house for over a year. A few weeks after Hanako signed on, Rachelle finally got a mortgage.
Rachelle Faroul: Santander allowed me to get a loan because Hanako came on. This process in a lot of ways for me was really disempowering, it was humiliating. It was humiliating and that's where a lot of my bitterness comes from. I was made to feel like nothing that I was contributing was of value. Like I didn't matter, you know.
Al Letson: We've been hearing a lot about credit scores. They're supposed to be this neutral way of grading whether a person is a good credit risk or not.
Aaron Glantz: It's supposed to be an unbiased system.
Al Letson: Right.
Aaron Glantz: It was actually created to solve the problem of racism. Back in the '80s, loan officers would just turn people down just because of the color of their skin. And so a lot of people in the Civil Rights community thought, hey what we need here is an independent number, something that's fair, something that comes out of a machine. But it turned out that the formula that they used is itself discriminatory. It's like for example, if you already have a mortgage payment, every month you make your mortgage payment, your score goes up. So if you miss a payment, you have all those other positive payments to jack it back up again.
Aaron Glantz: If you pay rent, it only reports if you miss it. And there's a lot of other things like that. Like payday loans, where if you miss a payment, you get dinged. If you make a payment, you don't get any credit from the credit score model.
Al Letson: And then we see the banks aren't lending to African Americans and Hispanics, it seems like inequity's baked into the whole system.
Aaron Glantz: Yeah, and then again we found white people with lousy credit scores. Where the banks focused on the positive parts of their financial profile. And we found people like Rachelle, people of color, where the bank used credit score to say no.
Al Letson: Santander, the bank that eventually gave Rachelle a loan after her partner signed on, well, they wouldn't talk to us. Instead, the company sent us a statement, "While we are sympathetic with her situation," it said, "We are confident the loan application was managed fairly." The company also said, "It was more likely to grant a loan applicant from an African American than it's competitors." We reviewed the government data. It shows Santander was nearly three times as likely to deny a black applicant than a white one.
Rachelle Faroul: How are you?
Al Letson: Laura stopped by Rachelle and Hanako's new home. They're just around the corner from her. And this particular day was a big one.
Rachelle Faroul: Yes, first mortgage payment. Put it in the mail, yes.
Hanako Franz: You put it in the mail a few hours ago.
Rachelle Faroul: I put it in the mail today. Yeah, I'd written the check, I wrote the check on the 31st. I have no idea why it took me so long to put it in the mail. Maybe I was just being a rebel, you know. It's like, "Fuck Santander."
Al Letson: Don't worry, Rachelle's first mortgage check got there on time and yes, Rachelle and Laura both got to buy their houses. But get this, even though Rachelle is borrowing less money, she has to pay hundreds of dollars more every month. Her bank requires her to pay for mortgage insurance. Laura's doesn't.
Al Letson: As I mentioned earlier, if you're wondering how this is playing out in your neighborhood, just text HOME to 202-873-8325, that's HOME to 202-873-8325. You'll be able to see the number of loans made near you and the racial breakdown of people who got those loans and those who got turned away.
Al Letson: After the break, we go to the banks.
Speaker 14: I would just suggest you go online and see if you can make an appointment.
Al Letson: Or not.
Speaker 14: This is not a branch, not a bank.
Al Letson: That's next on "Reveal."
Al Letson: From the Center for Investigative Reporting and PRX, this is "Reveal." I'm Al Letson. We've been talking about a pattern in cities across America. Banks are turning away people of color when they apply for a home loan. And we're looking at Philly because it's one of the biggest cities with this problem. The banks haven't been interested in discussing this with us, so reporter, Aaron Glantz headed over to Philadelphia's downtown, known as Center City, where he's surrounded by banks.
Aaron Glantz: We have one, two, three, four, five ... Wait, I have to count again. J.P. Morgan Chase, BB & T, Republic, First Trust, P & C on one block and then Joseph A. Banks, the clothier. Because you couldn't sell a suit on this block unless you were called a bank, there's so many banks here.
