Full text of Community Credit Needs : Hearings Before the Committee on Banking, Housing, and Urban Affairs, United States Senate, Ninety-Fifth Congress, First Session on S. 406, March 23, 24, and 25, 1977

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COMMUNITY

CREDIT

NEEDS

HEARINGS
BEFORE

THE

COMMITTEE ON

BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
NINETY -FIFTH CONGRESS
FIRST

SESSION
ON

S. 406
TO ENCOURAGE
FINANCIAL
INSTITUTIONS
THE CREDIT NEEDS OF THE COMMUNITIES
ARE CHARTERED,
AND FOR OTHER

MARCH

TO HELP
IN WHICH
PURPOSES

MEET
THEY

23,24,AND 25,1977

Printedfortheuseofthe

CommitteeonBanking,Housing,andUrbanAffairs

U.S. GOVERNMENT
O

WASHINGTON

PRINTING

OFFICE

: 197788-032

For saleby the Superintendent
of Documents,U.S.GovernmentPrinting
Office
Washington, D.C. 20402
StockNumber052-070-04101-3

COMMITTEE
JOHNSPARKMAN,

ON BANKING, HOUSING, AND URBAN
WILLIAM
Alabama

PROXMIRE,

AFFAIRS

Wisconsin,Chairman
EDWARD
W. BROOKE, Massachusetts

HARRISONA. WILLIAMS, JR.,
NewJersey JOIINTOWER, Texas
THOMAS

J. MCINTYRE,

NewHampshire

ALAN CRANSTON, California
ADLAIE. STEVENSON, Illinois
ROBERT MORGAN, North Carolina
DONALD W. RIEGLE, JR.,Michigan
PAUL S.SARBANES, Maryland
KENNETH

JAKEGARN,
Utah
H. JOHN HEINZ III,Pennsylvania
RICHARD G. LUGAR, Indiana
HARRISON

SCHMITT,

New

Mexico

A. MCLEAN, StaffDirector

JEREMIAHS. BUCKLEY,Minority
StaffDirector
ROBERT L. KUTTNER,Professional
StaffMember
(II)

!
!

CONTENTS
Page

S. 406.
Comments from:

1
4
5

Comptroller
oftheCurrencyFederalReserve Board...

Federal
Deposit
Insurance
Corporation
LIST OF WITNESSES

WEDNESDAY,
MARCH 23
RalphNader,Centerforthe
StudyofResponsive
Law.

GaleCincotta,
National
People's
Action
CarlHolman,president,
National
Urban Coalition.

17
132
147
150

HenrySchechter,director,
DepartmentofUrban
Affairs,AFL-CIO.

Carol
Greenwald,
commissioner,
Massachusetts
State
Banking
Depart
ment._

165

LawrenceConnell,commissioner,
Connecticut
State
Banking
Department 173
JohnT.Marlin,
Councilon
Municipal
Performance,
New York,N.Y.---- 181
ConradWeiler,
Alliance
forNeighborhood
Government,
QueensVillage,
Philadelphia

217

THURSDAY,MARCH 24

RobertEmbry,AssistantSecretary
forCommunityDevelopment,
De
231
partment
ofHousingand
UrbanDevelopmentGarthMarston,
Chairman,
Federal
Home LoanBank Board,accom
panied
by DonaldM. Kaplan,
Director,
Officeof
EconomicResearch;

Robert
S.Warwick,
Acting
Director,
Office
ofHousingandUrban
Af

fairs;
and StephenM. Ege, Associate
GeneralCounsel,Legislation
238

Division.

Gilbert
Roessner,
president,
CityFederal
Savings
& Loan Association,
representing
theNational
Savings
& Loan League;
accompanied
by
HardingWilliams,
general
counsel.

278

FRIDAY,MARCH 25

M. ToddCooke,president,
thePhiladelphiaSaving
FundSociety.
RonaldGrzywinski,chairman
oftheExecutive
Committee,
SouthShore
National
Bankof Chicago-

A.A.Milligam,president-elect,
AmericanBankers
Association

MorrisD. Crawford,
Jr.,
chairmanof the

289
296
296

ard,Bowery SavingsBank,

representing
NationalAssociationofMutual
Savings
Banks..
EdwinBrooks,
Jr.,
president,
Security
Federal
Savings
& Loan of Rich
mond.

334
334

KathleenO'C.
Hamilton,
Central
WestEndSavings&
LoanAssociation,
St.Louis,
accompaniedby
ThomasScatizzi..

334

ADDITIONALSTATEMENTSAND DATA

American
BankersAssociation,
reprint
of papertitled
" The Banking
Industry's
RelativeContributionto
Housing
Finance”.
American
Securityand
TrustCompany:
Checklistofbasicbanking
servicesNoticetoapplicantforreal
estateloan.

Barnard,
Judith,reprintofarticletitled“Money
Matters”
Central
WestEndSavingsand
LoanAssociation,
proposed
charter

317
66
67
303
387

ChicagoSun-Times,
reprintofarticletitled
“ HowPoor LoseOutin HUD
146

Auctions”

Congressional
Record,reprintofremarksof
Senator
Proxmireonintroduc
9

tionof S. 406.-

Council
onMunicipalPerformance,summaryofrepresentativerei
183
mentprograms,
preparedbyJohn TepperMarlin,executive
director
-(III)

Federal
Deposit
Insurance
Corporation,
letter
fromRobertE. Barnett,
Pago
Chairman,
commentingon
S.406...
15
Federal
Home LoanBankBoard:
73
Amendedpetitiontodeny
a branch
application..
259

Applicantinstructionsforabranchoffice.

and loan
a Federal
savings
to organize
forpermission
Application

256
252
78

association.-

Checklist
ofsupportingdocuments
forpermission
to organize
Motionforadequate
communitygroupnotice.-

Motionforexpungement
ofbiased
findings
andrecommendations
Hearingconducted
by an unbiasedhearingofficer,
andsubmission
of additional
information.

117

Sourcesof
economicdata:
A Guideforsavings
and loanapplicants--253

Federal
Reserve
Board,commentson
S.406receivedinletterfrom
chair
man, ArthurF. Burns..

Loan policy
agreement
betweenPerpetual
Federal
Savings
and Loan
Association
and Adams Morgan Neighborhood
Commission,
Washing
ton,D.C...
Michigan
State
Legislature,letterfrom
BobbyD.Crim,
Speaker,
Houseof
Representatives

111
427

MortgageBankersAssociation:
Letterfrom
Oliver
H. Jones,
executive
vicepresident

401
405

Finalreportof
Redlining
TaskForce..

National
Association
ofRealtors,
letterfrom
Albert
E.Abrahams,
staff428
vicepresident,governmentaffairsNational
Centerfor
UrbanEthnicAffairs,
letter
from KarenKollias,
director,
disclosure
andreinvestmentproject..

425

National
Peoples
Action,proposedamendedversionof
Community
Rein
vestment Act of 1977..

136

New YorkPublic
Interest
Research
Group,Inc.,
reportonredlining--337
RegionalAdministratorofNational
Banks,petitiontodenyabranchappli
cation---

319
TheSavingsand
LoanFoundation,illustrationexplaining
TVad..

CHARTS AND TABLES
281
Annualincreasesofmortgagedebtheldby
Federalagencies.
54
American
Securityand
Trust
Co.mortgageloanstoexistinghomeownersAmerican
Security
and TrustCo.mortgage
loans
for1-4family
home

purchases.

American
SecurityandTrust
Co.'sneighborhooddisinvestment.

Averagesalesprice
of1-4familyhomes
Bank financedhome
sales,
percent
oftotal
residentialsales-

50
63
52
172

Conventionalloan distribution
in 3 cities:

Chicago,
loandistribution
offour
largest
savings
andloans
and-two
largestbanks.--

141

145
Hartford,lendingbyfivemajorlendersPhiladelphia,loandistributionofsixmajorlenders..143
44

Districtof
Columbiaaverage
familyincomeFlow of funds:Home mortgages---

81
282

I
Geographic
distribution
by zipcodeofmortgages
issued
during1975
on
i

354

Double
salestransactionsonsinglefamilyhomes.
properties
located
in Brooklyn.-

i
318
Holdingofresidentialconstructionloansbytypeoflenderi

Implicationsof
mortgageparitycriterionforplacing
courtandtrust
de
i
posits
inNew York Citysavings
banks.
Maximum loantoprice
ratio.
Measuring
bank'scontribution
tohousing
Medianfamilyincome—1969.

215
59
318
91
172
281

Mortgage
applicationscomparedwithresidential
sales
Nonfarmresidentialmortgagedebtoutstanding--Percentoftotalmortgagecreditprovidedbymortgagebankingcompanie
45
savings
and loansand commercialbanks,
1975-

Racialdistribution
of mortgage loans-

Residentialmortgage
loansoutstandingbytypeoflenderSmall businesses.

Surveyofseven
New Yorksavingsbanks_
Theprocessofneighborhood
change-

98
317
48
350
412

COMMUNITY
WEDNESDAY,

CREDIT NEEDS
MARCH

23, 1977

U.S. SENATE,

COMMITTEEONBANKING,HOUSING,ANDURBANAFFAIRS,

Washington,
D.C.
The committee
met at 10:10a.m.,
in room 5302,DirksenSenate

Office
Building,
SenatorWilliamProxmire
(chairmanofthecommit
tee)presiding.

Present:SenatorsProxmire,Tower,andHeinz.
OPENING

STATEMENT

OF CHAIRMAN

PROXMIRE

The CHAIRMAN.The committee
willcometoorder.

IexpectSenator
Towertobeheremomentarily.
Hehasastatement
tomakeandheofcoursewillmakethatstatementwheneverhecomes.

