We talk with former Civic Reporting fellow and co-author of “Where Banks Don’t Lend” Andrew Fan about his thoughts on the new law and the work that remains.
By Lucia Anaya
(Photo: Maria Alejandra Cardona)
On March 23, Governor J.B Pritzker signed the Illinois Community Revitalization Act into law. It creates an oversight system that ensures residents are equitably served by all three main segments of the mortgage lending market: banks, credit unions and state-licensed mortgage companies.
The law comes almost a year after a City Bureau and WBEZ report that revealed massive racial disparities in home lending in Chicago. Since then, public officials and activists have pointed to our work as proof of systemic racial inequalities and disinvestment in communities of color.
To understand more about the impact the Illinois Community Reinvestment Act will have on mortgage lending in the state, we spoke with Andrew Fan, who co-authored the original report along with WBEZ’s Linda Lutton and Alden Loury. Fan, who is now at the Invisible Institute, led a team of fellows who tackled the issue of home lending disparities in the spring 2019 cohort.
Here’s what he had to say.
Tell me about your involvement in the original report. Why were you interested in this topic, and what issues did you want to address through your reporting?
Before I was a reporter, I worked for a community development bank, a bank that primarily did its lending on the South Side and the West Side, for several years. I got to see the role that lending plays in having access to credit, starting a business, building wealth, buying a home and shaping the neighborhood you're in, in meaningful ways. If you can't access that, due to the way the credit and lending system is set up, it can create real impediments.
At the time, I submitted some of our regulatory reports, including something called an HMDA, which is a Home Mortgage Disclosure Act. I sent the federal government a list of loans that listed every loan backed by housing every year. While doing that, I realized that you could use this to compare different banks, compare different lenders, and see who was lending. At the time, I was based in Chatham, and I was like, oh, who else is really lending in Chatham? I remember being surprised to find that the bank I was working at, which was tiny, was one of the biggest lenders in the neighborhood, at least in some segments of housing lending. A lot of the big banks that are many, many hundreds of times, if not thousands of times the size of my bank, were doing far less. That struck me because they have branches in the neighborhood. They took deposits from people in the neighborhood, but there wasn't a lot of evidence that the lending was going out to them.
The Illinois Community Reinvestment Act will assess the performance of state-chartered banks, state-chartered credit unions and non-bank mortgage lenders in meeting the needs of economically disadvantaged communities. How effective do you think it will be?
From my standpoint, it seems like a useful step for tracking this information and creating basic structures of oversight and accountability for lenders. Monitoring how banks are doing in ways that maybe they're not doing themselves is important. Also, the way that the Illinois Community Reinvestment Act includes non-banks is important too.
One thing we found is that the Federal Community Reinvestment Act only regulates banks. But if you look at the South Side, [and] you look at majority Black neighborhoods; the biggest lenders are not banks, they are online lenders. They’re places like LoanDepot or Quicken Loans that are not constrained by these laws. We didn't find evidence of wrongdoing there but I think that it's a huge gap in the current system.
Banks care about the Federal Community Reinvestment Act because it has real teeth to it. There are things that can absolutely be strengthened on it, but if banks want to merge, if they want to purchase other banks, that [process] can be held up by the federal government if they're not meeting those regulatory requirements. So one thing I didn't necessarily see with the Illinois Community Reinvestment Act is that same sort of oversight that gives lenders some reason to care and listen. You can say they're not lending equitably, but they may just ignore you, for example. And that's something I’m curious about—the potential for something like that to exist in Illinois in the long term that has stronger teeth.
You mentioned the law is a useful step. What else do you think needs to happen to create a more equitable home lending process?
The reason we were actually able to do this reporting in the first place is that banks are more regulated: they have to give up more information and have to, at least, be a little bit accountable to lending equitably than most other businesses. These special laws, such as the Community Reinvestment Act and the Home Mortgage Disclosure Act, exist because activists fought for years in the 60s and 70s, to hold banks to account for redlining, unequal lending and other discriminatory and racist practices. So I think there's a chance to reinforce and strengthen that kind of system of laws and structures that keep banks accountable.
One thing that came up with the housing experts we talked to, is that while we focused on the role of lenders, it's obviously not just lenders. There are problems with appraisals; there are problems with the equal distribution of wealth. As a starting point, if you have resources, you can buy a home more easily, and it sort of just builds on itself. There's been a lot of discussions recently about other options that tackle inequity head-on, specifically reparations. That's an important thing to consider, too.
Last year, Nikole Hannah-Jones from the New York Times wrote something about these gaps. She ultimately said that the real policy solution we should be talking about is something that is reparations. That's absolutely right and if we can actually tackle these gaps, then we need to be thinking in that direction.
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