The banks have denied the allegations of modern day redlining during a city council hearing Thursday, arguing that data used in a recent report that revealed racial disparities in mortgage lending in Philadelphia does not represent the entirety of their lending business.
“[The] the data, by itself, doesn’t tell the whole story about the basis on which mortgage lenders make their credit decisions, ”said Monica Lynn Burch, community development market manager for Citizens Bank in a report. testimony submitted to the board with similar letters from PNC and Wells Fargo.
“The reality is that mortgage lenders make their credit decisions taking into account a lot of factors that are also essential in taking out loans, but which are not part of the publicly available data,” said Burch. “These additional factors include critical items such as the applicant’s credit history (eg, credit score) and debt-to-income ratio, as well as the interest rate, total loan costs, and loan-to-income ratio. loan value offered. “
The banks were responding to an open invitation from City Councilor Kenyatta Johnson to speak at a public hearing on racial disparities in mortgages. Johnson called for the forum in response to the report by Reveal from the Center for Investigative Reporting (CIR). PlanPhilly produced stories about Philadelphia in conjunction with Reveal as part of the National Inquiry.
But while a deep relationship with Philadelphia and its residents was part of the defense made in citizen testimony as well as that of PNC and Wells Fargo, none of the financial institutions sent representatives live to speak at the hearing. . San Francisco-based Wells Fargo is currently pushing back a lawsuit against the city of Philadelphia accusing the bank of engaging in discriminatory lending practices targeting black and Hispanic borrowers.
The absence of the banks did not prevent dozens of people from testifying in detail about the powerful impact of mortgage lending practices on neighborhood development, economic mobility and prosperity across the city.
“Listening to the testimonies of different people who have served on various panels as well as those who have made public comments, it shows that this is an issue that affects all walks of life,” Johnson said. . “When you talk about affordable housing, housing for the workforce, when you talk about the issue of gentrification, everything is linked. In a city like this, everyone should have the chance to follow the American dream, become first-time buyers.
In February, following the publication of the modern day redlining report, Pennsylvania Attorney General Josh Shapiro announced an investigation into lending practices in Philadelphia. The investigation will be conducted in conjunction with the US Bureau of Consumer Protection and the Pennsylvania Human Rights Commission, according to the AG’s office.
“If I discover wrongdoing or violations of the law, I will not hesitate to hold anyone to account and seek justice for all those who have been injured,” Shapiro said.
The state attorney general spoke at the start of the five-hour meeting, focusing on how it is common for banks and other lending institutions to justify their racial credit spread by highlighting the low ratings of credit. Bank officials often claim that the gap does not exist because of race, but because these minorities have lower credit scores, which means these populations are less likely to repay their debts.
Shapiro told Johnson the excuse was “deeply problematic” and a “proxy for identifying minorities and low-income people”. He also pointed out that the formulas used by banks to determine credit scores are not available to the public. Worse yet, “these secret formulas are controlled by three for-profit companies: Experian, TransUnion, Equifax, the same Equinox that recently suffered a data breach so massive it exposed the personal information of 145 million Americans.” , Shapiro said.
Councilor Johnson and Councilor Cherelle Parker wanted to know exactly how the city has, in the past, penalized banks for this kind of behavior. They turned to city treasurer Rasheia Johnson for answers.
“We can’t tell the banks how to operate,” she said before a member of the public interrupted her by shouting “What”.
“However, we can work with them to become better citizens,” the city official continued.
Johnson recommended active communication with the banks on the matter. City officials can tell institutions, he said, “before you even think about submitting a request for proposals, this is our standard.”
A few experts have warned the council against starting a deadlock with the big banks.
“Nothing prevents the city from requesting this information from banks more quickly,” said Frank Linnehan, dean of LeBow College of Business at Drexel University. “So you can ask the banks – and possibly with the help of a third party – to form a consortium and say, ‘hey, look, this is the information that we would like to see.’ We are not accusing you yet, as we do not have the data of predatory or unfair lending practices. However, what we need to do is look at the data to see what the wealth levels are, what the debt levels are, for these candidates.
Linnehan also pointed out that banks sell mortgages in the secondary market, so it’s not always the banks that are the problem – it’s the constraints of the secondary market and whether or not banks can sell those assets.
“If the loans themselves comply with the usual secondary market requirements, and this indeed has a discriminatory impact, then it is not the bank that is involved, it is really more the institutional structural system than us. have, ”he said. noted. “So I think that by reaching out to the banks with an understanding of these concerns, you can get more approval in this communication with them.”
After four hours of testimony, a group of Point Breeze residents approached the microphone to speak. Tiffany Green accused the city of supporting white developers as they develop black neighborhoods without considering the needs of existing residents. This, she said, sends a message to banks that it’s okay to leave them in the dust.
“Monkey see, monkey do,” Green said.
The hearing ended without clear conclusions. Johnson said his next step is to investigate banks doing business with the city government and then develop a plan to address any troubling trends that are revealed.