Executive Summary

Report

Recommendations

Appendix I

Press Release

Consumers Union and the Austin Tenant’s Council encourage consumers, regulators, policymakers, and lenders to work together to create a lending environment that ensures all communities will benefit from the state’s strong economy and burgeoning growth. The following recommendations involve a shared approach to ensure fair access to financial services as well as new opportunities for home ownership.

State policymakers should:

· Require Texas banks and thrifts to offer low cost accounts to low income families, and incorporate information about these accounts into their marketing literature. Accounts at banks, thrifts, and credit unions allow families to save safely, build a credit history, and to develop a relationship with an institution that may lead to a mortgage loan in the future.

· Create a loan guarantee, or “risk sharing” pool through TDHCA that will give banks an incentive to make low income home loans that they believe might be higher risk. TDHCA currently provides down payment assistance funds to lenders and others to promote homeownership for lower income families. Unfortunately, many families cannot qualify for the traditional mortgage loans from mortgage lenders even if they do have enough down payment and closing cost assistance. A partial state guarantee fund, or state mortgage insurance pool, would give bankers the security they need.

· Fully utilize and fund the state’s Office of Access to Financial Services to ensure policymakers have adequate information about home lending in Texas. Texas legislators established the office in 1997, but funding is insufficient to produce comprehensive information about home purchase and home equity lending in this state, and the office should have an independent voice to represent consumers.

State agencies and regulators should:

· Allocate the majority of “Balance of the State” HOME Block Grant funds only to rural areas and small towns.

· Market existing loan and programs to the presidents of small banks and in general to senior level staff in order to get the banks more involved. State agencies need to convince senior staff on why they need to partner with government. As one banker noted, “The key people must be convinced as to why governmental agencies make good partners. In the City of Tyler, CDBG funds have been used effectively; the providers agree to this & increased lender activity has resulted.”

· Invest state funds (pension funds and funds held for a long term in state comptroller accounts) to buy up low/moderate income Texas home loans and home loan securities to encourage banks to do more affordable lending. State investment in mortgages that meet CRA reinvestment guidelines would spur greater participation by banks.

· Encourage insurance companies to purchase Texas low income mortgages (or mortgage securities) in order to expand the market for low income home loans.

Lenders should:

· Increase outreach and marketing efforts to low income and minority communities--In our analysis we found lenders that are successfully lending in these areas, and our survey of lenders indicated that these lenders seek certain borrowers by advertising in Spanish language or other community media outlets.

· Develop home loan programs with flexible underwriting and down payment assistance—Innovative loan programs, and programs that work in collaboration with local downpayment assistance programs, can facilitate home ownership.

· Provide more grant funding to home buyer programs that help individual families become “credit-ready” before they apply for mortgage loans.

· Provide technical assistance in the creation of local community-based development organizations. Banks can also create their own Community Development Corporations (CDCs) and invest in community development projects or they can participate in community development through a multibank CDC. Both state banks and national banks are permitted to form these subsidiary entities in order to promote the public welfare.

· Invest in community development financial institutions (CDFIs). CDFIs are private-sector, financial intermediaries with community development as their primary mission. They find ways to make loans and investments that conventional financial institutions would consider unbankable, and they link financing to other developmental activities. There are six basic types of CDFIs: community development banks, community development loan funds, community development credit unions, microenterprise funds, community development corporation-based lenders and investors, and community development venture funds. Texas has 18 certified CDFIs and a number of national CDFIs, working in Texas through the US Treasury Department, with more loan funds being created each year.

· Conduct fair lending training and testing for bank employees involved in the mortgage loan process.

Sometimes personal biases subtly influence the lending decision. Lenders should work to identify practices used in their own loan process which may lead to a discriminatory result. All lenders should establish internal self-testing programs to weed out intentional and unintentional racial bias.

Federal regulators should:

· Raise the standard for an “Outstanding” or “Satisfactory” CRA rating and provide a more meaningful evaluation of how financial institutions are meeting the credit needs and services in their target areas. Nearly all Texas banks received a satisfactory or better CRA rating in 1998. Given the changes through the Financial Modernization Legislation recently enacted, most small banks will be evaluated under CRA every four years instead of every 18 months to two years. Federal regulators need make a rating of Satisfactory or better more meaningful to encourage compliance with this important law.

· Notify community and development groups of the CRA exam schedule in their area to encourage more active participation in the exam process.

· Hold regular meetings with residents and community groups, and tour neighborhoods within a bank’s service area to assess the performance of banks.

· Enforce existing HMDA reporting requirements, especially with respect to subprime lenders who do not report the race of the applicant. Require lenders making loans over the internet or via an “800” line to ask for the race/ethnicity of the applicant, in order to protect the usefulness of HMDA data in the future.