My Polemic on Bush and Homeownership

Bush's Second Chance to Close Minority Homeownership Gap American Banker Friday, November 5, 2004By Vina Nguyen Ha and Nativo Lopez


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With the weight of the campaign off his shoulders, President Bush must begin his second term by recalibrating his administration so that it can achieve the policy goals he set during his first term.
In particular, the President's 2002 promise to close the minority homeownership gap has been undermined by the lack of leadership from the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.
Through their Community Reinvestment Act examinations and bully pulpit, the FDIC and OCC can encourage financial institutions to increase minority homeownership. But this is unlikely when both agencies use a CRA exam process that does not include new home lending in underserved minorities and when the criteria are so lax that virtually all pass.
Chairman Donald Powell's FDIC, for example, oversees the largest number of financial institutions and can play a vital leadership role in closing the gap, but it has failed to do so in two ways.
First, its overly lenient CRA examinations fail to foster innovation in CRA-related activities that can promote home lending to minority and low-income new homebuyers. Nearly all FDIC-regulated institutions pass their exams. Only 20 out of almost 5,500 received a "needs to improve" or lower rating. In other words, 99.6% are given no inducement to better serve minorities, despite the fact that many have an unsatisfactory record.
The FDIC's record in California, which has the biggest homeownership gap between whites and minorities, is a stark example of benign neglect for the President's goal. Only one of 143 FDIC-regulated California institutions received a "needs to improve" rating in its CRA exam. The rest passed because minority home lending data are not analyzed. If they were, most of these institutions would be found to be lending to African-American and Latinos at a level warranting a "needs to improve" rating or less.
One California bank received a "satisfactory" CRA rating from the FDIC even though it made just 1% of new home loans to African-Americans and Latinos combined, though the two groups make up over 40% of the state's population.
Second, the FDIC proposal to exempt institutions with assets of under $1 billion from thorough CRA exams is a clear indication that the agency is undermining rather than supporting the President's goals. By eliminating the comprehensive review for banks with assets below $1 billion, the FDIC will make it even easier to avoid lending in minority and lower-income communities.
Experts agree that weakening CRA will hurt such communities. Mel Martinez, President Bush's first housing secretary, said the law had a "very important role to play" in building communities and making more Americans homeowners. The Los Angeles Times reported that "tougher enforcement" of CRA laws under President Clinton "helped fuel unprecedented gains in homeownership among blacks and Latinos" in the 1990s. And a statistical analysis by Harvard University found conclusively that lenders subject to CRA requirements lent more heavily to low- and moderate-income borrowers.
Since President Bush issued America's Homeownership Challenge to the real estate and mortgage finance industries in June 2002 the national homeownership rate has risen to a historic high of 69%. But while for whites it is 75%, for African-Americans and Latinos it is 47%.
The disparity is even worse in high-cost-of-living states like California. There, rates for African-Americans and Latinos are 40% and 44%, respectively; the rate for whites is 72%.
With the recent resignation of Jerry Hawke from the OCC and with Don Powell stepping down from the FDIC, the President has a second chance to revitalize these agencies. There has been progress since 1993, but far more needs to be done. It is estimated that another 7 million African-Americans and Latinos must become homeowners to reach parity with the rest of America.
If the FDIC and OCC continue with business as usual, President Bush will leave office without having made significant progress. To avoid this, he must appoint two activist regulators who will attempt to achieve his goal by emphasizing the gaps between minority and white home lending in every CRA exam.
Mr. Nguyen Ha is the economic policy fellow at the Greenlining Institute in Berkeley, Calif. Mr. Lopez is the president of the Mexican American Political Association in Los Angeles and the national director of Hermandad Mexicana Latinoamericana in Santa Ana, Calif.

Bush's Second Chance to Close Minority Homeownership Gap American Banker Friday, November 5, 2004By Vina Nguyen Ha and Nativo Lopez



With the weight of the campaign off his shoulders, President Bush must begin his second term by recalibrating his administration so that it can achieve the policy goals he set during his first term. In particular, the President's 2002 promise to close the minority homeownership gap has been undermined by the lack of leadership from the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. Through their Community Reinvestment Act examinations and bully pulpit, the FDIC and OCC can encourage financial institutions to increase minority homeownership. But this is unlikely when both agencies use a CRA exam process that does not include new home lending in underserved minorities and when the criteria are so lax that virtually all pass.
Chairman Donald Powell's FDIC, for example, oversees the largest number of financial institutions and can play a vital leadership role in closing the gap, but it has failed to do so in two ways.
First, its overly lenient CRA examinations fail to foster innovation in CRA-related activities that can promote home lending to minority and low-income new homebuyers. Nearly all FDIC-regulated institutions pass their exams. Only 20 out of almost 5,500 received a "needs to improve" or lower rating. In other words, 99.6% are given no inducement to better serve minorities, despite the fact that many have an unsatisfactory record.
The FDIC's record in California, which has the biggest homeownership gap between whites and minorities, is a stark example of benign neglect for the President's goal. Only one of 143 FDIC-regulated California institutions received a "needs to improve" rating in its CRA exam. The rest passed because minority home lending data are not analyzed. If they were, most of these institutions would be found to be lending to African-American and Latinos at a level warranting a "needs to improve" rating or less.
One California bank received a "satisfactory" CRA rating from the FDIC even though it made just 1% of new home loans to African-Americans and Latinos combined, though the two groups make up over 40% of the state's population.
Second, the FDIC proposal to exempt institutions with assets of under $1 billion from thorough CRA exams is a clear indication that the agency is undermining rather than supporting the President's goals. By eliminating the comprehensive review for banks with assets below $1 billion, the FDIC will make it even easier to avoid lending in minority and lower-income communities.
Experts agree that weakening CRA will hurt such communities. Mel Martinez, President Bush's first housing secretary, said the law had a "very important role to play" in building communities and making more Americans homeowners. The Los Angeles Times reported that "tougher enforcement" of CRA laws under President Clinton "helped fuel unprecedented gains in homeownership among blacks and Latinos" in the 1990s. And a statistical analysis by Harvard University found conclusively that lenders subject to CRA requirements lent more heavily to low- and moderate-income borrowers.
Since President Bush issued America's Homeownership Challenge to the real estate and mortgage finance industries in June 2002 the national homeownership rate has risen to a historic high of 69%. But while for whites it is 75%, for African-Americans and Latinos it is 47%.
The disparity is even worse in high-cost-of-living states like California. There, rates for African-Americans and Latinos are 40% and 44%, respectively; the rate for whites is 72%.
With the recent resignation of Jerry Hawke from the OCC and with Don Powell stepping down from the FDIC, the President has a second chance to revitalize these agencies. There has been progress since 1993, but far more needs to be done. It is estimated that another 7 million African-Americans and Latinos must become homeowners to reach parity with the rest of America.
If the FDIC and OCC continue with business as usual, President Bush will leave office without having made significant progress. To avoid this, he must appoint two activist regulators who will attempt to achieve his goal by emphasizing the gaps between minority and white home lending in every CRA exam.
Mr. Nguyen Ha is the economic policy fellow at the Greenlining Institute in Berkeley, Calif. Mr. Lopez is the president of the Mexican American Political Association in Los Angeles and the national director of Hermandad Mexicana Latinoamericana in Santa Ana, Calif.