TodaytheSenate
BankingCommitteebegins3daysofhearingson

S.406,the
CommunityReinvestment
Act.
Thisbill
wouldprovide

thatabank
chartercarries
withit
anobligationto
servethecredit

needsofthearea
thebankis
charteredtoservice,consistentwith
pru

dentlending
practices.
Furthermore,
itwouldprovide
regulatory
machinery
tocarryoutthispolicy.
The bill
isbasedon two widely
sharedassumptions.

No.1:Governmentthrough
taxrevenuesandpublic
debtcannot
and should
notprovide
morethana limited
partofthecapital
re

quired
forlocalhousingandeconomicdevelopmentneed
Financial
institutionsin
ourfreeeconomicsystem
mustplay
theleadingrole.

Second:A publiccharter
forabankorsavingsinstitutionconvey

numerousbenefits
anditisfair
forthepublic
toasksomethingin
return.

Intheory,andinlaw,banksandsavingsinstitution

to servelocal
convenience
and needs.
În practice,the
regulatory
agencieslookonlytothecapital
adequacyoftheapplicant,hisch
acter
andreputation,andwhethertheproposedserviceare
sufficient
deposit
potential
tosupportanother
new bankorbranch.

TheCommunityReinvestment
Actwouldprovide
that
“thecon
venienceandneedsofcommunitiesincludestheneed
forcredit
serv

icesas wellasdeposit
service,
and further,
thatregulated
financial
institutions
haveacontinuingand
affirmativeobligationtohelpme

thecreditneedsofthelocalcommunitiesinwhich
theyarechartered.
Underthebill,
theregulatory
agencies
wouldreview
thelender's
record
of communityservice
and consider
itwhen an existing
bank

applied
foranewfacility.Groups
applyingfornew
charterswould
alsoberequired
toassess
local
creditneeds
andindicate
plans
for
meeting
them.

Somebankers,ofcourse,alreadyservemorethantheirsh
housing
andeconomic
development
needsoftheircommunities.
One

ofourwitnesses,
Ronald
Grzywinski,
ischairman
ofa commercial
(1)

bankinChicagothathasstimulated
therevitalization
of a so-called

declining
neighborhood
through
an aggressive,
affirmative
program
oflocalhousing
andsmall
business
lending.
Another
witness,
Todd
Cooke,
ispresident
of oneof theNation's
largestsavingsbanks.
Mr. Cooketook
theleadinorganizingthe
Philadelphiamortgage
plan,whichhas putmorethan$12 million
in mortgage
loansinto

formerly
redlined
Philadelphia
neighborhoods.
On theother
hand,
whenthecommittee
dida survey
ofbanking
services
herein Washington,
wefoundonebankwitha policy
of
makingnohomemortgageloans.
Thissamebank
wasmakingagreat
volumeofloanstotheoutside
realestate
interests
ofitsown board.
We foundasavings
and loanchartered
in Washington
with99 per

centofitsmortgage
loansinthesuburbs,andthisstoryisrepea
throughout
thecountry.
Banksthatclaimthereisno demandfor

localhousingandsmallbusinessandagriculturalcredit,
thattheneedto protect
depositors'money
precludessuch
lending,
areoftenthesamebanksthat
havesquandered
moneyonspeculative
realestate
loansor credits
to shaky foreign
regimes.

The problem,ofcourse,isthat
forevery
Todd Cookeandforevery

Ron Grzywinski,therearedozensofbankerswhoareeithert
ortoogreedy
toseetheloandemand
intheirowncommunities.
De
mandinoureconomyisnot
a passive,fixedthing.
Itismanipulated
andpromoted.
If abanker
iswillingto
getoutofthe
officehe
will
findit.Thisbillwouldencouragehim todo so.

Supposedly,therewasnoeffectivedemand
fromtheoldrowhouse
neighborhoodsin
Philadelphia,andnoeconomicfutureforthes
shoreneighborhood
of Chicago,
buttwo energetic
bankers
proved
otherwise.
Lending
practices
should
beofinterest
totheregulators.
Banksandthrifts
thataretrulyservingtheconvenience
andneedsof
thecommunityshouldberewarded.
Othersshouldnot.
Thisisalready

public
policyin
Massachusetts,
Connecticut,
and California
as we

shallhear laterthismorning.
This is what thisbillwould do at the Federallevel.
And letme
clarifywhat thisbilldoes not do.

Itdoesnotprovide
forcreditallocation.
Theworstthingwecould

do,inmy opinion,
wouldbetoempowerDr.Burnsoranyoneelse
toallocate
so much credit
tothissector
and so much credit
tothat

one.
TheFed doestoomuch
ofthat
informally
already.
To criticize
reinvestment
incentives
as a form of credit
allocationisdisingenuous.

We already
havecredit
allocation,
asonecommentor
hasobserved,
anditiscredit
allocation
fortheFortune
FiveHundred.Whenever
moneygetstight,
itissmallbusiness
and housing
and family
farms

that
suffer,
andbigbusiness
thatgets
thescarce
credit.Wealready
havenumerousstructural
formsof credit
allocation
in theform of
specialized
credit
intermediaries
such as the farm credit
banks,

FNMA, Ex-ImBank,andsoon,whichhavepreferential
access
to
Treasury
borrowings.
We havestructural
credit
allocation
in the
formof a specialized
homeloanbanksystem,
mortgage
insurance,
andguaranteed
smallbusiness
loans.
I thinkthatdebateinthe
con
textofa reinvestment
bill
isa redherring.
The CommunityReinvestment
Actwouldnotallocate
credit,
nor

woulditrequireany
fixed
ratio
ofdeposits
toloans.
Butitwould
provide
thatabankcharter
isindeeda franchise
toserve
local
con
venience
and needs,
including
credit
needs.

[CopyofS.406andadditionalmaterial
follows:]

95THCONGRESS

S.406

1stSESSION

IN THE

SENATE

OF THE

UNITED

STATES

JANUARY24(legislative
day,January19),1977
Mr.PROXMIREintroducedthefollowingbill;whichwasreadtwiceandrefe
totheCommitteeon
Banking,
Housing
andUrbanAffairs

BILL

To encourage
financial
institutions
tohelpmeetthecredit
needs
ofthecommunities
inwhich
they
arechartered,and
forotherpurposes.
1

Be itenacted
bytheSenate
andIlouse
ofRepresenta

2 tiresofthe
United
Statesof
America
inCongress
assembled,
SHORT

3
4

TITLE

SECTION
1.This
Actmaybecited
asthe"Community

5 Reinvestment
Actof1977”.
FINDINGS

6
7

PURPOSE

SEC.2.
(a)TheCongressfindsthat,
(1)regulated
financial
institutionsare
required
by

8
9

AND

lawtodemonstrate
that
their
deposit
facilities
serve
the
II

2
1

convenience
and needsof the communities
in which

theyarecharteredtodobusiness;

(2) theconvenience
andneeds
ofcommunities
in

cludes
theneedforcredit
services
as wellasdeposit

services;
and

(3)regulated
financial
institutions
havecontinuing

andaffirmative
obligation
tohelpmeetthecredit
needs

ofthelocal
communities
in whichtheyarechartered.

(b)Itisthepurposeofthis
Acttorequireeachappro

10 priate
Federal
financial
supervisory
agency
touseitsau
11 thority
whenchartering,
examining,supervising,
andregu
12 latingfinancial
institutions,toencourage
such
institutionsto

13 helpmeetthecreditneedsofthelocalcommunitiesi
14 theyarechartered
consistent
withthesafeandsound
15 operationofsuchinstitutions.
16

DEFINITIONS

SEC.3.
ForthepurposesofthisAct,

(1)theterm"appropriate
Federalfinancial
super

visoryagency”means
(A) theComptroller
oftheCurrency
with

20
21
22

respect
tonationalbanks;

(B) theBoardofGovernors
oftheFederal

Reserve
Systemwithrespect
to Statechartered

banks which are members of the FederalReserve

Systemandbankholdingcompanies;

5
3
1

tion
withrespect
toState
chartered
banks
andsav

ings
banks
which
arenotmembers
oftheFederal

Reserve
System
andthedeposits
ofwhichare

insuredbythe
Corporation;and

(D)theFederalHome
Loan
BankBoardwith

respectto
institutions
thedeposits
ofwhichare
in

sured
bytheFederal
Savings
andLoanInsurance

Corporation
andtosavings
andloanholding
com

panies;

(2) theterm"regulated
financial
institution”

meansan insured
bank as defined
in section
3 of the

Federal
Deposit
Insurance
Actoraninsuredinstitution

asdefined
insection
401oftheNational
Housing
Act;

(3)theterm"application
fora deposit
facility"

means
anapplication
totheappropriate
Federal
finan

cialsupervisory
agency
otherwise
required
under
Fed

erallaworregulationsthereunderfor

(A) a charter
fora national
bankorFederal
savingsandloanassociation;

(B) deposit
insurance
in connection
witha

newlychartered
State
bank,
savingsbanks,
savings

andloanassociation
or similar
institution;

4
1

facilitywith
theabilitytoacceptdepositsofare

lated
financialinstitution;

(1) therelocation
ofthehome office
or a

branch
office
ofa regulated
financial
institution;

(E) themerger
orconsolidation
with,
or the

acquisition
oftheassets,
ortheassumption
ofthe

8
9

liabilities
ofa regulated
financial
institution
requir
ingapproval
under
section
18(c) oftheFederal

Deposit
Insurance
Actorunderregulations
issued

undertheauthority
of title
IV of theNational

HousingAct;
or

(F) theacquisition
ofshares
in,
ortheassets

of,a regulated
financial
institution
requiring
ap

proval
under
section
3 oftheBankIIolding
Com

panyActof1956orsection408
(e)ofthe
National

HousingAct;

(4)theterm
"primary
savingsservicearea”
means

a compact
areacontiguous
toa deposit
facility
from

which
suchfacility
obtains
orexpects
toobtain
more

thanone-half
ofitsdeposit
customers;
and

(5)theterm
“consumer
deposit”
means
a time
or

savings
deposit
ordemanddeposit
ownedby oneor

moreindividuals
inanamount
less
than
$100,000.

