Full text of Annual Report of the Federal Reserve Bank of Cleveland : 1996 Annual Report

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FEDERAL RESERVE BANK OF CLEVELAND

LOCAL
SOLUTIONS,
LASTING
CHANGE:
The Greater
Cleveland
Residential
Housing and
Mortgage
Credit
Project

1 9 9 6

ANNUAL REPORT

The Federal Reserve System is responsible
for formulating and implementing U.S.
monetary policy. It also supervises banks
and bank holding companies, and provides
financial services to depository institutions
and the federal government.
The Federal Reserve Bank of Cleveland is
one of twelve regional Reserve Banks in the
United States that, together with the Board
of Governors in Washington, D.C., comprise
the Federal Reserve System.
The Federal Reserve Bank of Cleveland,
including its branch offices in Cincinnati
and Pittsburgh and its check processing
center in Columbus, serves the Fourth
Federal Reserve District. The Fourth District
includes Ohio, western Pennsylvania, the
northern panhandle of West Virginia, and
eastern Kentucky.

It is the policy of the Federal Reserve Bank
of Cleveland to provide equal employment
opportunities for qualified persons regardless
of race, creed, color, national origin, age,
gender, or disability.

The brick home pictured on the cover, located in Cleveland's Hough neighborhood, was the subject of an appraisal test project that illustrated the potentially
discriminatory practices that can occur in mortgage lending. If we are to revitalize
our distressed communities, we must ensure fair and equal access to home mortgage
credit. To that end, a group of Cleveland-area housing, real estate, and lending
professionals participated in the Greater Cleveland Residential Housing and
Mortgage Credit Project, a community-based effort to eliminate discrimination
and disparate treatment in the home buying process. Concluded in April 1997,
the Cleveland project is being modeled in cities across the nation.

LOCAL
SOLUTIONS,
LASTING
CHANGE:
The Greater
Cleveland
Residential
Housing and
Mortgage
Credit
Project

FEDERAL RESERVE BANK OF CLEVELAND

1 9 9 6

ANNUAL REPORT

President’s Foreword

The Greater Cleveland Residential Housing and Mortgage Credit Project

Officers and Consultants

Directors

Comparative Financial Statement

1996 Operational Highlights

Business Advisory Council and Community Bank Advisory Council

PRESIDENT’S FOREWORD

With passage of the landmark Community Reinvestment and Home Mortgage Disclosure
Acts in the 1970s, Congress called on financial institutions to identify and meet the credit
needs of their local communities, including low- and moderate-income neighborhoods.
We’ve learned since then that the economic problems of our depressed inner-city
communities cannot be solved by the lending institutions alone. If banks are to contribute
fully to the economic development and revitalization of neighborhoods, they must be joined
by nonbank institutions, governmental entities, local businesses, and community leaders.
Clearly, the most viable and lasting solutions to stemming the blight of inner-city
neighborhoods will come from those closest to the problem. We must trust and encourage
people in the states, cities, and communities across the nation to explore opportunities
to improve local conditions. Recent trends have led to partnerships in which nonprofit
agencies and local governments team up with for-profit banks and developers not merely
in a spirit of altruism, but to create lasting change through mutual self-interest.
Federal Reserve Banks are in a strong position to facilitate community-based partnerships through their involvement with banking and civic organizations. Reserve Banks
evaluate commercial banks’ fair lending performance, support the activities of community
affairs and economic development professionals, and directly partner with local banks and
community-based organizations to improve neighborhood economic conditions.
The Greater Cleveland Residential Housing and Mortgage Credit Project, the subject of
this year’s annual report essay, is a fine example of the Federal Reserve’s ability to build
alliances among diverse constituencies.

A. William Reynolds, chairman; Jerry L. Jordan,
president; Sandra Pianalto, first vice president; and
G. Watts Humphrey, Jr., deputy chairman.

Like many good ideas, the “Cleveland project”—designed to ensure equal access to
credit in the home buying process—started from a conversation between two individuals
from different organizations but with a common goal in mind. From there, it blossomed into
a successful partnership among the Cuyahoga County Department of Development, the
Greater Cleveland Roundtable, the Ohio Civil Rights Commission, and the Federal Reserve
Bank of Cleveland. Bringing together 140 representatives from the real estate, housing, and
lending industries, the Cleveland project inspired candid dialogue about discrimination in
the home buying process.
Those who conceived the Cleveland project realized that such a large gathering of
racially and functionally diverse participants could engender vigorous, possibly discordant,
debate about unequal treatment and access to credit. But it seemed to us that the process
of well-intentioned people coming together could ultimately inspire tangible strategies for
addressing the daunting problems of discrimination and disparate treatment in the mortgage lending and housing markets.
The Cleveland project did indeed generate numerous practical recommendations. To
all those who participated, we thank you for your commitment and energy. As a result of
your efforts, we have taken an important step toward improving the fairness of the lending
process and the prosperity of our community. The project has also served as a model for
programs in Cincinnati/Northern Kentucky and in five other Reserve Bank cities. We like
to think of this groundbreaking effort as creating local solutions to effect lasting change,
and we’re proud to highlight its history in the 1996 annual report essay.

In performing our central banking functions and providing financial services, the
Federal Reserve Bank of Cleveland is guided by our 23 directors, to whom we extend our
deepest gratitude. Our directors represent a variety of banking, business, labor, and consumer interests from throughout the District. Their valuable and dedicated service and
guidance, as well as that of our Community Bank and Business Advisory Councils, are very
much appreciated.
We are especially grateful for the leadership of A. William Reynolds, chief executive
of Old Mill Group, who served as chairman of our Board of Directors from 1993 until his
retirement at the end of 1996. Bill, who joined the Board in 1991, made far-reaching contributions to the Bank and leaves us in a stronger position to meet the challenges of the

future. We are indebted to him for his wise counsel, leadership, and dedication. G. Watts
Humphrey, Jr., president of GWH Holdings, Inc., and a member of our Board since 1993,
has been appointed chairman.
We also extend special thanks to those directors who have completed their terms of
service on our Boards: Alfred C. Leist (chairman, president, and chief executive officer of
The Apple Creek Banking Company) and Thomas M. Nies (president of Cincom Systems,
Inc.), who served on our Cleveland Board; John N. Taylor, Jr. (chairman and chief executive officer of Kurz–Kasch, Inc.), who served as chairman of our Cincinnati Board; and
Randall L.C. Russell (president and chief executive officer of Ranbar Technology, Inc.),
Wesley W. von Schack (former chairman, president, and chief executive officer of DQE), and
Sandra L. Phillips (former executive director of the Pittsburgh Partnership for
Neighborhood Development), who served on our Pittsburgh Board.
The insight and dedication of our member of the Federal Advisory Council, Frank V.
Cahouet (chairman, president, and chief executive officer of Mellon Bank Corporation and
Mellon Bank, N.A.), will also be missed. Frank represented the Fourth District on the
Advisory Council since 1994. Our directors have chosen Robert W. Gillespie (chairman,
president, and chief executive officer of KeyCorp) to represent the District during 1997.

The officers and staff of the Federal Reserve Bank of Cleveland worked together to
realize many accomplishments and innovations over the past year (outlined in the “Operational Highlights” section on pages 26-27). None of these achievements would have been
possible without their energy, creativity, and commitment. I wish to extend my personal
gratitude to all employees of this Bank for making 1996 a successful year.

Sincerely,

Jerry L. Jordan
President

T H E G R E AT E R C L E V E L A N D
RESIDENTIAL HOUSING AND MORTGAGE CREDIT
PROJECT

n late 1993, the Federal Reserve Bank of Cleveland joined with
the Greater Cleveland Roundtable, the Cuyahoga County Department of Development,
and the Ohio Civil Rights Commission in a groundbreaking effort to identify and eliminate potentially discriminatory practices in the home buying process.

Known as the Greater Cleveland Residential Housing and Mortgage
Credit Project, the three-year effort involved nearly 140 representatives of various home buying industries, including real estate firms,
lending institutions, appraisal companies, credit bureaus, and property and mortgage insurance firms.