Al Letson: Aaron is at the corner of Market and 17th Streets. There's a skyscraper here called Liberty Place and on the 47th floor is J.P. Morgan Chase, America's largest bank.
Aaron Glantz: Their branch here is part of their private client brand that caters to rich people.
Al Letson: This is the part of Chase that helps clients preserve their wealth. That's what their website says. You can also get a mortgage or a line of credit here. Aaron tries to go up to the 47th floor but he can't get past the security guards.
Speaker 14: I would just suggest you go online and see if you can make an appointment.
Al Letson: Aaron asked the guards if they'd call the branch manager, they said no.
Speaker 14: This is not a branch, not a bank.
Aaron Glantz: J.P. Morgan Chase is not a bank?
Speaker 14: This is not a bank.
Al Letson: But this location shows up in a federal database of bank branches. Chase told the FIDIC that, yes, it was a branch. But when Chase made a list of branches for the regulators who enforced the Community Reinvestment Act, the same building in Philly had disappeared. Aaron stepped outside.
Aaron Glantz: J.P. Morgan Chase on the 47th floor of this skyscraper, in its documents to the federal regulators, who are supposed to make sure that it's serving people in the communities where it's located, it's pretending that it's not here.
Al Letson: The Community Reinvestment Act says, banks only have to lend in low income communities, if they have a branch in a city that takes deposits. And when we first aired this story, J.P. Morgan Chase at Market and 17th Streets in Philadelphia was the banks only outpost in the city and wouldn't take deposits. That meant, the bank didn't have to lend in low income communities. Chase was exploiting a loophole in the law that allowed them to avoid the scrutiny of regulators.
Aaron Glantz: So what's the result of that lack of scrutiny, we looked at the data.
Al Letson: And it showed us that J.P. Morgan Chase helped 745 people buy homes in Philadelphia over five years but just 15 of those borrowers were African Americans.
Aaron Glantz: So in Philadelphia, the biggest bank in America, mostly lends to wealthy, white people.
Al Letson: You reached out to J.P. Morgan Chase but no one would talk to you, right?
Aaron Glantz: The company sent a statement. It didn't dispute the fact that Chase was almost exclusively lending to white people in Philly. But the company said it was planning on opening new branches there as part of a big national expansion. What Chase was doing is just one example of how banks are getting around the intent of the Community Reinvestment Act.
Al Letson: So Aaron, the banks wouldn't talk to you about this but come on, clearly there is a pattern here. I mean, 61 cities nationwide.
Aaron Glantz: Yeah, well, the banks wouldn't go on tape for this story but I spent a lot of time on the phone with them. I talked to the industry trade groups, the American Bankers Association and the Mortgage Bankers Association. And neither of them by the way, deny the basic fact that people of color are being turned down for mortgages at a rate far greater than whites.
Aaron Glantz: In a statement, the American Bankers Association said, "The fact that banks haven't gotten in trouble with the federal government, that means there's no systemic problem here." Both industry groups said we didn't include some very important factors in our analysis.
Al Letson: So what are the things that it didn't include?
Aaron Glantz: Well, we didn't include credit scores because we don't have them. And the reason why is the banks are keeping that information secret.
Al Letson: They didn't want to give you credit scores?
Aaron Glantz: It's not that they didn't want to give it to us, they've been fighting giving it to the government. Congress passed a law in 2011, that said, this information is really important. The global economy crashed because of bad lending. And there was a Dodd Frank Bank Reform Act. And one of the things that it did, is it said, "Banks, mortgage brokers, you need to give us this other important information so that we can monitor you."
Al Letson: And they still haven't done it.
Aaron Glantz: They've been fighting it every step of the way.
Al Letson: But the whole reason we got into the mortgage crisis is because people were getting houses that they couldn't afford and didn't have the credit for, right?
Aaron Glantz: Right. They corrected for that. Remember, think back, 2008, 2009, nobody could get a loan. Credit has evaporated for everyone. Now here we are a decade later, credit is back but only for some people.
Al Letson: And how do they justify that?