5
1

COMMUNITY

REINVESTMENT

2
3

PROGRAMS

AND

PROCEDURES

SEC.
4.Eachappropriate
Federal
financial
supervisory

4 agency
shall
develop
programs
andprocedures
forcarrying
5 outthepurposesofthis
Act.
Suchprogramsandprocedures
6 shallinclude
7
8
9
10

1
1

(1)requiring
that
inconnection
with
an applica

tionforadepositfacility,theapplicant

(A) delineatetheprimarysavingsservicea
forthedeposit
facility;
(B) analyze
thedeposit
and credit
needsof

suchareaandhow theapplicant
proposes
tomeet

thoseneeds;

1:1

posits
obtained
fromindividualsresidingin
thepri

marysavingsserviceareabythedepositfacili

willbe reinvested
in thatarea;and

18
19

2
0

(D) demonstratehowtheapplicantismeetin

thecreditneedsoftheprimarysavingsservicearea
in whichitoritssubsidiaries
havealready
been

chartered
to do business;

(2)using,
asfactors
tobeconsidered
inapproving

applications
fordeposit
facilities,
theapplicant's
record

inmeetingthe
creditneedsoftheprimarysavingsserv

6
1

iceareas
inwhich
itorits
subsidiaries
havealready

beencharteredtodobusiness,anditsproposal

ingthe
creditneedsoftheprimarysavingsservi
associated
withthepending
application;

(3) permitting
andencouraging
community,
con

5
6

sumer,
orsimilar
organizations
topresent
testimony
at

hearingsonapplicationsfordepositfacilitieson

theapplicanthasmetorisproposingtomeetthe
credit

needs
ofthecommunities
served
byortobeservedby

theapplicant
oritssubsidiaries;
and

(4)requiringperiodicreportsfrom
regulated
finan

11
12

cial
institutions
concerning
theamount
ofconsumer

depositsobtainedfromandtheamountofcreditexte

intheinstitutions'
primary
savings
service
areas
and

making
suchreports
available
tothepublic.

ANNUAL

REPORT

Sec.
5.Eachappropriate
Federalfinancialsupervi

18 agency
shall
include
initsannual
report
totheCongress
19

a section
outliningthe
actions
ithastaken
tocarry
outits

20 responsibilities
underthis
Act.
21

EFFECTIVE

DATE

SEC.6.Regulations
tocarry
outthepurposes
ofthis

23 ActshallbepublishedbycachappropriateFed
24 supervisory
agency,
andshall
take
effectnolaterthan
one
25 hundredandeightdaysafterthe
date
ofenactment
ofthis
26 Act.

9
[From the Congressional
Record,January24, 1977)
By Mr. PROXMIRE:

S.406.A bill
to encourage
financial
institutions
to helpmeetthecredit
needs
of thecommunities
in whichtheyarechartered,
and forotherpurposes;
tothe

CommitteeonBanking,Housingand
UrbanAffairs.

Mr. PROXMIRE.
Mr. President,
theCommunity Reinvestment
Act,whichI am
introducing
today,
isintended
to establish
a systemof regulatory
incentives
to
encouragebanksand savingsinstitutions
to more effectively
meet the credit
needsofthelocalities
theyarecharteredtoserve,
consistent
withsoundlending
practices.
Although
communities
dependon their
local
institutions
tosupplycapital
for
economicdevelopment,
home mortgage
loans,
consumercredit,
municipal
finance,
anda variety
ofotherneeds,
the"convenienceand
needs”criteria
as applied
by

regulatorsin
theirallocationofchartersandbranchapprovals,havefoc
mostexclusivelyondepositservices.
An applicant
must show thatthe growthof deposits
in the service
areais
sufficient
to justify
anotherfacilitywithout
undulyharmingestablished
insti
tutions.
But the otherside of the coin—the creditneeds of the locality
and the

applicant's
capacity
to service
theseneeds—havebeen almostignoredby the
regulatory
agencies.
If an applicant
isdeemedcompetent
and thecommunity's
deposit
basesufficient
tojustify
hisentryintothemarket,
thefinancial
institu
tionhaslicensetoallbutignorethecreditneedsofthelocality.
The CommunityReinvestmentActisbasedonfourwidelysharedassumptions:
First,
becauseof our mixedeconomicsystemand thelimited
volumeof tax
revenues,the publicsectorcannot- and should not-financeallcapitalneeds.

Second,
privatefinancial
institutions
arethemainsource
ofcapitalfor
do

mestic
economic
development,
housing,
and community
revitalization,
bothin
urban and rural areas.

Third,
investment
by financial
institutions
in theircommunities
neednot in
volverisksgreater
thanthosenormally
takenby prudentlenders,
and oftenin
volveslessriskbecauseof the lender's
firsthand
knowledge of hiscommunity.

Fourth,a public
charter
conveysnumerouseconomicbenefits
and in return
itislegitimate
forpublic
policy
and regulatory
practice
to require
some pub
licpurpose,
withoutthe needforcostly
subsidies,
or mandatoryquotas,
or a
bureaucraticcreditallocation
scheme.

The bill
focuseson depositary
financial
institutions—
primarily
commercial
banks,mutual savingsbanks,and savingsand loan associations.
These institu

tions
supplied
$382billion
ofnew credit
duringthelast4years,
or55 percent
of
thetotal
amountextended
in U.S.creditmarkets.
Ofthe$382billion,
$55billion
was loanedabroad.Duringthe same period,
depositary
institutions
obtained
consumersavings
deposits
of $301billion
from individual
depositors.
Thesein
stitutions
thusplaya strategic
rolein allocating
thepublic's
savings.
Theircol
lective
decisions
helpto shapethecommunities
we livein,our economicwell
being,andhaveaprofoundimpactonourdailylives.
The Federalbank regulatory
agencies
haveconsiderable
influence
overfinan
cialinstitutions.
One of themostsignificant
powersistheauthority
toapprove
ordenyapplicationsfordepositfacilities.
Personswishingtoorganize
abankor
savings
institution
must applyfora charter.
Once established,
theinstitution
can applyforbranches
or remoteterminals
withtheability
to acceptdeposits.
Itcan request
therelocation
ofitshome office
or branch.
Itcan seektoacquire

anotherinstitutionthroughmerger.
Oritcanformitselfintoaholdingcompany
and acquire
otherfinancialinstitutions
asholdingcompany
subsidiaries.

Theauthority
tooperatenewdepositfacilitiesisgiven
away,free,
tosuccess

fulapplicants
eventhoughtheauthority
conveysa substantial
economicbenefit
totheapplicant.
Thosewho obtain
new depositfacilities
receive
a semiexclusive
franchise
to do busines
in a particular
geographic
area.The Governmentlimits
theentryofotherpotentialcompetitorsintothatarea
ifsuchentrywouldunduly

jeopardizeexistingfinancialinstitutions.
The Governmentalsorestrictscompeti
tionand thecostof money tothebank by limiting
therateofinterest
payable
on savings
deposits
and prohibiting
any interest
on demand deposits.
The Gov
ernmentprovides
deposit
insurance
throughthe FDIC and the FSLIC with a

financialback-up
fromtheU.S.Treasury.
The Governmentalso
provides
ready
accesstolowcostcreditthroughthe
FederalReserve
Banksorthe
Federal
Home
Loan Banks.

Inreturn
forthese
benefits,
financial
institutions
arerequired
by law and

regulatory
policy
toservethe"convenience
and needs”of their
communities
as
a conditionfor acquiringnew depositfacilities.
The “needs” of a community

clearly
include
theneedforcredit
services
as wellas deposit
services.
However,
in practice,
theregulators
havetendedtoignore
credit
needsand havefocused
primarilyondepositneeds.
Anapplicantfor
a depositfacility
isrequired
todem
onstrate
in greatdetail
thatthecommunityneedsadditional
deposit
services.
However,theregulators
do notrequire
any comparable
analysis
of thecommu
nity's
needforcreditand
how theapplicantproposestomeet
thatneed.
In practice,
applicants
fora charter
may be interested
in meetingthe com
munities'
credit
needs—or theymay be interested
primarily
in financing
their
own outsidebusinessinterests;
or theymay wishtoinvest
thecommunity's
sav

ingsinfarflungventures.
Underpresentpractice,theirinclinationsdo
heavilyinthedecisiontoawardacharterorabranch.
The regulators
have thusconferred
substantial
economicbenefits
on private

institutions
without
extracting
any meaningful
quidproquo forthepublic.
Otherregulatory
agencies
havenotbeenas timidwhen awardingcharters.
For

example,theFCCrequiresradioand
TVlicenseapplicantstoindicatehowm

public
service
broadcasting
theywillprovide.
Further,
FCC licenses
must be re
newed periodically
and renewals
can be deniedforfailure
toservethepublic.
The proposedlegislation
directs
the bank regulatory
agencies
to usetheir
influence
to award applications
for depositfacilities
in a way that will bene

fitlocalcommunitiesaswellasbankers.
Anapplicantforadepositfacilityw
be requiredto:
First,designatethe area from which it expectsthe depositfacility
willdraw

morethanone-half
ofits
depositcustomersprimarilysavings
servicearea;
Second,
analyzethedepositandcreditneedsofthatarea
and howthoseneeds

wouldbemetby thenew charterorbranch;
Third,indicatethe proportionof consumer depositsobtainedfrom the pri
marysavingsserviceareathatwillbereinvested
inthatarea;and
Fourth, demonstratehow the applicantis meeting the creditneeds of the
areasin which it has alreadybeen charteredto do business.
An application
for a depositfacility
is definedto includeapplications
for:
First,
new Federalcharters;
second,depositinsuranceby newly charteredState
institutions;
third,branches,includingremote terminalswith the abilityto ac
cept deposits;fourth,home office
or branch relocations;
fifth,
mergers with

existing
institutions,and
sixth,
acquisitionsofexistinginstitutions
byfinancial
holdingcompanies.
Therequirementsinthebillapplyonly
toapplications
other
wiserequired
underexistinglaw
orregulations
and do notprovide
anynew au
thoritytothebankregulatoryagencies.Thebillstatesthat
in carryingout
their

existingauthorityto approve applications
for depositfacilities,
the regulatory

agencies
shallgivedue consideration
to theapplicant's
pastrecordin meeting
community creditneeds and itswillingness
to do so in thefuture.Thisdoes not
mean that the regulatorswould considercommunity creditservices
as the only

factorinapprovingordenyingdepositfacilityapplications.