P LA NNI NG COM M I TTEE
While discrimination against minority mortgage loan applicants is clearly a national
issue, the initiators of the Cleveland project shared the belief that America’s best prospect of
eliminating discrimination lies in the development of local solutions.
By bringing together a group of multidisciplinary, racially diverse professionals, the project’s planners hoped to spark an open discussion that would spawn action steps for eliminating discrimination—whether inadvertent or intentional—in all phases of home purchas-

(includes employment
at time of Cleveland project)
Malcolm Bush
President
Woodstock Institute
Rick Edlund
Manager, Appraisal Department
Ohio Savings Bank

ing. The project, through its seven task groups, produced 29 practical recommendations and
strategies for combating potentially discriminatory actions. The Cleveland project’s most
enduring achievement, however, may have been its success in fostering ongoing dialogue
among its various and disparate constituencies.
As the project participants searched for solutions to the complex issue of discrimination, they occasionally found themselves in seemingly unresolvable conflict. At those times,

Marsha Hughes
President
Northeastern Ohio League of
Savings Institutions
Shirley Mays
Fair Housing Administrator
City of Cleveland

the Cleveland Fed, positioning itself as a facilitator, was called upon to restore a positive,
constructive atmosphere.
Jerry L. Jordan, president of the Federal Reserve Bank of Cleveland, explained that the
Bank served as a catalyst for action. “In no way were we an architect or engineer of the
project. We didn’t dictate the solutions. But we felt that our public/private role made it incumbent upon us to be part of the search for solutions. In a sense, we were like a gardener. We
could prepare the soil, we could make sure there was adequate moisture, we could try to keep
the crows out of the cornfield, but we couldn’t guarantee anything else. Beyond that, nature

Gregory Vincent
Regional Director
Ohio Civil Rights Commission
Donna Cotton
Community Affairs Director
Federal Reserve Bank of Cleveland
David Fynn
Corporate Compliance Officer
National City Corporation

had to take its course.”
Formally concluded in April 1997, the Greater Cleveland Residential Housing and Mortgage
Credit Project has earned widespread national recognition. Malcolm Bush, president of the
Chicago-based Woodstock Institute, a nonprofit group that promotes economic development
in low-income communities, has called the Cleveland project “a major achievement in promoting debate and action about disparate treatment in the housing market.” According to
Bush, the project was unique because “it was the first time, in the absence of racial strife in
the community, that the civic leadership of a major city decided to tackle the problems of
discrimination. There are very few examples of such intensive voluntary debate in American
civic life.”
This essay examines the genesis, process, and outcomes of the Greater Cleveland
Residential Housing and Mortgage Credit Project, a community-based approach to achieving
equality and fairness throughout the home buying process.

Lionel Lewis
Vice President
A.J. Lewis & Associates
Jerry McClain
Senior Vice President
Society National Bank
Mary Davis
Fair Housing Officer
Cuyahoga County Department
of Development
Barbara Grothe
Program Manager
Greater Cleveland Roundtable
Tom LaRochelle
Executive Director
Cleveland Area Board of Realtors
Alan Reichert
Professor of Finance
Cleveland State University

—THE GENESIS—

C L E V E L A ND PRO J ECT
S PONS O RS
The Greater Cleveland Roundtable is a
coalition of approximately 60 leaders from
area business, education, labor, and government entities, as well as religious and
philanthropic organizations. The Roundtable,
which includes many of Cleveland’s corporate CEOs, provides the City’s senior executives with a forum for the discussion of
sensitive community issues, including race
relations, neighborhood housing, and
workforce diversity.
The Cuyahoga County Department of
Development promotes business growth,
livable neighborhoods, community
redevelopment programs, and employment
opportunities for low- and moderate-income
individuals. The County’s Fair Housing
Office has responsibility for ensuring equal
access to housing choices and for enforcing
civil rights laws.

Equal access to home mortgage credit is a fundamental economic goal in the United States.
The proper flow of housing credit contributes significantly to the social and economic vitality
of individual communities and to the health of the country’s economy.
Historically, the primary capital asset for most people has been the equity in their
homes, which can be used to finance children’s college tuitions, fund retirements, and start
businesses. In fact, the leading source of business start-up capital is loans against primary
residences. Fair and equal treatment of all mortgage loan applicants is a precondition for a
well-functioning marketplace. Lending bias, while patently unfair to individuals, is harmful in
a much larger sense in that discrimination precludes a portion of our society from accumulating wealth in the form of home equity, thus hindering potential growth of our economy.
The presence of disparity in mortgage lending patterns has been documented in data
made available through the Home Mortgage Disclosure Act. Recent data show that in 1995,
40.5 percent of all black and 29.5 percent of all Hispanic mortgage applicants were denied
loans, compared with 20.6 percent of whites. And, in a 1992 study, the Federal Reserve Bank

The Federal Reserve Bank of Cleveland is
one of twelve regional Reserve Banks that,
along with the Board of Governors in Washington, D.C., make up the Federal Reserve
System. As the nation’s central bank, the
Federal Reserve formulates monetary
policy, regulates bank holding companies
and state-chartered member banks, and
provides payments services to financial
institutions and to the U.S. government.

of Boston found that black and Hispanic applicants in the Boston area were more than 50
percent more likely to be denied a mortgage loan than whites, even if the minority applicants had the same income, wealth, and credit histories.
The controversial findings of the Boston study inspired housing advocates across the
nation to call for similar studies in their cities. In Cleveland, representatives of the Greater
Cleveland Roundtable and the Cuyahoga County Department of Development approached
Donna Cotton, a community affairs director at the Cleveland Fed, about partnering with the

The Cleveland Bank, with its branch offices
in Cincinnati and Pittsburgh, and its regional
check processing center in Columbus,
serves the Fourth Federal Reserve District,
which includes Ohio, western Pennsylvania,
eastern Kentucky, and the northern panhandle of West Virginia.

Bank to replicate the Boston study.

The Federal Reserve System’s Community
Affairs function is responsible for identifying
local credit market opportunities in each
District and for encouraging public /private
community development partnerships.

address in Cleveland. I didn’t want our economists to go out and spend a lot of time collect-

Jerry Jordan, however, was not certain that replicating the Boston study in Cleveland
would be particularly useful. “Many people, especially neighborhood and community groups,
were saying that we needed to have a Cleveland study,” Jordan recalled. “But we didn’t need
any more Boston-type studies. We needed action. It was obvious we had similar issues to
ing and torturing data. All that would do is shift the focus from the real issue and delay the
resolution of our problems. Rather than commission a similar study, I believed it made more
sense to move forward and develop methods of identifying and eliminating discriminatory

The Ohio Civil Rights Commission is
responsible for enforcing state laws
against discrimination based on race, color,
religion, sex, age, disability, and national
origin. The Commission also conducts
educational programs on civil rights and
responsibilities.

practices in our community.”
Bolstered by Jordan’s pledge of support, the Cleveland project’s four sponsors came
together in a unique alliance of free-market advocacy, corporate civic responsibility, and
community activism.

In designing the Cleveland project, the sponsors recognized that there are numerous
steps in the process of buying a house, and that discrimination at any step of the process
could negatively impact a loan request. The project leaders, therefore, decided to address all
aspects of the home buying process, not just the mortgage loan origination.
“One of the problems of the discrimination issue is that there are a lot of players in the
home purchase process besides the lenders,” said Andrew “Bud” Burkle, Jr., a vice president
at the Cleveland Fed. Burkle, who managed the Bank’s community affairs function when the
Cleveland project was conceived, noted, “Since banks are highly regulated, they most often
get the blame for discrimination.”

R E G U L AT O RY F R A M E W O R K

While many industries are

involved in the purchase of a home, only lending institutions are overseen by federal regulators. During the 1970s, housing policy advocates became concerned that mortgage lenders
were not adequately serving all segments of their markets. Addressing this problem, Congress
passed the Home Mortgage
Disclosure Act (HMDA) in 1975,

“ [ T H I S ] P R O J E C T WA S U N I Q U E B E C A U S E I T WA S T H E F I R S T T I M E , I N T H E A B S E N C E

which requires certain lenders to

O F R A C I A L S T R I F E I N T H E C O M M U N I T Y, T H AT T H E C I V I C L E A D E R S H I P O F A M A J O R

report, census tract by census

C I T Y D E C I D E D T O TA C K L E T H E P R O B L E M S O F D I S C R I M I N AT I O N . T H E R E A R E V E RY

tract, the number and dollar value

F E W E X A M P L E S O F S U C H I N T E N S I V E V O L U N TA RY D E B AT E I N A M E R I C A N C I V I C

of home loans they make in their

LIFE.”

communities each year.

— Malcolm Bush,
Woodstock Institute

Legislators next enacted the Community Reinvestment Act of 1977 (CRA), which encourages banks, through regulation, to meet “the credit needs of their entire community, including
low- and moderate-income neighborhoods.”
In 1989, HMDA was amended to require certain urban-based lenders to collect and
report loan applicants’ annual income, loan amount requested, gender, race, and census
tract of the desired property. This expanded information is used to prepare public disclosure
reports and to monitor lenders for compliance with both CRA and fair lending laws.
While annual HMDA data routinely show disparities in mortgage lending to minority
neighborhoods versus white neighborhoods, HMDA data alone are inadequate to draw any
meaningful conclusions about the presence of discrimination in the mortgage markets.
Nevertheless, banks are often targets of criticism by community activists, who argue that
HMDA data are evidence that banks neglect minority neighborhoods. In response, banking
defenders attribute disparities in credit flows to differences in applicants’ creditworthiness.