Aaron Glantz: The banks are saying that if the public did have this information, the same information that the banks themselves are withholding, some of the disparities we're seeing would simply melt away. That once you had this key credit score data, that you would understand why it is that African Americans or Latinos would be denied at a far greater rate than whites.
Al Letson: So are they basically saying that blacks and Latinos just naturally have bad credit? I mean, that's what it sounds like you're saying.
Aaron Glantz: Yeah, I think that's one of the main reasons why nobody would give an on the record taped interview for this story. I mean, I spent months trying to get any of the banks that are featured in this show to sit down and talk to me on tape. And I think fundamentally, the reason that they didn't want to do it is 'cause they would have exactly the same exchange with me that you and I are having right now.
Al Letson: Okay, so if the banks wouldn't talk to you, what about the people over the banks, the government regulators?
Aaron Glantz: Well, the mortgage data we analyzed was from 2015 and 2016, during the Obama administration. So I met with the nation's top bank regulator when Obama was in charge. He's in Boston.
Aaron Glantz: Tom Curry's in the private sector now. Instead of regulating banks, he represents them. He works for the Nutter Law Firm. Their offices overlook Boston Harbor. The firm is on the fifth floor. Curry's a soft spoken guy, a 61 year old man in a suit who has spent his whole career in government. The last five years as the nation's top bank regulator. The Comptroller of the Currency. I really only had one question for Curry, how was it that during those five years inspecting banks, that he found 99% of them to be doing a satisfactory or outstanding job. So almost every bank in America is doing a good job?
Tom Curry: Really, I think you have to look at each individual bank and their individual record to see how well they're serving their communities.
Aaron Glantz: We told him about TD Bank, giving a loan to our producer, Laura Starecheski, a young white woman without much savings and a lot of student loan debt. At the same time, they denied the majority of home loan applications from African Americans. Curry said he wouldn't talk about any particular bank. But he made this more general point about the Community Reinvestment Act.
Tom Curry: It's consistent with safe and sound lending practices.
Aaron Glantz: What Curry meant was, even though banks are required to lend in low income neighborhoods and to poor and working class people, that doesn't mean that they have to give a loan to any particular person. Especially if they're unqualified. I told Curry about our analysis of 31 million mortgage records. And that we found 61 cities across the country where people of color are more likely to be denied home loans. That's even after accounting for other factors like how much money they earn. Or the amount they want to borrow.
Aaron Glantz: I mean when you see these numbers after doing the analysis in Mobile, Alabama, Ocala, Florida, Greenville, North Carolina, Vallejo, California, Columbia, South Carolina, all of these cities where our statistical analysis shows the reason you'd be denied for a loan, is the color of your skin and yet under your tenure, under the previous head of the agency, 99% satisfactory, how can everyone be getting this satisfactory rating?
Tom Curry: Again, I can't answer that.
Aaron Glantz: We found the same thing in Memphis, in Wichita, in Little Rock. If all of these banks are getting satisfactory Community Reinvestment Act assessments, how come in all of these places people are being denied?
Tom Curry: I think that the results from your studies are unacceptable from the standpoint of what we want as a nation and to make sure that everyone shares in economic prosperity.
Aaron Glantz: Curry may say today but he was in office, he gave a passing grade to 99% of banks. After Curry left, President Trump tapped Joseph Otting to be his Comptroller of the Currency. Otting is the first former bank executive to hold the position in half a century. He was president and CEO of One West, which after the housing crash was nicknamed, the foreclosure machine. He left with a 12 million dollar severance package and then became CEO of a golf club in Vegas. At his confirmation hearing, Senator Sherrod Brown of Ohio, grilled Otting about his record at the bank.
Senator Brown: You permitted your bank to break the rules while in the process making life harder for homeowners. How do we trust that you won't allow banks to skirt the rules and harm their customers as their regulator?
Joseph Otting: My viewpoint is if you look at the actual facts there's a false narrative out there about the One West Bank servicing operation. I think you would walk away feeling very good about our operations.
Senator Brown: Well it's a false narrative to you, not to those that lost their homes.
Aaron Glantz: We requested an interview with Joseph Otting but he wouldn't talk to us. I asked his predecessor, Tom Curry, why he gave a passing grade to Otting's bank, One West, when they had such a poor track record of lending to blacks and Latinos.