On the contrary,
the agencieswould continueto apply the criteria
they have
traditionallyusedforapprovingdepositfacilityapplications,asspelledoutun
exitsinglaw and regulations.
These includethe financial
historyand condition

ofthebank,theadequacyofitscapital
structure,
itsfutureearnings
prospects,
the generalcharacterof itsmanagement, and the convenienceand needs of the
communitytobeserved.

Thebillwouldnotinjectanysignificantly
newelementintothedepositfacilit
application
approval
process
already
in place.
Instead,
itmerelyamplifies
the
“community need” criteria
alreadycontainedin existinglawand regulation
and

provides
a more explicit
statutory
statement
of what constitutes
“community
need,”to make clearthatitincludescredit
needs.

In ordertogivetheregulatorsabetterpictureofcommunity
credit
needs,the
bill
directs
theregulators
toencouragetestimony
fromcommunityorganizations
at depositfacility
applicationhearings.
Thesehearingswill
affordthe
regulators
an opportunityto assesshow well an institution
is meetingthe creditneeds of

thecommunities
in whichitis already
chartered
to do business
and how the
communityregards
itsproposal
fora newdeposit
facility.
Thosewhotestifycan
be representatives
of the communittiesalreadyservedas wellas the community

to be served.
The deposit
facility
approval
processcanthusbe systematically
used to reward thoseinstitutionswith
a good recordof community services.

11
The billis not intendedto forcefinancial
institutions
intomaking high risk

loansthatwouldjeopardize
theirsafety.
Indeed,thebill
specifically
requires
thatany action
takenbythe bankregulators
must be"consistent
withsafeand
sound”bankingpractices.
Moreover,
thereisno reasontoassumethata higher
degreeofcommunityreinvestment
isincompatible
withbanksafety.
Rebuilding
and revitalizing
communities
threatened
by decline
isgoodforthecommunities
and good for banking.
Financial
institutions
cannotprosperin the longrun
unless
we have balanced
growthand development
throughout
America.
Finally,
thereisno evidence
thatbanksorthriftinstitutions
havegotten
into
financialdifficulty
by overinvesting
in their
localcommunities.
On thecontrary,
most of the recentfinancial
difficulties
sufferedby banks arose from making

insider
loansto affiliated
persons
and speculative
loansoutside
thecommunity
in which thebank

was chartered.

The bill
alsodoesnotsubstitute
thejudgmentof theregulator
forthe judg
ment of a banker on individual
loans.Each bank or savingsassociation
willbe

freeto exercise
itsbestjudgmenton individual
loanapplications.
However,a
bank'soverall
communitylending
recordwouldbe reviewed
when itapplied
for
new depositfacilities
and this record would be consideredalong with other

factors
in deciding
on theapplication.
The bill
shouldalsobe helpful
inpaving theway foraliberalizationofbranch
ing restrictions
at the State or Federal level,should Congress or the States

decide
to easethoserestrictions.
One of the mostpersistent
argumentsagainst
branchingis
thatoutsideinstitutionsmightuse
theirbranchesto
siphondeposits
away from localcommunities.
The policies
contained
in theCommunity Rein
vestmentActshouldbeusefulinalleviatingany
fearsthata moreliberalbranch
ing policywould be inimicalto community welfare.

COMPTROLLER OF THE CURRENCY,
ADMINISTRATOROF NATIONAL BANKS,
Washington,D.C.,March28, 1977.
Hon. WILLIAM PROXMIRE,

Chairman,
Committeeon Banking,Housing,and Urban Affairs,
U.S.Senate,
Washington,
D.C.
DEAR MR. CHAIRMAN:Thisisinreplytoyourrequestforcommentson
S.406,
theCommunityReinvestment
Actof1977.
The intentof the bill,
as explained
in your introductory
remarks,is “ to
establish
a systemof regulatory
incentives
to encouragebanks and savings
institutions
to more effectively
meetthecredit
needsof thelocalities
theyare
charteredto serve,consistent
with sound lendingpractices.
Weagree wholeheart
edly that financial
institutions
should serve the creditneeds of theirrelevant
markets.

As we wroteyou lastOctober,
theComptroller
of theCurrency
recognizes
the
importance
of assuring
thatnational
banksservetheconvenience
and needsof
their
communities.
As the primaryregulator
of federally
chartered
commercial
banks,we haveassumeda central
roleindetectingand
combatting
theproblems
which S. 406 seeks to address.National bank examinationsare deliberately
rigoroustoassurethatnationalbanksaremeetingtheseneeds,
whilemaintaining
safetyand soundnessof operation.

As partofourefforts,
thisOffice,
togetherwith
theJustice
Department,
HUD,
the FederalReserveBoard,the FDIC, and the FederalHome Loan Bank Board,

created
theInteragency
Task Forceon FairHousingEnforcement.
The purpose
oftheTask Forceistoconsider
thevarious
aspectsoffairhousing
enforcement
and seeksolutions
totheproblems
encountered.
Discussions
sofarhavecentered
on thepowersof eachagencytoimplementregulations
concerning
fairhousing
and thedesirability
of keepingrecords
on applicants'
race,
color,
sex,etc.;
ex
aminingprocedures,
training
and techniques;
and appropriate
and permissible
corrective
mechanisms.
Separately,
we have signeda specialmemorandum of understandingwith the

Departmentof Justice,
CivilRightsDivision,
to theeffect
thatthisOffice
will

select
several
banksat whichJustice
attorneys
willbe present
as observers
duringthefairhousingportion
ofourspecialconsumerexamination.
Thisunder
standing
shouldresult
in a training
technique
by whichtheexperts
at Justice
willbeable
toofferourexaminersthebenefit
oftheirexperienceininvestigating
discrimination
allegations.

A thirdmajoractivity
in thefairhousingarea
isa datacollection
survey
which our Office
has conductedin a number of banks acrossthe nationin recent

months.Loan applicants
at selected
national
banks were asked to complete
a special
form whichrecords
theirpersonal
and economiccharacteristics.
The

bankinvolved
wasrequired
toprovide
a written
explanation
why anyapplica
tionwas rejected.
Location
of property
alsowas recorded,
and we anticipate
that the comparison of this informationwillbe made with census tractdata

available
from theCommerce Department.
Now thatthepilot
project
has been
completed,
we now areevaluating
thesuitability
of theprogramto nationwide
use.

The commitmentoftheComptroller's
Office
tothecauseofcommunity
revital
izationgoeseven furtherwith our involvementin the Urban ReinvestmentTask

Force.As you know,thisinteragency
body presently
isengagedin developing
the Neighborhood
HousingServices
programon a national
scale.
In thefuture
theTask Forcehopestoadopta morecomprehensiveapproach,
designed
tohelp
alleviate
theshortage
of commercial
and smallbusiness
loansin deteriorating
areas,as well.

As didtheprevious
Comptroller,
we continued
in encouraging
national
bank
executives
to involvetheirinstitutions
actively
in efforts
to preservetheircom

munities.
Especially,
we willcontinuetowork
withHUD intheimportantarea
of housinglending
to develop
practical
ways of achieving
better
service
to the
needsof thebankingpublic.
We havefoundthat,
in general,
a bankserves
itsdepositors
bestwhen itin
vestsprudently
initscommunity,particularlyin
theformofloansto
individuals
and businesses.
Thispolicy
isreflected
clearly
in our charter,
branch,
merger,
consolidation,andassetpurchaseprocedures.
Itisin lightof theseprocedures,
however,
thatwe believe
the provisions
of

S.406donotprovide
thecomprehensive
solutionsto
thecomplex
problems
of
communitydisinvestmentwhich
trouble
us all.
Whilewe do notclaimto have
alltheanswersto
thedifficultproblems
arising
fromcommunityfinancial
needs,

privateinitiativesbybankstorespondtothoseneeds,andthemoste
ernmental
role,
we do notagreewithyourassertion
that"thecredit
needsof a

locality
andtheapplicant's
capacity
toserve
these
needs
havebeenalmost
ig
nored by the regulatoryagencies.”
A review of our activities
leads to the con
traryconclusion.

The Comptroller's
PolicyStatements
on Corporate
Activities,
a copyofwhich
isattached,
arebroadlydrawn
tocovernational
bank charters,
branches,
merg
ers,conversions,
and relocations,
among others.
For each typeof application
madeto thisOffice,
a nationalbank
orgroupdesiringtoorganizea
nationalbank
must illustrate
graphically
the primaryservice
area(PSA) of thefacility
in
question.
The PSA is definedas the smallestarea from which the bank expects
to draw approximately75 percentof itsdeposits.
Its boundariesmust take into

accountnaturaland artificial
accessbarriers,
traffic
patterns,
and population
concentration.

Applicantsarerequiredtoassemblea
broadrangeofinformation
withrespect
to the primaryservicearea which they havedelineated.
Organizersof a national
bank,forexample,mustdescribethecompetitiveenvironment
they wish to enter.