SECURING

PA R T I C I PAT I O N

To attract the participation of

lenders, as well as other industry professionals who might be especially sensitive to criticism,
the sponsors resolved to maintain a nonjudgmental atmosphere throughout the project. “One
of the project’s key elements was that we were going to concentrate on solving issues, instead
of placing blame and pointing fingers at individual industries or entities,” said Burkle. “We
couldn’t let it turn into a blame process. It had to be an improvement opportunity where
everybody would win. If we got into shouting matches or finger-pointing, people would have
walked away from the table.”
One lending professional, David Fynn, of National City Bank, commended the project
organizers for their astute assessment of lenders’ sensitivity to criticism. “We wouldn’t have
participated if we thought that we were going to be backed into a corner,” stated Fynn.
“Discrimination is a complex issue
“ I U S E D T O T H I N K I T WA S O T H E R P E O P L E W H O D I S C R I M I N AT E D ,

involving various industries. It’s

B U T N O W I R E A L I Z E T H AT E V E RY O N E D O E S . S O M E T I M E S I N T H E L E N D I N G

a problem that banks can’t solve

PROCESS, APPLICANTS ARE JUDGED BY THEIR CLOTHES OR LOOKS.

by themselves. The organizers had

A L O T O F D I S C R I M I N AT I O N I S U N I N T E N T I O N A L . I F A L E N D E R I S I N S E N S I T I V E , T H E N

exactly the right idea in inviting

‘ B U S I N E S S A S U S U A L’ C O U L D B E D I S C R I M I N AT O RY. ”

a wide range of industry repre-

— Marie Gerace,
Prospect Title Agency

sentatives.”
For assistance in garnering broad-based participation, the project’s planning committee
turned to the chief executive officers of Cleveland-area banks, real estate firms, mortgage
companies, and other home-buying-affiliated industries. “From our standpoint, it was important to get the senior-level executives on board, because that would send an encouraging
signal down through the rank and file,” said Melvin Pye, Jr., who was the executive director
of the Greater Cleveland Roundtable during the Cleveland project.
Barbara Grothe, Greater Cleveland Roundtable program manager, organized a breakfast
meeting for 65 Cleveland-area CEOs. At the meeting, which was led by Lyman Phillips (at the
time, chair of the Roundtable’s race relations committee), project planners explained the economic merits of addressing bias in mortgage lending. “We needed to sell the goals of the project
in a pro-business light,” said Grothe. “We made a strong case that reducing discrimination
would free up the marketplace, thus creating more opportunities and business for everybody.”
However, the commitment of business leaders was not finalized until the planning committee agreed to eschew publicizing the Cleveland project during its early phases. “There was
a concern among the business sector that informing the media could have been risky,” said
Burkle. “If we went out and tooted our own horn, the community might view the project as
a self-promoting sham, and it would die a quick death from the resulting skepticism.”

Cleveland Project Principals
Mary Davis, fair housing officer,
Cuyahoga County Department of Development;
Barbara Grothe, program manager,
Greater Cleveland Roundtable;
Francis Smith, executive director,
Ohio Civil Rights Commission;
Andrew “Bud” Burkle, Jr., vice president,
Federal Reserve Bank of Cleveland.

Robert Morgan, Real Estate and
Property Insurance Task Groups;
Rosita Motton, Property Insurance Task Group;
Rick Edlund, Planning Committee
and Appraisal and Lender Task Groups.

Anda Cook, Private Mortgage
Insurance Task Group;
David Fynn, Planning Committee and
Real Estate and Credit Bureau Task Groups;
Tony Willis, Appraisal Task Group.

Lionel Lewis, Planning Committee and
Private Mortgage Insurance and Real Estate
Task Groups;
Marie Gerace, Lender Task Group.

—THE PROCESS—
By design, the Cleveland project had three phases. The initial phase began in October 1993
with a two-day conference facilitated by Malcolm Bush and attended by nearly 100 representatives of housing-related industries. During the conference, attendees—through plenary
sessions and breakout groups—discussed likely areas of discrimination throughout the
home buying process. Participants
then established task groups to
examine potentially discriminatory business practices in the following four home buying steps:
The home purchaser’s initial con-

“. . . W E D I D N ’ T N E E D A N Y M O R E B O S T O N - T Y P E S T U D I E S . W E N E E D E D A C T I O N .
I T WA S O B V I O U S W E H A D S I M I L A R I S S U E S T O A D D R E S S I N C L E V E L A N D .
R AT H E R T H A N C O M M I S S I O N A S I M I L A R S T U D Y, I B E L I E V E D I T M A D E M O R E S E N S E
T O M O V E F O R WA R D A N D D E V E L O P M E T H O D S O F I D E N T I F Y I N G A N D
E L I M I N AT I N G D I S C R I M I N AT O RY P R A C T I C E S I N O U R C O M M U N I T Y. ”

tact with the real estate agent; the home purchaser’s initial contact with the lender; the

— Jerry Jordan, president,
Federal Reserve Bank of Cleveland

lending institutions’ interface with the secondary market; and the appraisal process.
Each task group was responsible for developing recommendations to reduce the occurrences of discrimination in its respective stage of the home buying process. The project’s first
phase concluded in mid-1994 when the four task groups reported their findings and recommendations to the full group of participants.
In the project’s second phase, three additional task groups were formed. These groups
developed strategies for eliminating potentially discriminatory business practices in the areas
of property insurance, private mortgage insurance, and purchasers’ interaction with credit
bureaus. Like the original four task groups, these groups comprised representatives from
various housing-related industries, including the industry targeted for scrutiny.
In November 1995, after the second set of task groups released its strategies for eliminating discrimination, the project leaders reviewed the recommendations of the seven task
groups and initiated the final phase of the project: the cross-industry adoption and implementation of the strategies.

TRUE COLORS

On day one of the initial two-

day conference in 1993, participants gathered to watch the video “True Colors,” a hiddencamera investigation of racial discrimination. Produced by the ABC newsmagazine Prime Time
Live, “True Colors” tracks two young men—one white and one black—as they set out to
establish themselves in St. Louis. The documentary reveals the vastly different treatment each
received when applying for a job, buying a car, shopping in a mall, and renting an apartment.
The video’s unabashed portrayal of discrimination markedly altered the tone of the conference. “Before the presentation of ‘True Colors,’ participants were engaged mainly in small
talk,” said Mary Davis, fair housing officer for the Cuyahoga County Department of
Development. “After seeing the tape, people began to open up and share their thoughts
about this sensitive issue.”

Marie Gerace, an account executive with Prospect Title Agency, added, “When the conference began, I suspected it was going to be just another boring two-day meeting. But after
viewing the video, my attitude changed. As I looked around the auditorium, I saw that some
people were shocked. The tape was very effective in showing that discrimination is often subtle. People rarely come right out and say, ‘I’m not going to rent to you because you’re black.’”

DIALOGUE

After the video presentation, confer-

ence participants broke into multi-industry, racially diverse groups to discuss disparate treatment of minorities. “By showing ‘True Colors,’ we opened the door to a discussion of unfair
treatment,” Burkle recalled. “The tape was a wake-up call. There was no longer a need to
explain what the issues were.”
Although some individuals seemed unwilling to acknowledge the existence of unfair
business practices, several black participants spoke openly about specific instances of racial
discrimination. “Although I’ve experienced some discrimination as a woman in a corporate
atmosphere,” said Gerace, “I was both surprised and sad to hear a black person say, ‘This is
what happens all the time to me.’”
The openness and candor of the minority participants was crucial to the project’s success,
noted Malcolm Bush. “Because the minorities spoke honestly about the issue of discrimination, the other participants,
“ O N E O F T H E P R O J E C T ’ S K E Y E L E M E N T S W A S T H AT W E W E R E G O I N G T O
C O N C E N T R AT E O N S O LV I N G I S S U E S , I N S T E A D O F P L A C I N G B L A M E A N D P O I N T I N G
F I N G E R S AT I N D I V I D U A L I N D U S T R I E S O R E N T I T I E S . W E C O U L D N ’ T L E T I T T U R N
INTO A BLAME PROCESS. IT HAD TO BE AN IMPROVEMENT OPPORTUNITY WHERE
E V E RY B O D Y W O U L D W I N . ”

— Andrew “Bud” Burkle, Jr.,
Federal Reserve Bank of Cleveland

in turn, responded with openness
and honesty. This was very important because it was the first
time, that I was aware of, where
different ethnic groups came

together to discuss discriminatory actions in terms of their own behavior and their own business practices. In a sense, they were putting their bread and butter on the line.”
As Gerace listened to accounts of discrimination and disparate treatment, she began to
understand that, “We all are guilty of discrimination. I used to think it was other people who
discriminated, but now I realize that everyone does. Sometimes in the lending process, applicants are judged by their clothes or looks. A lot of discrimination is unintentional. If a lender
is insensitive, then ‘business as usual’ could be discriminatory.’”
On the second day of the conference, participants identified areas of the home buying
process where discriminatory acts were most likely to occur. Typically, the purchase of a
home involves the actions of about 20 allied industries. Because each of the industries has
a role in gathering and sharing information with the others, discrimination and disparate
treatment at any stage of the transaction can impact the outcome of the loan application.
During their work sessions, participants considered potential areas of discrimination within
their respective industries, as well as the consequences of discriminatory practices. After prioritizing the problem areas, participants selected seven of the areas for investigation by the
task groups of phase 1 and phase 2.