Aaron Glantz: During the five years that he was the head of this bank, they made exactly three loans to African Americans to help them buy homes and just 11 to Latinos and your office gave this bank a satisfactory rating. And it's one of the biggest banks in Southern California.
Tom Curry: I'm not gonna really get into specific banks regardless of who was the CEO.
Al Letson: So this is where we are. The top bank regulator in this country, ran a bank that pretty much only lent to white people. And that was made possible in part because a person who was in that same chair before gave him and nearly everyone else a passing grade on the Community Reinvestment Act. So this landmark Civil Rights law from 40 years ago that was supposed to deal with the historic legacy of redlining is useless for a lot of people it was supposed to help. In fact, a cruel twist of the law is driving the ferocious pace of gentrification in cities around the country. Aaron went to another neighborhood in Philly where you see the change is happening.
Aaron Glantz: It's Point Breeze, just south of Downtown Philly. It's filled with vacant lots, boarded up buildings, a bunch of liquor stores, but there's construction all over the place. On one corner, you can see a Zagat rated brunch place, a café that serves espresso and PB and J. There's even a new yoga studio. The mastermind of this whole neighborhood transformation is developer Ori Feibush.
Ori Feibush: It's incredible to see just in five years how much this little pocket has changed.
Aaron Glantz: Back in the 1930s, this was one of the neighborhoods that the federal government drew lines around on maps and shaded red, declaring it hazardous for lenders. Today, it's the type of place where banks are supposed to lend under the Community Reinvestment Act.
Ori Feibush: There's a host of programs available from every major lending institution that provides first time buyers in this neighborhood with cheaper credits and cheaper money that you would be able to get to elsewhere. It is arguably easier to get financing where we sit today than just a few blocks to our north and in a more affluent community.
Aaron Glantz: And least it is for Ori, a wealthy, white developer. In this neighborhood, his crews are demolishing old row houses and putting up big single family homes and townhouse complexes. When I told Ori that we found banks are favoring white borrowers over people of color, he found it hard to believe that banks would do anything that cost them business.
Ori Feibush: It doesn't reconcile with what I see is common sense and it would obviously be heartbreaking to hear that.
Aaron Glantz: Ori walks me over to a big townhouse project currently under construction. A whole city block. It's financed by the only bank with a branch in the neighborhood.
Ori Feibush: So this lot immediately to our right where 46 homes are gonna go, is being financed by First Trust. They're gonna finance the construction financing over the next couple of years here.
Aaron Glantz: First Trust Savings Bank is a local company that's been in the neighborhood since 1934. They're financing this new development but not doing much to help long time residents here. Adrienne Stokes is a retired bill collector who works part-time as a home health aide.
Adrienne Stokes: Come on Boots, come on Boots, thank you.
Aaron Glantz: She lives here with her pitbull, Boots. She loves Boots. He has his own Facebook page. She lives a few blocks from Ori, in a small brick house with aluminum siding on the top floor, concrete stoop, the metal gate in front is closed with a bungee cord. She brings me inside and shows me how much work the house needs. The windows are cracked. They let in cold air in the winter and water when it rains.
Adrienne Stokes: I just want to replace all this because, like I said, these are all the windows. These windows are really off track.
Aaron Glantz: Downstairs in the basement, the sump pump backs up when it rains. The circuit breaker is hanging off the wall.
Adrienne Stokes: There you go, yuck, yuck, all these wires drive me crazy. And all these wire is like, oh my god, I don't know what's going on. I'm just scared.
Aaron Glantz: Adrienne went to First Trust to get a home equity loan. Seemed like the natural thing to do. She was current on her mortgage and the balance was low, plus, she had about 200 thousand dollars in equity because her house is now worth more. She asked for 30 thousand dollars, the bank turned her down.
Adrienne Stokes: I just wanted a home equity loan to fix up my house and I couldn't believe they denied me.