In addition
tothenumberofbank offices
located
in thearea,total
deposits
and
totalloansincommercialbanksmustbelisted.
The organizersthenmust identify

allbanksand branches
whichareexpected
to competewiththenew bank,and
must detail
total
loans,
as wellas deposits,
foreachof thosefacilities
overthe
previousfour-yearperiod.
The charterapplication
furtherrequires
organizers
to outline
the various
servicesofferedby banks and branchesin the PSA. Depositservicesand loan
services
share equal significance
in thissectionof the application,
and the or

ganizers
must indicate
how the proposed
bank willoffer
competitive
ratesfor
each.Organizers
must conclude
withprojections
forloanand deposit
business
duringthefirstthreeyearsofoperation.

A national
bank branchapplication
closely
resembles
thecharter
format.An
applicant
bankmustcharacterizetheloan
and deposit
activity
ofallcommercial
banksintheareatobeservedbythenewbranch.
Aswith a charter
application,
theapplicant
mustansweracomprehensivelistofquestionson
thetypesofcom
petitiveservices
whichthenewbranchwilloffertoenhance
theconvenienceand
meettheneedsofitscommunity.
In thisregard,
theapplicant
alsomustdescribe

13
thevariety
and intensity
of competition
offered
by neighboring
financial
insti
tutions.
Finally,
the applicant
must project
the volumeof business,
including
loansand deposits,
whichthebranchwillhandleduringitsfirst
threeyearsof
operation.

The application
whichthisOffice
usesfor mergers,
consolidations,
and asset
purchasesis
alsocomprehensive.
The applicantisrequired
to provide
an eco
nomic profile
of the relevantgeographicmarket.
This mustincludeacarefuldes

criptionofprojectedbankingservices,
suchasbankinghours,loaninterestrates,
and depositrates.Moreover,the applicantis requiredto enumerateany factors

which willaffect
the convenience
and needsof the communityto be served.
Throughouttheapplication
formconsiderations
ofloanand depositactivity
are
ofequalprominence.
Weattachcopiesofalltheseforms
foryourinformation.
ItisimportanttounderstandthatthePSAisa regulatory,andnotastatutory,

invention.
Inexercising
ourfranchising
authority
thisOffice
hasfounditneces
saryto provide
fortheorderly
and objective
evaluation
ofbankingneeds
in lo
calmarkets.
The PSAisdesignedtoservethatpurpose.
ButjustasthePSAis a
convenient
unitof measure,
uniformin itsapplication,
theregulatory
origin
of
the conceptalso allows this Officeto treatits delimitation
with considerable

flexibility
and professional
judgment.
Were we to be constrained
by statute
in
thisregard,we are certainthat the resultantPSA oftenwould not accurately
reflectthetruebankingmarket.

Illustrative
of thispoint
istheimportance
of non-geographic
components
in

theconstruction
ofcertain
PSA's.
Forexample,
theAmerican
IndianNational
Bankin Washington,
D.C.,
wasestablishedprimarily
toservetheneeds
ofa par
ticular
segmentof the UnitedStatespopulation
nationwide.
Similarly,
there
are 81 otherminority-owned
banksthroughout
the countrywhich have been
chartered
deliberately
to servetheneedsof specific
groups,
irrespective
of geo
graphiclocation.

Geographyalsoplayslittlerolein
alargeproportion
ofthebusiness
conducted
by any ofthenation'slargestcommercial
bankswith nationaland multi-national

corporations.
Moreover,
many banks,bothlargeand small,
receive
substantial
deposits
from customers
who bunk wheretheywork or enroute
to work rather
than intheirhomecommunities.

By requiring
an applicant
fora bankingfacility
todepict
a "primarysavings
service
area,”
S.406ignoresthis
critical
distinctionbetween
regulatoryand
stat
utorystandards.
The bill
wouldrequire
theregulatoryagency
tobaseits
actions
on an inflexible
and frequently
unrealistic
marketmeasurement.
Thus,thebill's
elementalrigiditywould
makeitsprovisionscounterproductive.
Ourpresent system ofcreditallocation
isbasedinlargemeasureupon vigorous

competitionamongnumerousfinancialintermediaries.
Forthemostpart,itworks
well.However, thebill's
narrowfocusupon retail
markets mayencourage regula
toryagenciestoignore
oneofthemostimportant rolesofthenation'scommercial
bankingsystem,i.e.,
to serveasa major supplierofshortand intermediate-term

credit
to business
and industry.
Thus,thebill,
whilewell-intentioned,
couldcon

ceivably
force
short-term
regulatoryactionswhich
could
haveimpact
uponem
ployment municipalservices,
and innumerableothereconomicinterests
essential
to the nation's
well-beingand,
indeed,to the welfareofthevery retail
customers

whichthebill
isdesignedto
benefit.
We haveserious
reservations
asto whether
anyregulatory
agencycouldhavethe
wisdomnecessarytoadministersucha
sys
tem to the maximum benefit
of competing
economicinterests.
Such a govern

mentallyencouraged
departurefromtheestablishedmechanismsofourcomp
crediteconomyshouldbeapproachedwithextremecaution.

Asafinalpoint,the
Comptroller's
Officehistoricallyhassoughttofulfillanot
majorpurpose
of S.406 by recognizing
theimportance
of consulting
interested
persons
in a communityto ascertain
local
financial
needsand theadequacyof
existing
bankingservices.
Our regulations
governingapplications
for varioustypes of bank activities

aredesigned
to provide
an opportunity
forany interested
partyto submitcom
mentsorrequesta hearingon any application.
In orderto encourage
commu
nityparticipation
in thisprocess,
on several
occasions
we have absorbed
the
hearingtranscriptcostsforprotestingcitizengroups.

Wetrustthatthisinformationwillbehelpful.
Sincerely,
ROBERT

BLOOM,

ActingComptrollerofthe
Currency.

88-032 0 - 77 - 2

14
CHAIRMAN

Hon. WILLIAM PROXMIRE,

OF THE BOARD OF GOVERNORS,
FEDERAL RESERVE SYSTEM,

Washington,
D.C.,
March21,1977.

Chairman,
CommitteeonBanking,
Housing,and
UrbanAffairs,
Washington,
D.C.
DEAR MR. CHAIRMAN: I am pleased
to provide
commentson your proposed
“Community ReinvestmentAct of 1977"(S. 406),as requestedby your letterof
December

17.

The Board agreeswith the findings
of the billthatregulated
institutions
shouldhelpto satisfy
theconvenience
and needsof thecommunities
in which
they are chartered.
The Board alsoagreesthat the financial
supervisoryagen

ciesshouldencourage
financialinstitutionsto
helpmeetthecredit
needsoftheir
communities
totheextent
thisisconsistent
withsafeand soundoperations.
We
believe,
however,
thatthisobligation
isimposedupontheBoardunderexisting
statutes,
and we have undertakento fulfill
that obligation
in our variousregu

latoryand supervisory
activities.
Therefore,
whilethe Board recognizes
that
credit
inadequacies
mayexistin partsofsomecommunities,
we areof theopin
ion thatenactmentof the proposed
legislation
would not enhanceour ability
toencouragefinancialinstitutionstomeetsuchlocalcreditneeds,

The proposed
bill
assumesthatsupervisory
authorities
stress
theimportance

ofproviding
deposit
services
whilepaying
insufficient
attention
totheextent
to whichapplicant
institutions
propose
to meetthecredit
needsof theircom
munities.
The Board is responsible
forthe evaluation
of applications
(a) for
holding
companyexpansion
throughacquisitions,
(b) formergersin whichthe
continuingbank
istobe a Statememberbank,and(c) fornew branchoffices
of
Statemember banks.Regulatory
authority
granted
totheBoardin thesecases
directs
theBoardtoconsider
the“convenience
and needs”ofthecommunityin

volved.
TheBoardhasinterpreted
this
termtoencompass
"credit
needs”
asone
of the major factorsto be consideredin actingon such applications.

The Board's
application
formsanditsreview
procedures
areessentiallythe

same in any case involvinga change in banking structure.
Both considerthe

potential
of the proposed
changein meetinglocalcreditneeds.
For example,
applicants
fortheacquisition
of a bank requiring
approval
of theBoardunder
section
3(a) of the Bank HoldingCompany Act of 1956must supplyrelevant
informationon changes expectedin the variousbanking servicesoffered.
Such
informationincludesanticipated
changes in interest
rates on loans,maximum

maturities
and otherloanterms,and significant
changesexpected
in the loan
and investment
portfolio
of the bank to be acquired.
Thisinformation,
when
used in conjunctionwith informationabout the holdingcompany's past per

formance
and examiners'
reports
on otherbanksin theholding
company,
is

usuallysufficient
to determinewhether the applicantintendsto servethe “con

venience
and needs”—including
bothdepository
and credit
needs—of the com
munityinvolved.

The Board isconcerned
abouttheproblems
thatwouldinevitably
surface
if

Federal Regulatorypowers were expanded,to the extentproposedby the bill,

forthepurposeofencouragingspecificlocal
typesoflending.
Establishingstand
ards forsettingthe proportion
of totalloansthatan institiution
shouldallocate

tolocalcredit
would necessarily
be arbitrary.
Smallbanks,especially
thosein
ruralareas,
probably
make themajorportion
oftheir
loanstolocal
individuals
and businesses
at present,
and might not be affectedto any greatextent.But
largerinstitutions
locatedin major banking centersmay solicit
depositsand
extend loans on a regional,
statewide,nationaland international
basis.To re
strict
the activities
of theseinstitutions
throughFederal regulation
could well

provecounter-productive
evento the purposes
of thisbill.
It couldblockthe
flow of funds- mortgage credit,
for example,or funds for new capitalinvest
ment-from an established
community with excesssavings to a growing com

munityunableto generate
sufficient
savingsto meet itsexpandingfinancing
needs.