THE

APPRAISAL

TA S K

GROUP

Among the seven task

groups, the Appraisal group members were especially successful at identifying potential areas
of discrimination in their industry. When the group first met, several participants expressed
uncertainty about the existence of discrimination in the appraisal process. To address this
issue, the members decided to conduct a test project to determine if properties in low-income
neighborhoods were appraised accurately. Group members commissioned lending institutions
to solicit four appraisals for a single-family house in Cleveland’s Hough neighborhood. The
results of the test project were startling: The appraised
value of the property ranged from $36,000 to $83,500.
“This experiment revealed that appraisers may
make mistakes because of perceived notions and lack
of knowledge about Cleveland’s neighborhoods,” said
Tony Willis, chair of the Appraisal task group.
“Appraisers must be in touch with the neighborhoods
they are appraising. The appraisers must also know
which cycle a neighborhood is in. Vacant houses
don’t necessarily mean that a neighborhood is in dire
shape. Next month, those houses may be gone, and a
community rehabilitation project may have begun.”
In Donna Cotton’s view, a fair and consistent
appraisal process is a crucial element of wealth creation. “If I can get the true value for my
home, then I can pass that value on to whoever may come after me. But if I can’t get a fair
appraisal, then you have, in effect, taken away from my wealth.”

THE

REAL

E S TAT E

AGENT

TA S K

GROUP

Several

Cleveland project leaders, when queried, said that their most difficult challenge—and most
gratifying accomplishment—was facilitating discussions between feuding representatives of
Cleveland’s minority and white real estate agencies.
There are two major associations of real estate professionals in the Cleveland area: The
Cleveland Area Board of Realtors (CABOR), comprised mostly of white real estate agents, and
the Cleveland Association of Real Estate Brokers (CAREB), which represents mainly minority
agents. Historically, the two groups have maintained a discordant relationship. At the start of
the Cleveland project, the members of CAREB (who are known as “realtists”) were involved in
a lawsuit against CABOR over access to the Multiple Listing Service (MLS), which is controlled
by CABOR and lists all properties currently for sale by members of the Board of Realtors.

TEST P ROJ ECT:
A P P RA ISI NG
A N U RBA N HOM E
The appraiser plays a major role in the
home buying process. A lender balances
the appraisal of a property against the
potential buyer’s mortgage needs and the
market value of the house to determine the
bank’s risk. Housing activists have expressed
concern that appraisers who are not familiar
with inner-city
neighborhoods
may inadvertently
undervalue urban
properties. As a
result, lenders may
determine that
mortgage approval
is too risky and deny
the application.
Undervaluation can
also impact the
overall neighborhood because the
low appraisal report
may be used as a
comparable value
for nearby homeowners who are seeking to sell their homes
or to obtain home equity loans.
In conducting the test project, the task group
selected a well-kept, newly renovated,
single-family home in the Hough area of
Cleveland’s East Side. Appraisers were not
given a target housing value; however, they
were informed that they were participating
in a study.
The task group reported that the appraisals
varied from $36,000 (originally $28,000
until a lender, in a phone conversation with
the appraiser, expressed surprise at the low
amount) to $83,500. The task group also
found that the appraisers’ turnaround time
was longer than average and, in one instance,
the fee was considerably higher than the
customary rate for nonurban appraisals.
In response to the task group’s findings, an
appraiser subcommittee, led by Rick Edlund,
developed an industrywide continuing
education program. “It’s important that
appraisers be knowledgeable about the
specific markets they are analyzing,” said
Edlund. “The test project helped reinforce
the reality that the urban markets are
constantly changing. We need to update
our neighborhood data continuously to
understand the values within that submarket.”
15

The minority agents were displeased because, in order to receive the MLS, the CAREB
members (who pay dues to that organization) also had to become dues-paying members of
CABOR. (The two associations have since resolved their dispute, and the MLS is now available to members of CAREB.)
In addition to this conflict, the two groups clashed over the minority real estate agents’
practice of pulling the credit reports of prospective home buyers before showing them properties. In discussions at the two-day conference, several nonminority real estate agents
expressed their view that pulling
“ O U R G O A L , A S A C O M M U N I T Y, I S T O M A K E M O R T G A G E C R E D I T A N D
A F F O R D A B L E H O U S I N G AVA I L A B L E T O A L L C R E D I T W O R T H Y I N D I V I D U A L S .
T H E C L E V E L A N D P R O J E C T, B Y R E D U C I N G D I S C R I M I N AT O RY P R A C T I C E S I N T H E
H O M E B U Y I N G P R O C E S S , W I L L H E L P U S T O R E A C H T H AT G O A L .
I F A M E R I C A I S G O I N G T O L I V E U P T O I T S I D E A L S A N D E L I M I N AT E
D I S C R I M I N AT I O N , T H E N W E W I L L N E E D M O R E C O M M U N I T Y- B A S E D E F F O R T S S U C H
AS THIS.”

— Tim Hagan,
Cuyahoga County Commissioner

a potential buyer’s credit report
at an early stage in the buying
process was potentially discriminatory. The nonminority agents
claimed that the practice could
be used to identify and screen
out financially undesirable house

seekers. Minority agents, however, argued that they use the credit reports to provide credit
counseling to prospective buyers who may have infrequent contact with lending institutions.
Saying that their actions were being misconstrued as racist, the minority agents decided to
boycott the task group sessions.
In response to the boycott, Bud Burkle, along with Mary Davis and Barbara Grothe, visited Robert Morgan, who was then president of CAREB. “Morgan felt that the nonminority
agents were unfairly judging the African-American agents,” explained Burkle. “I assured him
that, ‘If you come to the next task group meeting and anybody becomes accusatory or confrontational, I’ll walk out of the meeting with you and we’ll never go back.’ Well, he and his
group came back. And immediately, the meetings became extremely productive. He had a lot
of experience with discriminatory issues, and I think he felt that the Cleveland project was
a vehicle where he could finally express those frustrations.”

—OUTCOMES—
When the Cleveland project was conceived in 1993, the sponsors realized that its success
would require a concerted effort by the city’s private and public sectors. “Without this partnership, the Cleveland project could not have worked,” said Malcolm Bush. “One of the
impressive things about the project was that the Cleveland Fed was in genuine participation
with the Greater Cleveland Roundtable and Cuyahoga County. The Fed and the County
brought the power of regulatory authorities, and the Roundtable brought the practice of
activism. It was a very good combination. There was some good work done.”
In terms of deliverable products, the Cleveland project’s accomplishments are noteworthy:
The seven task groups have overseen the development of continuing education programs for
appraisers, real estate agents, and lenders; as well as four consumer education brochures and a reference directory for appraisers. The task groups
also generated 29 recommendations for reducing discrimination in the
housing market.
The project’s final phase—implementation of the 29 recommendations—is a work in progress. “At this point, 16 of the recommendations
have been implemented,” said Barbara Grothe. ”It’s important that Cleveland civic and business organizations step forward to adopt the remaining
recommendations and monitor their implementation. It’s clear to me that
we’ve started a process, but now that the Cleveland project has ended, we
need some entities to follow through. I think that the individuals who
participated in the Cleveland project took ownership of the issues, but
that’s a small percentage of all the people who are involved in the process
of allocating mortgage credit. That’s why it’s so important for these recommendations to be
integrated into the agendas of corporations and trade associations.”
While acknowledging the Cleveland project’s tangible accomplishments, many participants said the project’s most significant benefit may have been its actual process. “There was
tremendous value in the amount of discussion and learning that took place,” said David
Fynn. “Some participants had been business partners for years, but had never talked about
how they did business. Overwhelmingly, the project was about gaining insight and understanding discrimination.”
Robert Morgan credited the project with opening the lines of communication between
Cleveland’s minority and white real estate agents. “We’re in the same industry, but we have
different philosophies,” said Morgan. “The Cleveland project brought us together for the first
time. It created a situation where there was a consistent dialogue. It’s important for real
estate professionals to be proactive and deal with industry problems on our own, rather than
having the solutions mandated to us by a governmental authority. But there are regulatory
issues, economic issues, and political issues. We need to have the Federal Reserve involved
in the process of eliminating discrimination. The Fed can help with its resources, expertise,
and ability to create dialogue among the lending community that it regulates.”

TASK GROUP ACCOMPLISHMENTS
After identifying seven likely areas of potential discrimination in the home buying process,
participants formed task groups to study each area. The groups were expected to review and
evaluate industry standards and practices, recommend methods and strategies for reducing
discrimination, and develop educational resources for consumers, professionals, and industries.

