Redline (verb): to withhold home loans or insurance from neighborhoods considered poor, economic risks.
In other words, redlining is when a lender draws a red line around a neighborhood on a map, often the minority-heavy areas, and then refuses to lend in those “high-risk” communities.
It’s illegal.
Local bank Midwest BankCentre hasn’t originated a single mortgage loan to a black borrower since 2003, according to data collected through the Home Mortgage Disclosure Act. The 2008 data was released on Sept. 30.
None of the bank’s seven full-service branches are in areas with a significant black populations. They are located in Clayton, Arnold, Lemay, Oakville, Chesterfield, Winghaven, St. Charles and Fenton.
When the St. Louis Equal Housing and Community Reinvestment Alliance sent in two undercover home-loan inquirers – one black and one white – the white lesser-qualified borrower received numerous calls and information from a senior lending officer.
The black borrower did not receive any follow-up calls or information.
In a Sept. 28 letter to the Federal Reserve Bank of St. Louis, the alliance stated that the Midwest BankCentre does not comply with the 1977 Community Reinvestment Act because of its locations, number of loans made to black individuals and the poor customer service to the black community.
“It looks like old-fashioned redlining to us,” said Mira Tanna, assistant director of the EHOC. “Banks must meet the needs of all those in the service area.”
In a press release responding to the alliance’s letter, MBC Chairman Ronald Barnes states, “We appreciate the Alliance’s concerns, but we strongly disagree with the assertions made about our performance under the Community Reinvestment Act and our bank’s lending practices,” Barnes said. “We do not tolerate discrimination on the basis of race, color or national origin.”
Because Midwest is a considered a large bank, its service area should be the entire metropolitan area, Tanna said. However, before 2001, the bank’s “assessment area” – which the bank is allowed to define itself – excluded large parts of North County and St. Louis city.
Now the bank has included parts of North County in that definition, but the service centers in North County are for deposits only, and only open to residents in the senior-living homes where they’re located.
Since the bank will be up for an evaluation by the Federal Reserve Bank in November, the alliance wanted to provide a public comment – which any one can submit – before that time.
The 2008 Home Mortgage Disclosure Act data gives a clear report card for Midwest BankCentre:
• In 2007, Midwest BankCentre received 10 applications for mortgage loans from African Americans. Of the 10, six were denied, and four were withdrawn.
• The bank received two mortgage loan applications from Asians, one which was denied and one of which was processed.
• One Hispanic borrower applied for a mortgage loan and was denied.
• The bank received 186 applications from white borrowers and processed 97 of these applications, approved another five applications which were not processed and denied 35 applications. Forty-nine applications were withdrawn.
• All the bank’s service branches are located in areas with less than two percent African American populations. The St. Louis metropolitan area has an 18.3 percent black population.
The bank also has regional advisory boards – seated with people who are familiar and concerned with the community – in all the areas except North County and St. Louis city.
“It seems clear that North County is not a priority” for the bank, Tanner said.
In the bank press release, Barnes states that, “Beginning in 2004, the bank changed the manner in which it processed and reported the mortgage loans it originates. Since 2004, loans originated by the bank to minorities have continued to increase, not decrease.”
Redlining is discrimination, and of course that alone is unethical. But, the long-term affects can be lead to the deterioration of a community. Redlining contributed to the foreclosure crisis and the birth of predatory lending, Tanner said.
The foreclosure crisis has had a puncturing impact on the African-American population in St. Louis and the rest of the nation. Historically, the black community has had a difficult time building credit and obtaining loans. Had banks provided good loan products, “maybe lenders wouldn’t have had an easy time marketing for bad loans,” Tanna said.
When it’s hard to get credit, it’s equally difficult for people to buy into that area, said Michael Greenfield, a Washington University law professor of contracts and commercial law. That’s when houses deteriorate and people start selling their houses at any price.
“It’s a downward spiral of the health of a community,” he said.
In the 1950s and ‘60s, before Congress enacted the act, redlining was quite prevalent. The act is able to prevent such practices largely when banks try to expand.
Midwest BankCentre is looking to expand down the I-55 corridor to southern Missouri, Tanna said. However, most banks don’t have much interest in expanding with the current economic conditions, Greenfield said.
The Federal Reserve Bank looks at the bank’s compliance with the act when it grants permission to a bank’s expansion proposal.
“So it gives banks incentive to invest in the community,” Greenfield said of the law.