The Board believes
thatimprovements
in the allocation
of credit
are more
likely
to be achieved
by removingexisting
legaland regulatory
impedimentsto
the free flow of funds in markets than by adding new ones.We recognizeof
course,that markets do not always work in ways that maximize socialpriori

ties,
and thatthustheremay be particular
credit
needsthatpublic
policy
will
needtoencourage.
But we shouldproceed
mostcarefully
and cautiously
in im

posing
public
policy
objectives
on private
lending
institutions
since
theeffects

onour present
privatecompetitive
creditmarket
system
could
beprofound.
It
isimportant
to rememberthateachtimea particular
credit
useis mandated
by law or regulation,
some othercredituse— that otherwisewould have been
accommodated — must go unsatisfied.
Indeed,as long as depositors
are free to

movetheirfunds
wherethey
perceivethehighest
return
orthegreatestsafety,
it may not be possible
to mandateflowsof credit
intoparticular
channels.

Ihopethatthesecommentswillbehelpfultoyouinthefurtherconsid

ofthislegislation.

Sincerely
yours,
ARTHUR

F. BURNS.

FEDERAL DEPOSIT INSURANCE CORPORATION,
Hon. WILLIAM PROXMIRE,

Washington,
D.C.,
May4,1977.

Chairman,Committeeon Banking,Housingand Urban Affairs,
U.S.Senate,
Washington,D.C.

DEAR MR.CHAIRMAN:Thisrespondsto
yourrequestfor
a reporton
S.406,
95thCongress,the“Community
ReinvestmentActof
1977.”
S. 406 would requirethe FDIC, the Comptrollerof the Currency,the Board
of Governorsof the Federal Reserve System and the Federal Home Loan Bank

Board of developprocedures
forutilizing
their
existing
authority
withrespect
to charter,
branchand deposit
insurance
applications,
as wellas mergerand
holding
companyapplications,
to encourageregulated
institutions
to helpmeet
thecreditneedsoftheirlocal
communities
insofarasmaybeconsistentwithsafe

andsoundoperation
ofsuchinstitutions,In
connection
withsuchapplications,
insured
banksand savings
and loaninstitutions
and their
holdingcompanies
wouldbe requiredto

(1) delineate
the deposit
facility's
primaryservice
area(i.e.,
the area
from which it obtains
or expectsto obtainoverone-half
of itsdeposit
customers);

(2)analyzethedepositandcreditneeds
ofsuchareaandhow theypro

posetomeettheseneeds;

(3) indicate
what proportion
ofits“ consumerdeposits”
(i.c.,
deposits
of
individuals
notexceeding
$ 100,000)
received
from residents
of theprimary
serviceareawouldbereinvested
inthatarea;and
(4) demonstratehow they are alreadymeetingthe needs of the primary
serviceareaswheretheyaredoingbusiness.

Whilethebill
contains
no express
authority
todoso,theregulatory
agencies
couldpresumably
utilizethis
information,
together
withtestimony
presentedat
hearings
on theapplication
by communityand consumerorganizations,
as the
basisfor denying any of the aforementionedapplications.
The billwould also

require
theagencies
toobtain
periodic
reports
fromregulated
institutionson
the
amount of consumer deposits
receivedand creditextendedin theirprimary serv

iceareasandtomakethisinformationavailabletothepublic.
We fullysupportthe objectives
of thisbill.
However,itraises
verycomplex
and difficult
problemswhichshouldbe dealtwithon a comprehensive
basisand
not by piecemeal
enactments.
As statedby HUD Assistant
Secretary
forCom

munityPlanning
andDevelopment,
Robert
C.Embry,Jr.,
inhisMarch24,1977
testimony:

"Community
reinvestment
isnotan endinitself,but
a meanstothegoalof

neighborhood
revitalization.
We believe
thereshouldbe a comprehensive
ap
proachto revitalization
whichincludes
specific
attention
to reinvestment
prob
lems.The Departmentis alreadyworkingactively
to encourage
and facilitate
revitalization
throughitsCommunity DevelopmentBlockGrant program,
its
demonstrationprograms such as urban homesteading,
itsmodification
of itsin

suranceprograms,
and itsresearch
program
.
“We believe
thatan overall
strategy
isrequired
whichnotonlyaddresses
the

issue
ofredlining
anddisinvestment,but
alsosuch
mattersas
neighborhood
rep
resentation,
careful
utilization
of mortgageinsuranceprograms,
and integration

ofinvestment
leveraging
withcommunity
development
activities.
Initiatives
in
theselatterareashavealreadybeenundertaken.”
We alsosharethe
Federal
Home Loan Bank Board'sconcern
thatS.406might
notachieve
itsintended
objectives.
On thecontrary,
thepractical
effect
of the

billcould be to discouragefinancial
institutions
from making applications
for

16
officesinneighborhoodswherefundsarebadly
neededbecauseofthe
reexamina
1

tion
thatthiswouldentailwith
respect
totheirlendingpoliciesin
serviceareas
wheretheyalready
haveoffices.
Someinstitutions
mightevenclosedownoffices
already established
in certainneighborhoodsif they feltthat they could be
publicly
criticized
for not meetingthe creditneeds of such neighborhoodswhen

theyapplyfora branchin another
location.
The result
of thiswouldbe toin
creasethe presentconcentration
of financial
institution
offices
in more affluent

neighborhoods.
Finally,
we believe
thattheperiodic
reporting
requirements
in $4(4) of the
billwould imposean unnecessary
reporting
burden on financial
institutions
whichwould be largely
duplicative
ofrequirements
already
in effect
underthe
Home MortgageDisclosure
Act.The information
so elicited
would be of little
use underthe bill's
proposed
regulatory
frameworkbecausesuchinformation

wouldberequired,
inany event,
in connection
withapplicationssubmitted
by
financial
institutions
forregulatory
approvals
subjectto
thebill's
provisions.
For theforegoing
reasons,
we arenotabletosupport
enactment
of S.406at
thistime.However,ifCongress
shouldnevertheless
decideto proceedwithits
consideration
of thisproposed
legislation,
we wouldstrongly
recommendthat
thefollowing
largely
technicalsuggestionsbeincorporated
inthebill.
(1) Becausethe bill
introduces
the essentially
new conceptof considering
whetheran applicant
is meetingtheconvenience
and needsofcommunities
not
directly
involved
in theparticular
application,
thelegislative
history
of thebill

shouldmakeabundantlyclearthattheregulatoryagenciesmaydeny

tionon thebasisof any of thestatutory
factors
required
to be considered,
in
cluding
theconvenience
and needsnot onlyof thecommunityservedor to be
servedby the deposit
facility
directly
involved
inthe application
but alsoof
any communityin which the applicant
(or any depositary
institution
under
common controltherewith)is alreadydoing business,
as set forth in $4(2)
of the bill.

(2) In order to cover those State-chartered
savingsand loan associations
which are not authorizedto acceptaccountsdenominated“deposits,"
we suggest

addinga reference
to "accounts”
or “savings
accounts"
where appropriate
in
the bill.

(3) Since admission to membership in the Federal Reserve System auto

maticallyconfers
depositinsuranceona
State-charteredbank,
wesuggestadding
applications
forsuch membershipto thelist
of coveredapplications
in $3(3).
(4) Thereis no apparentreasonforthe bill
to coveronlydeposit
insurance
applicationsof
“newly chartered”
banks;thus,thosewordsshouldbe deleted
from $3(3)(B).

(5) Sincemostoftheapplications
listed
in§3(3) couldbe necessitatedunder
emergency circumstances
involvingthe failureor possible
failureof an insured

depositary
institution
wherethetimefactor
wouldbecrucial,
thepreamble
to
83(3) shouldexclude
any application
necessitated
by suchcircumstances.

(6) "Primary
savingsservice
area”should
be moreprecisely
defined.
The
present
definition
in $3(4)permits
great
leewaytoa depositary
in deciding
what itsservice
areaisand couldresult
in"gerrymandering"
theboundaries
so
longasthe50 percentdeposit
requirement
ismet.
(7) Becauseof thedifficulty
of projecting
long-term
futurecredit
needsof
a community,we suggestsubstituting
"estimate”
for“indicate”
in §4(1)(C)
and specifying
a realistic
time frame to be coveredby such estimate.

(8) Sincerelocation
ofa branchmay result
inan institution'sno
longerserv
ing a particular
community,we suggestaddingthe following
at the end of
§ 4(1)(D) :

"and,in thecaseof relocating
an existing
branchor office,
how suchre
location
willaffect
the creditneedsof the service
area no longerto be
served.”

Also in $4(1)(D), the word “total”should be insertedbefore“credit
needs" to underlinethe need to take accountof allforms of creditutilized

inthecommunity.
(9) To more clearly
articulate
theintentunderlying
$4(2),we suggest
revis
ingittoreadasfollows:

“(2) Consideration,
aspartoftheagency'sassessment
oftheconvenience
and needsfactor,
of theapplicant's
recordin meetingthecredit
needsof

theprimary
savings
service
areas
inwhichitoranydepositary
institution

17
under common control
therewith
alreadydoesbusiness
and ofitsproposal
for meetingthe creditneedsof the primarysavings
service
area where
theparticulardepositfacilityisoristobe
located.”

(10)Section4(3)ofthebillshould
beamended
todelete"presenttestimony

athearingson” and toinsert
inlieuthereof
"submitinformation
inconnection
with.”As presently
written,
thisparagraph
seemsto assumethatformal
hear
ings are routinely
heldin connection
withsuch applications.
Thisis notthe

case.
Wealsobelieve
that,
because
ofitsambiguity,thereferencein
$4(3)to
"encouraging"
submissionofdata
byconsumerorganizationsshould
bedeleted.