[1]
THE HOME
PURCHASER’S
INITIAL CONTACT
WITH THE
REAL ESTATE
AGENT

— Task group members recommended that the term “conventional financing only” be omitted from Multiple
Listing Service information because it may discourage buyers who are planning to utilize VA, FHA, and
other nonconventional financing methods.
— The group agreed to urge the Ohio Real Estate Commission to adopt an additional article in its Canon of Ethics,
stating that licensees shall not market property in a manner that indicates a preference for “conventional
financing only.”
— The task group oversaw the development of a “Fairness in Lending” continuing education class for real
estate professionals.
— As a result of the task group’s suggestion, the Cuyahoga Plan of Ohio, a nonprofit organization that
promotes fair housing practices, has offered to facilitate future meetings between white and minority real
estate organizations.

[2]
THE HOME
PURCHASER’S
INITIAL CONTACT
WITH THE
LENDER

— The “initial contact with lender” is a critical area of potential discrimination. Because insensitive or inconsistent treatment by loan originators can significantly impact the loan application process, the task group
recommended the development of an industrywide training and certification program for lenders. Program
curricula will include case studies on discrimination, instruction on fair lending laws and community reinvestment, and multicultural awareness and sales training.

[3]
THE LENDING
INSTITUTIONS’
INTERFACE
WITH THE
SECONDARY MARKET

— Firms that participate in the secondary mortgage market purchase a large percentage of residential loans
from primary lenders. Since secondary-firm underwriting guidelines may differ from bank underwriting
policies, the task group recommended ongoing training in secondary-market underwriting guidelines for
primary lending institutions, underwriters, real estate agents, and community groups.
— The task group proposed that high schools implement academic curricula that educate students about the
home buying process, mortgage loan programs, and the importance of a good credit rating and job history.

[4]
THE
APPRAISAL
PROCESS

— The task group proposed that lending institutions and professional appraisal associations coordinate the
development of a training and evaluation program for appraisers of urban residential properties.
— The group oversaw the publication of a reference directory of Community Development Corporations (CDCs)
and city planners.

[5]
PROPERTY
INSURANCE

— The task group recommended that insurers eliminate potentially discriminatory criteria from their underwriting
requirements, including minimum insurance amounts, age of home, and location of home. Group members
also proposed that insurance companies maintain uniform, consistent company practices regarding cancellation,
nonrenewal, and rejection of policies.
— The task group developed an “Insurance Rights and Obligations” educational pamphlet for consumers.
— The group recommended elimination of credit reports as an underwriting consideration.

[6]
PRIVATE
MORTGAGE
INSURANCE

— Private mortgage insurance is designed to protect lenders against foreclosure. Task group members developed
a brochure for consumers that explains the purposes of mortgage insurance and the consumer’s options to
cancel the coverage.
— The task group proposed the development of a mortgage-insurance continuing education course for real
estate agents.

[7]
CREDIT
BUREAU

— The group commissioned a consumer-oriented pamphlet that explains the function of the credit bureau and
the importance of maintaining a good credit history.
— The task group urged area public utilities to report credit information to credit repositories so that low- and
moderate-income individuals can demonstrate the regularity of their payments.

Anne Lulow, director of career development at Realty One, concurred with Morgan,
saying, “We definitely need to sustain the dialogue that was started three years ago if we
truly hope to eliminate discriminatory practices from our industry. The Cleveland project was
a big step forward in the process of bringing real estate agents together. Now it’s up to industry professionals to continue educating ourselves on the important issue of discrimination.”

CONCLUSION

The Cleveland project participants

recognized early on that the project’s success could not be measured in
quantifiable terms. Given its often-subtle and complex nature, discrimination is sometimes difficult to detect, let alone eliminate.
Ruth Clevenger, who participated in the Cleveland project first as a
representative of a commercial bank and then in her role as manager of
the Cleveland Fed’s Community Affairs function, explained, “We all knew
that we couldn’t assess the project’s accomplishments in a quantifiable
way because there were too many variables. The only way to measure our
success is by how many recommendations have been implemented, by how
many new relationships have been formed, and by what we learned about each other. And one
of the most important things we learned is that many of the participants were willing to stick
with this project all the way to its conclusion.”
Applauding the participants’ commitment, Cuyahoga County Commissioner Tim Hagan
called the project “an unqualified victory.” According to Hagan, “Our goal, as a community,
is to make mortgage credit and affordable housing available to all creditworthy individuals.
The Cleveland project, by reducing discriminatory practices in the home buying process, will
help us to reach that goal. If America is going to live up to its ideals and eliminate discrimination, then we will need more community-based efforts such as this.”
When the Cleveland project formally ended, Jerry Jordan was asked if its accomplishments would endure. After a pause, Jordan said, “That’s always been a critical question:
Whether this would be a one-time, flash-in-the-pan sort of thing, or whether our efforts
would be sustaining. At this point, it looks like the project’s achievements will be sustaining.
But we will have to help ensure that the momentum is maintained.”
If the Cleveland project has a permanent legacy, stated Jordan, it will be the participants’ success in breaking down the barriers of communication. “The greatest value is in the
community dynamics that were created. People got to know each other and communicate
with each other in a different way. The Cleveland project enabled that process of interaction
to occur, and, clearly, that process will be enduring.”

As of this writing, the Greater Cleveland Residential Housing and Mortgage Credit Project is being
emulated by Federal Reserve Banks in Chicago, Boston, St. Louis, San Francisco, and New York.
The Cleveland project is being used as a model for a similar program in Greater Cincinnati/
Northern Kentucky. And in Akron, Ohio, a public/private partnership is planning to use the Cleveland project’s methodology to identify and remove the impediments to small business financing.
19

TASK GROUP M EM BERS
(includes employment at time of Cleveland project)

[1]
THE HOME
PURCHASER’S
INITIAL CONTACT
WITH THE
REAL ESTATE AGENT

Anne Lulow, Realty One, chair; Andrew Burkle, Jr., Federal
Reserve Bank of Cleveland; Chris Burnett, First Nationwide Bank;
Mary Davis, Cuyahoga County Department of Development;
David Fynn, National City Corporation; Barbara Grothe, Greater
Cleveland Roundtable; Mary Hudson, Realty One; Marion Johnson,
Bank One; Lionel Lewis, A.J. Lewis & Associates; Terry McCafferty,

Trans Union Corporation; Jeff Mills, Society Mortgage Company;
Robert Morgan, Integrity Escrow & Title Agency; Christy Penney,
Neighborhood Housing Services of Cleveland; Jennifer Sladky,
First Nationwide Bank; Maria Thompson, Hillcrest Housing;
David Wilcox, Cuyahoga Savings Association.

Marie Gerace, Prospect Title Agency, chair; Hector Allen,
Huntington National Bank; Andrew Burkle, Jr., Federal Reserve
Bank of Cleveland; Ruth Clevenger, Federal Reserve Bank of
Cleveland; Robert Dakdduk, Commonwealth Mortgage Assurance
Company; Donald Dalton, Dalton Mortgage Company; Mary Davis,
Cuyahoga County Department of Development; Rick Edlund, Ohio
Savings Bank; Ron Goodin, MGIC; Barbara Grothe, Greater
Cleveland Roundtable; Doris Honsa, Living in Cleveland Center;

Al Lieberman, First Choice Mortgage Corporation; Connie Mykytuk,
Realty One; Jan O’Donnell, MGIC; Bobbie Peery, Lutheran Housing
Corporation; Susie Rivers, Urban League of Greater Cleveland;
Sue Roehl, CBC Credit Services; Renee Smith, Trans Union
Corporation; Alex Staneff, Charter One Bank; Barb Stettnisch,
Park View Federal Savings Bank; Stephanie Turner, National City
Bank; Henry West, Charter One Bank.

Dale Babin, Fifth Third Bank, chair; Frank Bologna, Ohio Savings
Bank; Andrew Burkle, Jr., Federal Reserve Bank of Cleveland;
James Caldwell, Buckholz Caldwell & Associates; Reese Dailey,
Prospect Title Agency; Donald Dalton, Dalton Mortgage Corporation;
Barbara Grothe, Greater Cleveland Roundtable; Ron Hongosh,
National City Bank; Ernestine Jackson, Bank One Mortgage
Corporation; Paula Jones, Bank One Mortgage Corporation;
Loretta Kennelly, Federal National Mortgage Association;

Lucy J. Loughead, U.S. Department of Housing and Urban Development; Lisa Marshall, National City Bank; Jeff Mills, Society
Mortgage Company; Connie Mykytuk, Realty One; Derek Parks,
Society Mortgage Corporation; Lorraine A. Poe, National City Bank;
John Price, Huntington National Bank; Mary Jo Rawlins, Cuyahoga
County Department of Development; Alan Reichert, Cleveland State
University; Terry Robbins, Horizon Savings Bank; John Sabal, Leader
Mortgage Company; Donald Willis, Ohio Civil Rights Commission.