Aaron Glantz: First Trust helped more than 500 people in Philly buy homes with conventional mortgages over five years. Just 11 of them went to African Americans. When I visited, the branch manager didn't want to talk. And like every other bank that I approached for this story, First Trust wouldn't give an interview. They wouldn't even send a statement.
Aaron Glantz: So what happens if the banks won't help out? Philly real estate broker Arlene Wayns-Thomas says, a broken sump pump can be the start of a downward spiral.
Arlene W.: Now it's a sewer line problem. Goes out into the street and the city's going to tax or fine or lien because I had to repay, and I don't have the money to do that, what happens? I have to give that house up. And here comes the gentrification.
Aaron Glantz: And that's how even long time homeowners are forced out.
Al Letson: When our story first aired last February, the reaction in Philadelphia was immediate.
Kenyatta J.: We sometimes give in to the myth that the Civil Rights movement is regulated racial segregation to darker days of American history.
Al Letson: That's Kenyatta Johnson, who represents Point Breeze on the City Council.
Kenyatta J.: But here we are on the 50th anniversary of the Fair Housing Act and deep segregation is alive and kicking.
Al Letson: And across the country, six state Attorney Generals have launched investigations.
Speaker 21: Frankly, I'm disgusted by it. We have launched an investigation.
Al Letson: Banks have opened new branches. And in D.C., lawmakers have been speaking out.
Senator Warren: Lending discrimination is real. A new comprehensive report that looked at housing markets all across the country, just came out from the Center for Investigative Reporting and "Reveal." And it's findings should make us all sick to our stomachs, the "Reveal" reports show ...
Al Letson: That's Senator Elizabeth Warren of Massachusetts. She introduced legislation that would attack redlining head on. One housing advocate called it, "the biggest effort in decades to address a century of housing discrimination." "Reveal's" Aaron Glantz and Emmanuel Martinez, who crunched all the numbers for this story join me in the studio now. Hey guys.
Emmanuel M.: Hey, what's up, Ming?
Aaron Glantz: Good to see you, Al.
Al Letson: All right, so you guys really stirred things up.
Emmanuel M.: Yeah, a lot's happened in the past year.
Aaron Glantz: Well, we took this issue that is pervasive in this country but that people don't really like to talk about and we blew it up.
Al Letson: So what's happening now?
Aaron Glantz: In Philly, where we centered our story, the City Council held hearings and they decided to appropriate a 100 million dollars to fighting redlining. A lot of it is gonna go to help people like Rachelle buy homes. And on top of that, they've launched this public, private partnership to make sure that people who are denied on a home loan application, that those applications get a second look to make sure they're not wrongfully denied.
Emmanuel M.: And then banks are opening up branches too. TD Bank, for example, which brands itself as America's most convenient bank-
Al Letson: Except for in communities of color.
Emmanuel M.: Yeah, yeah, yeah but they have said they wanted to open up a new branch in a neighborhood of color in Philly. And then Chase, which is doing this whole national expansion of branches, they're opening up new ones in Philadelphia and Washington D.C. and in other places. Meaning, they'll have to start following the law there.
Al Letson: All that sounds really good but I think it's important for our listeners to know that they're not just doing it because they're great, they're doing it because well, they're under investigation.
Aaron Glantz: All across the country Attorney's General in Pennsylvania, Illinois, D.C. and elsewhere have launched investigations of these banks to make sure that they're following the law. Consumer advocates are very hopeful about these investigations and they're also really depending on them because while they're these very active State Attorney Generals, they have the Trump administration to deal with Washington.
Al Letson: Right, because as we heard a few minutes ago, the man in charge of the bank that was called, the foreclosure machine, is now in charge of regulating banks under Trump.
Emmanuel M.: Yeah, that would be Joseph Otting. He's been gutting the Community Reinvestment Act. He's rewriting the rules to make some of the loopholes that Aaron and I reported on, even bigger.
Al Letson: What about Ben Carson, he's the head of Housing and Urban Development. Does he have any role to play in this?
Emmanuel M.: So he's in charge of the agency that looks at fair lending issues. And what he tried to do was eliminate the words, "free from discrimination" out of the agency's mission.