Asfaraspermittinginterventionbysuchorganizationsinapplicationproced

thatispresentlyauthorizedunderexistingFDICregulations.
(11) By way of a more substantive
suggestion,
we recomemnded
deleting
84 (4) in itsentirety.
The reporting
requirements
contained
therein
seem to
be largelyduplicative
of requirementsalreadyin effectunder the Home Mort

gage Disclosure
Act.In any event,reportsby institutions
not making any
applications
of thetypelisted
in 83(3) would be of no immediateuseto the
regulatory
agencies.
Of course,
any institution
making such an application
would submitthe required
information
in connection
therewith
under$4(1).

(12)Finally,
we believe
theterm“creditneeds”
asusedinthebill
should
be
defined
to mean loandemand by creditworthy
borrowers
residing
or conducting

commercialorothertypesofenterprisesinthecommunity,inordertoa
thatthe bill
contemplates
a lowering
of credit
standards
or usurpation
of the
banker'sdutytoexercisesoundcreditjudgment.
If we can be of any furtherassistance
in thisconnection,
pleaseletus
know.

Verytrulyyours,
ROBERTE. BARNETT,
Chairman.

The CHAIRMAN.
I'mgoingto
askthefirst
fourwitnessestocome
forward
asa panel
iftheywould.
Ourfirst
witness
isMr.Ralph
Nader,
oftheCenterfortheStudyof Responsive
Law.Our next
witnessis
Ms.GaleCincotta,
National
People's
Action;
and Mr.Carl

Holman,
Presidentofthe
National
UrbanCoalition;and
Mr.Henry
Schechter,
Directorofthe
Departmentof
UrbanAffairs,
AFL-CIÓ.
I appreciate
thefactthatsome
ofyouhavealready
limitedyour
statementsratherseverely.Ifyoucouldpresentyourstat
briefaperiodaspossible,thenwecouldproceedwiththequ
Doyouhaveastatement,Senator
Heinz?
Senator
HEINZ.No,Mr.Chairman.

TheCHAIRMAN.
Mr.Nader,gorightahead,sir.
STATEMENT

OF RALPH

NADER

Mr.NADER.Thankyou,
Mr.Chairmananddistinguishedmem

ofthecommittee,foryourinvitationtocommenton
S.406,the
Com
munityReinvestment
Act.The bill
wouldprovide
an incentive
for
depository
institutions
tobetter
serve
thecreditneedsoftheirloca

communities.
It isintendedto moderateneighborhood
disinvestment

bydepository
institutions.
Thisdestructivepattern
hasbeenbrought
to theattention
of Congress
by theeffortsof
citizen
organizations.

Reflecting
this
origin,
thebilleschews
thecostlyand
inefficienttax

credit
schemessooftenadvancedby thefinancial
industry
and its
friends
in theTreasury
Department
as a meanstodirect
credit
to

areasofsocialpriority.
Instead,thebill
relieson
aneconomicaland
efficient
incentive
toredirect
lending
patternsconditioning
bank
charterandoperatingprivilegesontheprovisionof
adequatecredit

services
in thelocalcommunity.

Ithinkwhatthisbilldistinguishes,Mr.Chairma
enunciatesthe
principlethatif
theFederal
Government
isgoingto

extenda wholearray
of benefits,
privilegs
and subsidies
tobanking
institutions,
thatthesamegovernment
should
condition
theseprivi

legesand
subsidies
on thegrounds
ofsomegeneralcriteria
of re
sponsiveness
tothecommunity
wherethesubsidized
institution
is
operatingand
receiving
itsdeposits.
I hopethatin
thefuture
you

canextendthisprinciplethroughoutthe
Federal
Governmentsoth

wherethetaxpayer
isasked
tosubsidize
orto nourish
ineffect,
a
systemofcorporatewelfaretoveryabundantlyendowed
financialo
other
corporateinstitutions,
thatthetaxpayers
getareturn
inper
formance,that
these
subsidies
andprivilegesarenot
justtobe
used
fortheaggregation
ofcorporate
powerorfortheestablishment
of
a permanent
giftmechanism,
buttheyareto beconditioned
on a
responsiveness
tothecommunity.

Thebillwoulddirectthe
Federal
bankingagencieswhenact

charter,
branch,
merger,or
acquisition
applications
to consider
the

applicantbank'sorthrift'srecordinmeetingthec

neighborhoodssurrounding
itsexisting
branch
offices.
The billwould

alsodirectthebanking
agencies
toconsiderthe
extentof
theappli
cant's
commitmentto meetthe credit
needsof the neighborhood

surrounding
theproposed
or newlyacquired
bankoffice.
Itistrue
thatexisting
Federalstatutesdirectthebankingagencies
communityconvenienceand
needswhen
actingonbankapplicati
Itisalsoobviousthatcreditneedsfallwithintheambi
convenienceandneeds,and
thatthereforethe
Federalbankingagen
ciesalready
haveauthority
to consider
thefactors
specified
inthe

bill.
However,
thebanking
agencies
havedeclined
toexercise
this
authority.

Inpractice,the
Federalbankingagencieshavenarrowlyco
thecommunityconvenience
andneeds
factor
toencompass
onlyin
creasedcompetition
resulting
fromnew bank offices
and greater
financial
and managerial
resources
resulting
fromacquisitions
and
mergers.
On therareoccasions
wheretheagencies
haveevenmen

tioned
lendingrecords,
theywereonlyconsidered
asa make-weight
inadecisionalreadymadeonothergrounds.
Thebill
isneeded
tore
verse
this
agencyneglect.

Thebankagencies'
operating
assumption
thatdepository
institu
tions
haveno obligation
togivepriority
tothecredit
needsoftheir
local
communitieshasprevented
theagencies
fromaddressingoneof
themostcritical
issuesin
banking—thedisinvestment
of older
neigh
borhoods,
forthe most partin urban areas,
but to a lesser
extentin

townsand ruralareas.
The slowstrangulation
of neighborhood
vi

tality
thatresults
whenlenders
reduce
thesupplyofconventiona
mortgageloansand smallbusiness
loanshas beenwelldocumented
by severalcommitteesof Congress,including
the Senate Banking

Committee.
And, of course,
alsowelldocumented
isthesequential
effect
of similar
disinvestment
whetherby insurance
companies
or
otherinstitutions
who fleethe neighborhoodor redline
it.The dis

investment
of urbanneighborhoods
hasalsofacilitated
suburban
sprawl,a
trendwithhighsocialcosts
inan environment
ofincreasing

energy,
material,and
landshortages.
Yet,
inspite
ofthedirect
re

lationshipbetweenlendingpoliciesandneighborhood
disinvestment,
thebanking
agencies
havetaken
no actions
tocurbdisinvestment.

Underlyingthe
inaction
oftheFederalbanking
agenciesistheir

attitudethatthepublic
interestwill
best
beserved
ifbankcreditis
constantly
shiftedto
thelocalesofferingthe
highestrate
ofreturn.
Underthisviewneighborhood
disinvestment
isnothing
morethan

thetransfer
ofcapitaloutof
aneighborhood
whereitwouldbeused

lessefficiently.The
Federal
Reserve
Boardin approvingthemerger
ofMarine
MidlandBank's—a
bankholdingcompany10subsidiary
banksintoa single
bankoffered
thefollowingrationale:
It istrue,
of course,
thatby transforming
separate
subsidiary
banksinto
branchesofaunifiedstatewidebank,
themergerwouldmakeiteasierfor
Marine
to usedeposits
received
in one areaof thestateas a basis
formakingloansin
another.
However,theBoard believes
thiscouldbe an advantageof
themerger,
andnotadisadvantage.

Thisbankagency
analysis
conveniently
overlooks
thefacts
that
depositoryinstitutionsaretheprimarysource
ofresidentialmortgag

creditandthatintheareaofhousingalaissez-faireapproachto

flowsdoes
notoften
achieveoptimum
social
results.Onemight
also
addhereorrecall
hereJustice
Brandeis
descriptionofthedeposit
as beingother
people's
money.
Thathastobecontinually
empha

sized-other
people's
money.We'renotdealing
herewithtraditional

commercialexchanges.
We'redealingwithatrustfactorforaffe

otherpeople's
money.

Onthefirstpoint,asofMarch31,
1976residentialmortgageloan

represented
52 percent
of thetotal
dollar
amountof allloansex
tendedby commercial
banks,
savings
and loansand mutualsavings

banks,andthere'salittletablethere
thatspecifiesthat.
The residentialmortgage
credit
provided
by these
depository
in
stitutions—
$443billionrepresented
73 percent
of thetotal
volume

ofresidentialmortgagecreditinthe
Nation—$604billion.

On thesecondpoint,
thehousing
marketissubject
to distortions
and destabilizing
influences
thathave undesirable
social
effect
of

majorconsequence.
Individual
home purchase
andhomerepair
de
cisions
areheavily
influenced
by therelated
decisions
of otherindi

viduals,
a processoften
referred
toastheneighborhood
effect.
Con

sumers,particularly
moderateand
lower
income
homeseekers,are

oftenillinformedabouthomefinancingopportunitiesand
informed
havelimited
bargaining
power.
Speculatorsare
often
ina

position
toprofit
bymanipulatingand
accelerating
these
destabiliz

ing forces,

Theseinstabilitiesof
thehousingmarketcauseneighborhoodst
veryfragile
institutions.
An essential
element
in maintaining
their

vitalityisanadequatesupplyofconventionalcredit

institutionsshunthecreditneedsoftheirlocalneighbor
insearch
ofeasier,
short-term
profits
elsewhere,the
vitalityoftheseneighbo
hoodsis
oftenundermined.Thissocialcost
hasbeenoverlookedbythe
Federal
bankingagencies.