Tony Willis, Tony Willis Real Estate Training Center, chair;
Andrew Burkle, Jr., Federal Reserve Bank of Cleveland;
Rick Edlund, Ohio Savings Bank; Maxine Greene, Cleveland
Neighborhood Development Corp.; Barbara Grothe, Greater
Cleveland Roundtable; Doris Honsa, Living in Cleveland Center;
Jan Kearney-King, U.S. Department of Housing and Urban
Development; Loretta Kennelly, Federal National Mortgage
Association; Bracy Lewis, Bank One; Estella Loar, City of

Cleveland; John Lynch, Lynch & Company; Joseph Pawlitsch,
Society Mortgage Company; Patricia Ramsey, Star Bank;
Alan Reichert, Cleveland State University; John Sabal, Leader
Mortgage Company; Mary Schwegler, U.S. Department of
Housing and Urban Development; Gia Sciangula-Adeen, Ohio
Civil Rights Commission; Henry Stoudermire, McMullan Realty;
Annette Strawbridge, Accurate Home Inspections;
Charles Thigpen, Third Federal Savings & Loan.

Rosita Motton, RECA Realty, co-chair; Sue Taylor, Allstate Insurance Company, co-chair; Mary Bonelli, Ohio Insurance Institute;
Andrew Burkle, Jr., Federal Reserve Bank of Cleveland;
Rico Cora, State Farm Insurance; Donna Cotton, Federal Reserve
Bank of Cleveland; Mary Davis, Cuyahoga County Department of
Development; Tom Dawson, State Farm Insurance; Barbara Grothe,
Greater Cleveland Roundtable; Roderick Hirsch, Society Mortgage
Company; Doris Honsa, Living in Cleveland Center; Dan Kelso,
Ohio Insurance Institute; Robert Kloepefer, Insurance Board of
Greater Cleveland; Ellen Leslie, Ohio Fair Plan; Tony Love, Ohio

City/Near West Housing Corporation; Terry McCafferty, Trans Union
Corporation; Jim McKendry, JMI Reports; Robert Morgan, Integrity
Escrow & Title Agency; Andre Payten, State Farm Insurance;
Christy Penney, Neighborhood Housing Services of Cleveland;
Melvin Pye, Jr., Greater Cleveland Roundtable; Terry Robbins,
Horizon Savings Bank; Rosemary Schneider, September &
Associates; Phil Starr, Center Neighborhood; Brian Walters,
Nationwide Insurance; Ted Wammes, Ohio Civil Rights Commission;
Diana Woodbridge, FHC Housing Corporation.

Greg Foltz, Federal National Mortgage Association, co-chair;
Sue Ann Osterman, PMI Mortgage Insurance Company, co-chair;
Roger Boch, MGIC; Andrew Burkle, Jr., Federal Reserve Bank of
Cleveland; Beverly Burks, Garrett Square Neighborhood Development; Diane Buxton, Midland Title Agency; James Colabianchi,
Republic Mortgage Insurance; Anda Cook, Living in Cleveland
Center; Don Dalton, Dalton Mortgage Company; Margie Deliz,
United Guarantee; Mary Dennis, Federal National Mortgage
Association; Cheryl DePalma, United Guarantee; Barbara Grothe,
Greater Cleveland Roundtable; Eric Gunderson, Metro Mortgage;
Ernestine Jackson, Bank One; Lionel Lewis, A.J. Lewis & Associates; Lucy Loughead, U.S. Department of Housing and Urban

Development; Bryon McKinney, First National Bank of Ohio;
Marcia Nolan, National City Bank; Christy Penney, Neighborhood
Housing Services of Cleveland; Margo Petlowany, National City
Bank; Sheila Powell, United Guarantee; Denise Redmond,
Federal Home Loan Mortgage Corp.; Julie Ribar, Bellaire-Puritas
Development Corp.; John Sabal, Leader Mortgage Company;
Jeffrey Skelin, G.E. Mortgage Insurance; Alex Staneff, Charter
One Bank; Barb Stettnisch, Park View Federal Savings Bank;
Walter Stinson, City of University Heights; Sharon Szabo, Triad
Guaranty Insurance; Ronald Thomas, Cleveland Action to Support
Housing; Ginger Walters, Federal Home Loan Mortgage Corp.;
Myra White, Smythe, Cramer Company.

Sue Roehl, CBC Credit Services, chair; Estella Benton, Estrand
Realty; Gregory Brown, Cuyahoga County; Andrew Burkle, Jr.,
Federal Reserve Bank of Cleveland; Chris Burnett, First
Nationwide Bank; Iris Choi, Ohio Civil Rights Commission;
Jeanne Ciammaichella, Consumer Credit Counseling Service;
Dorothy Curtis, Dollar Bank; Carmela Dalton, Dalton Mortgage
Company; Charlotte Drotar, Key Mortgage Services; David Fynn,
National City Corporation; Barbara Grothe, Greater Cleveland
Roundtable; John Hnanicek, Geotrac; Myldred Boston Howell,

Myldred Boston Howell Realty; Gail Jackson, Neighborhood
Housing Services of Cleveland; Paula Jones, Bank One Mortgage
Corporation; Ken Lumpkin, Federal National Mortgage Association;
Jeffrey Male, Park View Federal Savings Bank; Bryon McKinney,
First National Bank of Ohio; Maelene Myers, Hough Area Partners
in Progress; Sheri Porter, Credco; John Price, Third Federal
Savings; Mary Jo Rawlins, Cuyahoga County; Roland Somerville,
Oasis Realty Company; Michael Szaz, Trans Union Corporation;
Joanie Toner, Cuyahoga Plan of Ohio.

[2]
THE HOME
PURCHASER’S
INITIAL CONTACT
WITH THE
LENDER

[3]
THE LENDING
INSTITUTIONS’
INTERFACE
WITH THE
SECONDARY MARKET

[4]
THE
APPRAISAL
PROCESS

[5]
PROPERTY
INSURANCE

[6]
PRIVATE
MORTGAGE
INSURANCE

[7]
CREDIT
BUREAU

FEDERAL RESERVE BANK OF CLEVELAND

OFFICERS
AND
CONSULTANTS
As of December 31, 1996

Dav i d E . Al t i g

Jos eph G . H aubr i ch

Vice President & Economist
Monetary Policy and Macroeconomics

Consultant & Economist
Research

Andrew J. Bazar

Bar bar a H . H er t z

Senior Consultant
Information Technology Services

Assistant Vice President
Facility/Automation Services, Cash/Fiscal,
Protection, Registered Mail, EEO
Cincinnati Office

J er r y L. Jordan

Te r r y N . Bennet t

President & Chief Executive Officer

Vice President
Information Technology Services

S andr a Pi anal t o

First Vice President & Chief Operating Officer

Jake D. Brel and

Char l es A. Cer i no

Vice President
Banking Supervision and Regulation

Senior Vice President
Cincinnati and Columbus Offices
Check, Marketing functions
L aw rence Cuy

Andrew C. Bur kl e, Jr.

Vice President
Banking Supervision and Regulation

Senior Vice President
Information Technology, Financial
Management Services

Dav i d P. Jager

R. Chr i s M oore

Ray f ord P. K al i ch

Senior Vice President
Banking Supervision and Regulation,
Credit Risk Management, Data Services

Vice President
Banking Supervision and Regulation,
Credit Risk Management, Data Services

S amuel D. Smi t h

Rober t W. P r i ce

Senior Vice President
Facilities, Protection, Business Continuity
Planning, Information Security

Vice President
Check Collection, ACH, Funds Transfer,
Electronic Delivery Services

Mar k S. Sni der man

E dw ard E . Ri chards on

Senior Vice President & Director of Research
Corporate Communications & Community Affairs

Vice President
Marketing

Harol d J. Sw ar t

Te r rence J. Rot h

Senior Vice President
Pittsburgh Office
Cash/Securities, Fiscal functions

Vice President
Quality

Donal d G . Vi ncel

Vice President & General Auditor

Senior Vice President
Unisys IPS development, EEO Officer

Jam es B. T hom s on

Rober t F. Wa re

Senior Vice President
Cleveland Operations
ACH, Funds Transfer,
Electronic Delivery Services functions

Vice President
Cash, Securities/Fiscal, Custody Control

S us an G . S chuel l er

Vice President & Economist
Financial Services Research Group
Jos eph C. T hor p

Vice President
Building
Rober t Van Val kenbur g

Vice President
Financial Management Services
P eggy A. Vel i m es i s

Vice President
Human Resources

S t ephen H . Jenki ns

Assistant Vice President
Banking Supervision and Regulation
K ev i n P. K el l ey

Assistant Vice President
Budget, Expense, Financial Planning
W i l l i am J. M aj or

Assistant Vice President
Check Collection
Laur a K . M cG ow an

Assistant Vice President & Corporate Secretary,
Community Affairs Officer
Corporate Communications & Community Affairs
S t ephen J. O ng

Assistant Vice President
Banking Supervision and Regulation
Jam es W. Rakow s ky

Assistant Vice President
Facilities, Business Continuity Planning,
Building Transition
K i m ber l y L. Ray

Assistant Vice President
Check Collection
Pittsburgh Office
Dav i d E . Ri ch

Consultant
Information Technology Services
John P. Robi ns

Consultant
Banking Supervision and Regulation
Rober t B. S chaub

Assistant Vice President
Accounting, General Services, Fiscal,
Securities, EEO
Pittsburgh Office
W i l l i am J. S m i t h

Assistant Vice President
Human Resources
G regor y L. S t ef ani

Vice President & General Counsel

Assistant Vice President
Banking Supervision and Regulation

Char l es F. W i l l i am s

E dw ard J. S t ev ens

Vice President
Automation, Check Collection, Accounting
Cincinnati and Columbus Offices

Consultant & Economist
Financial Services Research Group

Andrew W. Wat t s

Jam es A. Bl ake

Consultant
Information Technology Services
Ray m ond L. Br i nkm an

Assistant Vice President
Automation, Building, Cash, Protection
Pittsburgh Office
M i chael F. Br y an

Assistant Vice President & Economist
Research

H enr y P. Trol i o

Assistant Vice President
Information Technology Services,
Deputy EEO Officer
Darel l R. W i t t r up

Assistant Vice President
Accounting, Billing

Consultants are highly skilled employees who
contribute to attaining the Bank’s goals through
their specialized professional or technical skills.