Aaron Glantz: Al, you probably heard that President Trump has been trying to dismantle the Consumer Financial Protection Bureau. Well, part of that has included closing the division of the CFBP that was supposed to track down and prosecute redlining.
Al Letson: So what hope do people have? The administration is actively either turning a blind eye to it or on the side of the banks as it may seem. What hope do regular every day Americans have?
Emmanuel M.: One of the politicians that was really upset by our story and demanded hearings was Congresswoman Maxine Waters of Los Angeles. Now, with a Democratic take over of the House, she's in charge of the banking committee, meaning she can demand more hearings and even pass some laws.
Al Letson: She's going to be reclaiming her time all over again.
Aaron Glantz: She has decided that this area of combating discrimination and equity in the financial sector is gonna be a major focus of her chairwomanship of the Financial Services Committee. She invited Emmanuel and myself out to D.C. last spring, after our story came out to brief her and other members of the Democratic Caucus. And now she has the gavel, so it will be interesting to see what she does with this new power.
Al Letson: All right guys so we heard what all the players in this story are doing, what are you guys doing now that you've done this really big investigation?
Emmanuel M.: This area is just so complex so Aaron and I are still digging.
Aaron Glantz: And we made a lot of progress as you heard getting people to pay attention but these problems are real, they're ongoing and we're gonna keep on it.
Al Letson: Aaron Glantz and Emmanuel Martinez, thanks guys.
Aaron Glantz: Thank you.
Emmanuel M.: Thanks a lot, Al.
Al Letson: Earlier in the hour we met Rachelle Faroul, an African American woman who could only buy a house after her partner signed on. Her bank, Santander is one of the only banks in America that's been downgraded under the Community Reinvestment Act. Satisfactory to needs to improve. Now, Santander has made a promise. The bank says it will make billions of dollars of home loans to low and moderate income families across the Northeast, lend to small businesses in hard hit communities, and open branches in low income neighborhoods and communities of color. When we told Rachelle about Santander's promises, she wasn't impressed. She says that if something big doesn't change, the city where she's just managed to buy a home, will become even more racially divided.
Rachelle Faroul: I suspect that in 10 years, maybe less, I'll be the only black person living on this block. That's the impact. People who own homes, black people who own homes, will lose them due to foreclosure and then black people who want to buy homes will only ever be able to rent.
Al Letson: As we've said throughout this hour, lending disparities aren't unique to Philadelphia, they're happening across the country. We've made it really easy to find out what's happening with lending near you. Just text HOME to 202-873-8325. That's HOME, to 202-873-8325. You can visit our website, revealnews.org to find out which banks lent to people of color and which didn't. A whole team of people helped make today's show possible. Katharine Mieszkowski was our lead producer with help from Laura Starecheski. Aaron Glantz and Emmanuel Martinez reported the story. It was edited by Deb George. Amy Pyle oversaw our entire redlining project and edited the stories that you can read on our website. Anne Hoffman and Rachel de Leon reported from Philadelphia. Eric Sagara, Sinduja Rangarajan, Michael Corey, and Jennifer Lafleur helped with the data, as well as Angel Constanis from the Associated Press.
Al Letson: Special thanks to Animal Media Group in Pittsburgh and to Solomon Jones in Philadelphia. WHYY provided production support. Our production manager is Mwende. Original score and sound design by the dynamic duo, J Breezy, Mr. Jim Briggs, and Fernando, my man, Arruda. They had help from Catherine Ramando and Cat Shutnik. Our CEO is Christa Scharfenberg. Our senior supervising editor is Taki Telonidis. Our executive producer is Kevin Sullivan. Our theme music is by Camardo, Lightning.
Al Letson: Support for "Reveal" is provided by the Reva and David Logan Foundation, the John D. and Catherine T. MacArthur Foundation, the Jonathan Logan Family Foundation, the Ford Foundation, the Heising-Simons Foundation, and the Ethics and Excellence in Journalism Foundation. "Reveal" is a co-production of the Center for Investigative Reporting and PRX. I'm Al Letson, and remember, there is always more to the story.
Speaker 23: From PRX.