W i l l i am D. Fos ni ght

Assistant Vice President &
Assistant General Counsel

FEDERAL RESERVE BANK OF CLEVELAND

DIRECTORS
As of December 31, 1996

CLEVEL A N D

A. W illia m Re yn o lds

David A. Dab e rk o

Alf re d C. L e ist

Chairman & Federal Reserve Agent
Chief Executive
Old Mill Group
Hudson, Ohio

Chairman & CEO
National City Corporation
Cleveland, Ohio

Chairman, President & CEO
The Apple Creek Banking Co.
Apple Creek, Ohio

David S . Da h lma n n

M ic h e le To le la M ye r s

G . Watts Hu mph rey, J r.

President & CEO
Southwest National Corporation
Greensburg, Pennsylvania

President
Denison University
Granville, Ohio

Rob e r t Y. Fa r rin g to n

T h o m a s M . Nie s

Executive Secretary–Treasurer
Ohio State Building and
Construction Trades Council
Columbus, Ohio

President
Cincom Systems, Inc.
Cincinnati, Ohio

I.N. Ren d a ll Ha rp e r, J r.

F r a n k V. Ca h o u e t

President & CEO
American Micrographics Co., Inc.
Monroeville, Pennsylvania

Federal Advisory Council Representative
Chairman, President & CEO
Mellon Bank Corporation and
Mellon Bank, N.A.
Pittsburgh, Pennsylvania

Deputy Chairman
President
GWH Holdings, Inc.
Pittsburgh, Pennsylvania

A. William Reynolds, Alfred C. Leist, Robert Y. Farrington, David A. Daberko,
I.N. Rendall Harper, Jr., David S. Dahlmann, and G. Watts Humphrey, Jr.

Frank V. Cahouet

John N. Taylor, Jr.

C I N C I N N AT I

Chairman
Chairman & CEO
Kurz–Kasch, Inc.
Dayton, Ohio
Judith G. Cla b e s

President & CEO
Scripps Howard Foundation
Cincinnati, Ohio
Phillip R. Cox

President
Cox Financial Corporation
Cincinnati, Ohio
Jerr y A. Gru n d h o fe r

Chairman, President & CEO
Star Banc Corporation
Cincinnati, Ohio
Jean R. Hale

President & CEO
Pikeville National Bank and Trust Company
Pikeville, Kentucky
Thomas Re ve ly III

President & CEO
Cincinnati Bell Supply Co.
Cincinnati, Ohio

Thomas Revely III, Jean R. Hale, John N. Taylor, Jr.,
Judith G. Clabes, and Wayne Shumate

Wayne S hu mate

Chairman & CEO
Kentucky Textiles, Inc.
Paris, Kentucky

John T. Ryan III

PITTSBURGH

Chairman
Chairman, President & CEO
Mine Safety Appliances Company
Pittsburgh, Pennsylvania
G retc h e n R. Hag g e r ty

Vice President & Treasurer
USX Corporation
Pittsburgh, Pennsylvania
Thomas J. O’S h a n e

Chairman, President & CEO
First Western Bancorp, Inc.
New Castle, Pennsylvania
Sand ra L. P h illip s

Executive Director
Pittsburgh Partnership for
Neighborhood Development
Pittsburgh, Pennsylvania
Edward V. Ran d a ll, Jr.

President and CEO/Pittsburgh
PNC Bank, N.A.
Pittsburgh, Pennsylvania
Ran d a ll L.C. Russe ll

Edward V. Randall, Jr., Sandra L. Phillips, Randall L.C. Russell,
John T. Ryan III, and Thomas J. O’Shane

President & CEO
Ranbar Technology, Inc.
Glenshaw, Pennsylvania
Wesle y W. vo n S ch a c k

Former Chairman, President & CEO
DQE
Pittsburgh, Pennsylvania

C O M PA R AT I V E F I N A N C I A L S TAT E M E N T

For the years ended:

STATEMENT
OF
CONDITION
(in millions)

December 31, 1996

December 31, 1995

ASSETS

Gold certificates
Special drawing rights certificates
Coin
Items in process of collection
U.S. government and federal agency securities, net
Investments denominated in foreign currencies
Accrued interest receivable
Interdistrict settlement account
Bank premises and equipment, net
Other assets
To t a l a s s e t s

624
543
25
688
23,173
1,257
209
5,007
131
23

621
584
24
265
22,014
1,476
224
220
87
19

31,680

25,534

29,861

23,524

L I A B I L I T I E S A N D C A P I TA L

Liabilities:
Federal Reserve notes outstanding, net
Deposits:
Depository institutions
Other deposits
Deferred credit items
Statutory surplus transfer due U.S. Treasury
Interest on Federal Reserve notes due U.S. Treasury
Accrued benefit cost
Other liabilities
To t a l l i a b i l i t i e s

Capital:
Capital paid in
Surplus
To t a l c a p i t a l
To t a l l i a b i l i t i e s a n d c a p i t a l

856
15
280
37
0
43
10

1,161
11
232
0
39
40
9

31,102

25,016

292
286

259
259

578
31,680

518
25,534

For the years ended:

STATEMENT
OF INCOME
(in millions)

December 31, 1996

Interest income:
Interest on U.S. government securities
Interest on foreign currencies

1,382
29

Other operating income:
Income from services
Reimbursable services to government agencies
Foreign currency gains (losses), net
Government securities gains, net
Other income

(33)

142

68
8
9
2
34
43

67
7
9
2
33
43

164

161

To t a l o p e r a t i n g e x p e n s e s

1,214
0

Net income prior to distribution
Distribution of net income:
Dividends paid to member banks
Transferred to surplus
Payments to U.S. Treasury as interest on Federal Reserve notes
Payments to U.S. Treasury as required by statute
To t a l d i s t r i b u t e d i n c o m e

(in millions)

Capital Paid in

Net income transferred to surplus
Net change in capital stock issued (24,775 shares)
Balance at December 31, 1995 (5,175,336 shares)
Net income transferred to surplus
Statutory surplus transfer to the U.S. Treasury
Net change in capital stock issued (674,545 shares)
Balance at December 31, 1996 (5,849,881 shares)

1,455

47
22
70
0
3

Operating expenses:
Salaries and other benefits
Occupancy expense
Equipment expense
Cost of unreimbursed Treasury services
Assessments by Board of Governors
Other expenses

Income before cumulative effect of accounting change
Cumulative effect of change in accounting principle

258

—
1

259

—
—
33

292

1,400
55

50
23
(109)
2
1

To t a l o t h e r o p e r a t i n g i n c o m e ( l o s s )

Balance at January 1, 1995 (5,150,561 shares)

1,411

To t a l i n t e r e s t i n c o m e

STATEMENT
OF CHANGES
IN CAPITAL

December 31, 1995

1,436
(4)

1,214

16
34
854
310

16
1
1,415
0

1,214

1,432

Surplus

1,432

Total Capital

258

516

1
—

1
1

259

518

33
(6)
—
$

286

$
$

33
(6)
33
578

These statements are prepared by Bank management. Copies of full and final financial statements, complete with footnotes,
are available by writing the Corporate Communications & Community Affairs Department of the Federal Reserve Bank of
Cleveland, P.O. Box 6387, Cleveland, OH 44101, or by calling (216) 579-2001 (key in 1-5-3).

FEDERAL RESERVE BANK OF CLEVELAND

1996
OPERATIONAL
HIGHLIGHTS

CLEVELAND BUILDING PROJECT

— Progress continued on the Bank’s Operations Center, with occupancy scheduled for
the first quarter of 1997. Approximately half of the employees at the Cleveland
office were relocated to temporary leased space in late 1996 for a two-year period
while the historic main office building undergoes renovation.
CONFERENCES AND PUBLIC PROGRAMS

— The Bank sponsored conferences, educational initiatives, and outreach programs on
a variety of topics, including the Electronic Federal Tax Payment System, regionalization and emerging markets, the dynamic effects of monetary policy, the
Community Reinvestment Act, and other laws and regulations.
— Mary Ellen Withrow, Treasurer of the United States, formally introduced the new
1995 series $2 bill in November. More than 1,000 people visited the Cleveland office
over a two-day period for the opportunity to purchase uncut sheets of currency.
— President Jerry Jordan and other Cleveland Fed officers discussed issues of concern
with bankers throughout Ohio and Pennsylvania as part of a bankers’ meeting
series instituted in 1996. More than 100 financial-institution executives attended
these meetings to discuss local business and economic conditions, plans for new
payments services technologies, and recent changes in banking regulation.
M O N E TA RY P O L I C Y / R E S E A R C H

— Our staff of Research economists had 17 papers or articles published or accepted
for publication in leading U.S. and international scholarly journals.
— All of the Bank’s Research publications, as well as information from our Banking
Supervision and Regulation, Corporate Communications, Data Services, and Marketing areas, were made available to the general public on the Bank’s home page
on the World Wide Web: http://www.clev.frb.org.
— The Financial Services Research Group, which contributes research and economic
analysis in support of the Federal Reserve System’s Financial Services Policy Committee, continues to operate from the Cleveland Reserve Bank.
PAY M E N T S S E R V I C E S

— The Bank sponsored the World Series of Electronic Payments to update customers
on pending changes in this area. Nearly 700 customers from throughout the
District attended these sessions, where they received information on the electronic federal tax payment system, automated clearinghouse (ACH), wire transfer,
and the Federal Reserve’s new national book-entry system.
— The Cleveland Fed successfully implemented FedACH, the new standard software
for automated clearinghouse transactions, with no disruption in service to customers. The Bank also successfully migrated its mainframe data processing operations to a communal environment at FRAS, the Federal Reserve Automation Services
site in Richmond, Virginia.
— In cooperation with ACH associations, the Bank continued to champion the utility
direct payment program. The 1996 campaign yielded more than 90,000 payment
agreements, resulting in additional ACH volume of 1.1 million items. The program
serves as a model for similar efforts in other areas of the country.

— As one of five regional processing sites and one of two regional print sites for
issuing savings bonds, the Pittsburgh office continued to serve the U.S. Treasury,
our largest customer. The Bank began to accept payroll savings bonds via electronic
telecommunication (bulkdata) connections in response to customer requests.
— As the Unisys/FRBIPS project office, the Cleveland Fed assumed a lead role in partnering with Unisys to set the strategic direction and develop the requirements for
the next-generation check processing system.
— The Bank continues to work with customers to better understand their needs and
expectations. A number of new products, such as check imaging, were introduced
directly in response to customer needs. Another example is the Bank’s upgrade to
a LAN-based operating system for Noncash items, which both reduced a lengthy
backlog on return items and enhanced cost efficiencies.
QUALITY IMPROVEMENTS AND INTERNAL TRAINING

— Customers responded enthusiastically to the Bank’s heightened focus on quality.
The Quality Assessment Survey conducted in the spring showed solid improvement
in the Bank’s ability to meet and exceed customer expectations across all services.
— Employees’ customer service and communications skills were enhanced through
attendance at 79 “Superior Service” classes held throughout the year at our four
offices. Employee facilitation teams were formed and trained in each office to
ensure timely problem identification and effective resolution.
— In February, the Bank adopted a functional management structure across the four
offices to strengthen our ability to achieve strategic objectives and to provide
superior service to customers.
S U P E R V I S I O N A N D R E G U L AT I O N

— The Bank successfully carried out its supervisory responsibilities, adopting a
risk-based approach, and the condition of the District’s financial institutions
remains superior.
— In conjunction with several other Reserve Banks, the Cleveland Fed actively participated in the development of the Joint Supervisory Protocol among the Federal
Reserve System, the Federal Deposit Insurance Corporation, and state banking
agencies to promote seamless supervision and reduce the regulatory burden on
state-chartered banks.
— The Bank contributed to the development and implementation of the Examiner
Workstation, designed to allow examiners to download information from a bank’s
computer system before and during commercial-bank field examinations.
— To ensure the Fourth District’s readiness to respond to sweeping changes in interstate banking and branching laws, the Bank provided internal communication and
training and solicited banks’ input on the potential impact of the legislation. The
Cleveland Fed continues its System leadership role in this initiative by helping to
form and direct policy decisions and to provide useful tools for implementing
those decisions.

FEDERAL RESERVE BANK OF CLEVELAND

BUSINESS
ADVISORY
COUNCIL

W il l i am H . Braun

Gle n n R. J e n n ing s

Gera ld M. Mille r

President
Custom Rubber Corporation
Cleveland, Ohio

President & CEO
Delta Natural Gas Company, Inc.
Winchester, Kentucky

Chairman & Managing Partner
Miller–Valentine Group
Dayton, Ohio

Mar go E. Broehl

J a mes D. Kig g e n

J e a n e tte C. P re a r

Owner
Broehl & Waldron Attorneys
Wooster, Ohio

Chairman & CEO
Xtek, Incorporated
Cincinnati, Ohio

President & CEO
Day-Med Health Maintenance Plan, Inc.
Dayton, Ohio

R onal d B. Cohen

Nor man J. Kla ss

S te ve n C. T h o mas

Senior Partner
Cohen & Company
Cleveland, Ohio

Marketing Manager
Vigoro Industries
Ottawa, Ohio

President & CEO
Mulach Steel Corporation
Bridgeville, Pennsylvania

Che r yl L . Krue g e r

President & CEO
Cheryl & Company
Columbus, Ohio

COMMUNITY
BANK
ADVISORY
COUNCIL

A lan G . Brant

Ron a ld L. S o lomon

Carlos E . Wa tk ins

President & CEO
The Second National Bank of Warren
Warren, Ohio

President, Director & CEO
First West Virginia Bancorp, Inc.
Wheeling, West Virginia

President & CEO
First-Knox Banc Corp.
Mt. Vernon, Ohio

E dwi n P. Cov er

William C. S on n ta g

P a u l G. Wre e d e

President
Commercial National Bank of
Westmoreland County
Latrobe, Pennsylvania

President & CEO
The First National Bank of Slippery Rock
Slippery Rock, Pennsylvania

President
The Commercial Bank
Delphos, Ohio

P h ilip S . S wop e

Rob e r t W. Z ap p

President & CEO
Chippewa Valley Bank
Rittman, Ohio

President & CEO
The Bank of Boone County, Inc.
Florence, Kentucky

B enj ami n T. Pugh

CEO
Premier Financial Bancorp, Inc.
Vanceburg, Kentucky

C LE V EL A N D

1455 East 6th Street
Cleveland, OH 44114
(216) 579-2000
C I N C IN N AT I

150 East 4th Street
Cincinnati, OH 45202
(513) 721-4787

The Federal Reserve Bank of Cleveland is
one of twelve regional Reserve Banks in the
United States that, together with the Board
of Governors in Washington, D.C., comprise
the Federal Reserve System.

PI T TSB U R G H

717 Grant Street
Pittsburgh, PA 15219
(412) 261-7800

The Federal Reserve Bank of Cleveland,
including its branch offices in Cincinnati
and Pittsburgh and its check processing
center in Columbus, serves the Fourth
Federal Reserve District. The Fourth District
includes Ohio, western Pennsylvania, the
northern panhandle of West Virginia, and
eastern Kentucky.

COLUMBUS

965 Kingsmill Parkway
Columbus, OH 43229
(614) 846-7494

This annual report was prepared by the
Corporate Communications & Community
Affairs Department of the Federal Reserve
Bank of Cleveland.

For additional copies, contact the Corporate
Communications & Community Affairs
Department, Federal Reserve Bank of
Cleveland, P.O. Box 6387, Cleveland, OH
44101, or call 1-800-543-3489 (OH, PA, WV)
or 216-579-2001.
The annual report essay is also available
electronically through the Cleveland Fed’s
home page on the World Wide Web:
http://www.clev.frb.org.

A C K N O W LE D G M EN TS
M an ag in g Ed ito r:

Robin Ratliff
Prod u ct io n Edi to r:

Tess Ferg
Wr ite r:

Robert Sberna
Sp ec ia l Co n tr ibu to r:

Martha Maher
D es ig n er :

Michael Galka
Ph ot og ra p he rs :

The Reuben Group — executive portrait (page 3),
Cleveland project participants (pages 11-12),
directors (pages 22-23); Bill Pappas — cover,
page 15; Janet Century — pages 1, 17, 19; and
Mort Tucker—page 6.
Pri nt er :

Watt Printing Company

Full text of Annual Report of the Federal Reserve Bank of Cleveland : 1996 Annual Report

FRASER