S.406wouldestablish
amechanism
tocounter
thetendencyof
de
pository
institutions
toshunneighborhoods
inwhichdestabilizing
trendshaveappeared.
By conditioning
the privilege
of bank ex

pansion
on a showing
ofadequate
service
inthelocal
community

thebillwould
reward
those
financial
institutionswhich
provide
ade

quatecreditservicesintheirlocalcommunities.S

interjectthe
community
service
factor
into
themarket
calculation
of depository
instiutions.
Inthelongrunthiswillbesaying
the
financial
institutions
haveto besavedfromthemselves.
If theycon

tinue
redlining
areas
on an everexpanding
basis,
theyaregoingto
undermine
thevery
basisoftheir
own prosperity
atthepedestal
of
a short-termmaximum
profit
ideology.
Asa consequence,
bankex
pansion
and adequatecommunity
service
wouldbeinterlocked.
S.406

wouldmake itpossible
to moderate
neighborhood
destabilizati
while
atthesame
timemaintaining
a flexiblebanking
structure
and
freecreditflows.
Itwouldencouragebankstogointoa
neighborhood
toserviceitratherthanto
stripmine
it.

The strategy
embodied
in S. 406isparticularly
relevant
fora
period
in whichtheFederal
budgetmust
becarefully
managed.
The
bill
doesnotdependon a Federal
subsidy,
suchasa taxcredit,
to

generateincentives.
Rather,the
incentivederives
fromtheprivilege
toestablish
additional
banking
facilities.
The right
tograntthis

privilege
isapublicresource
that
wouldbeused
moreeffectivel

S. 406were enacted.

S.406doesnotprovide
communityorganizationswithther
seekjudicialreviewwhen
theFederalbankingagencyhasabuse
discretion
or acted
contrary
tolaw.Whether
community
organiza
tionshavestandingtoseekjudicialreviewofbankagenc
applications
isunclear
underexisting
law.The banking
agencies
arenaturally
hostileto
sucha right.
Forexample,
on November
16,

1976theFederal
Home Loan Bank Board's
ActingGeneral
Counsel,

Daniel
J.Goldberg,
inaspeech
beforethe
U.S.Leagueof
Savings
Associationsstated:
“Underourbranching
regulations,
ifyoulook
atthemforfederals,reallyonlyanotherfinancial
institutioncanf
what we view as a substantial
protest."

LikeCongressional
oversight,
legal
standing
forcommunity
or
ganizationsorinterested
individuals
forthatmatterisessential
ifthe

Federal
bankingagencies
aretobeheldto
their
statutorymandat
S.406shouldprovideforstandingforcommunityorgani
finalmechanismofaccountabilityoroversightinaccor
criteriaofthislegislation.
I can't
emphasizetoo
much,Senator
Prox
mire,the
needofsomesortofstanding
sothatthegroupsand indi

vidualsmostaffectedcanunderdueprocessoflawbring
finan
cialinstitutions
to account.

Ithinkthesectioninthebill
onpagethat'ssection4(C)-nee
tobeexpanded
tospecifymore
preciselythenatureofthehear
underwhat conditions
theyshouldbe invoked,
and what the ad

ministrative
andjudicial
review
standards
aretobeforcommunity
organizations
and individuals.

Thereisanadditionalpoint
I'dliketomake.
Intheexplanationf

thislegislation
whichthecommitteedistributedearlier,
inadditionto
thetaxsubsidies
thatfinancial
institutions
aregivenby theFederal
Government,
theyhavethesemiexclusive
franchise
to do business

inaparticulargeographicarea,
limitation
ofentryofotherpotent
competitors,
restricting
competition
by limiting
therate
ofinterest
payableonsavingsdepositsand
prohibiting
anyintereston
demand

deposits
aswellasdepositinsurance,andthegeneralbackupr

thevariousbank
agencies.

Nowthisisanoverwhelmingseriesofprivilegesandsu

it'sabouttimethattherebeanunderwhelmingquidproquofo
extension
oftheseprivileges.
For toolong
theFederal
Government

haslooked
onits
chartering
responsibiliyas
amechanical
clerical

function,
instead
of asking
whatkindsofperformance
should
be

obtainedwithinthemarketstructure,sothatthesecha

somesort
ofrecompense
interms
ofthepublicinterest.
I'mpleased
toseethatthisexisting
legislationtakesanimportant,verymod
verynonbureaucratic,
veryeconomical
step
inthatdirection.
We have some materials
to includein the recordifitmeetswith

yourconcurrence.
Thankyou,Senator.
The CHAIRMAN.
We wouldbedelighted
tohavethematerial
for
the record.

[Completestatement
and additional
materials
received
from Mr.
Naderfollow:]

22
RA
ME
CA

STATEMENT

before
SENATE

BANKING

RALPIT NADIR
the
COMMITTEE

U. S. SENATE

WASHINGTON,
d.c.
MARCH 23, 1977

Mr. Chairman and distinguishedmembers of the Committee,thank
you for your invitationto comment on 5.406, The Community Reinvestment
Act .

The bill would provide an incentive for depositoryinstitutions

to better serve the credit needs of their local communities. It
is intended to moderate neighborhooddisinvestmentby depositor
tutions.

insti

Thisdestructive
patternhas beenbroughtto the attention

of Congress by the efforts of citizen organizations.

Reflecting

this origin, the bill eschews the costly and inefficienttax credit
schemes so often advanced by the financialindustry and its friends
in the Treasury Department as a means to direct credit to areas of

social priority. Instead, the bill relies on an economical and
efficient incentive to redirect leading patterns

conditioning bank

charterand operating
privileges
on the provision
of adequatecredit
services in the local community.
The bill would direct the federal banking agencies when acting on

charter,branch,merger,or acquisition
applications
to considerthe
applicant
bank'sor thrift's
recordin meetingthe creditneedsof
the neighborhoods
surrounding
its existingbranchoffices.The bill
would also direct the banking agencies to consider the extent of the
applicant'scommittmentto meet the credit needs of the neighborhood

surrounding
the proposed
or newlyacquiredbankoffice. It

is true

thatexistingfederalstatutesdirectthe bankingagenciesto consider
community convenienceand needs" when acting on bank applications.

It is also obvious that credit needs fall within the ambit of

"community convenienceand needs", and that therefore the federal bank
ing agencies already have authority to consider the factors specified
in the bill.

However, the banking agencies have declined to exercise

this authority.

In practice the federal banking agencieshave narrowly construed
the "community convenience and needs " factor to encompass only in

creased competitionresulting from new bank offices and greater financial

and managerial
resources
resulting
fromacquisitions
and mergers.On
the rare occasionswhere the agencies have even mentionedlending records,
they were only consideredas a make-weightin a decision already made
on other grounds.

The bill is needed to reverse this agency neglect.

The bank agencies'operating assumptionthat depositoryinstitutions
have no obligation to give priorityto the credit needs of their local
communitieshas preventedthe agencies from addressingone of the most
critical issues in banking

the disinvestment of older neighborhoods ,

for the most part in urban areas, but to a lesser extent in towns and
rural

areas.

The slow strangulationof neighborhoodvitality that

resultswhen lendersreducethe supplyof conventional
mortgage
loans
and small business loans has been well documentedby several committees
of Congress,including the Senate Banking Committee.The disinvestment
of urban neighborhoodshas also facilitatedsuburban sprawl, a trend

withhighsocial
costsin an environment
of increasing
energy,
material,
and land shortages.

Yet, in spite of the direct relationshipbetween

lending policies and neighborhooddisinvestment,the banking agencies
have

taken

no actions

to curb

disinvestment.

Underlyingthe inaction of the federal banking agencies is their
attitude that the public interest will best be served if bank credit

is constantlyshifted to the locales offering the highest rate of return.

Underthis viewneighborhood
disinvestment
is nothingmore thanthe
transferof capital out of neighborhoodwhere it would be used less
efficiently.
Marine

Midland

TheFederal
Reserve
Boardin approving
themerger
of
Banks '

(a bank holding company) ten subsidiarybanks

into a singlebankofferedthe following
rationale:
It is true, of course, that by transformingseparate subsidiary
banks into branches of a unified state-wide bank, the merger

would make it easier for Marine to use deposits received in
area of the State as a basis
for making loans in another.
However, the Board believes this could be an advantage of the
merger, and not a disadvantage.

one

This bank agency analysis convenientlyoverlooks the facts that
depositoryinstitutionsare the primary source of residentialmortgage

creditand thatin the areaof housinga laissez-faire
approachto
credit flows does not often achieve optimum social results.

the

firstpoint,as of March31, 1976 residential
mortgageloansrepresented
52% of the total dollar amount of all loans extended by commercial

banks, savings and loans and mutual savings banks.
Residential Mortgage Loans
$78 billion
Commercial Banks (FDIC Insured )
$287 billion
Savings and Loans
$78 billion
Mutual Savings Banks
$443 billion

Total

Loans

$474 billion
$287

billion

$83 billion
$844

billion

The residentialmortgage credit provided by these depositoryinstitutions

($443billion)represented
73% of the totalvolumeof residential
mortgage
credit in the nation ($604 billion) .

On the second point, the housing market is subject to distortions
and destabilizing influences that have undesirable social effects of
major consequence.

Individual
home purchaseand homerepairdecisions

are heavily influencedby the related decisionsof other individuals,
a process often referred to as the neighborhoodeffect.

Consumers,

particularly
moderate
andlowerincome
home seekers,
areoftenill

informedabouthomefinancing
opportunities
and evenwheninformed
have limited bargainingpower. Racism often generatesrapid shifts
in attitudes toward particularresidentialncighborhoods. Speculators

are oftenin a positionto profitby manipulating
and accelerating
these destabilizingforces.
These instabilitiesof the housing market cause neighborhoods
to be very fragile institutions. An essentialelement in maintaining

theirvitalityis an adequate
supplyof conventional
mortgagecredit.
When depositoryinstitutionsshun the credit needs of their local
neighborhoodin search of higher, short term profits elsewhere,the
vitality of these neighborhoodsis often undermined.

This

social

cost has beenoverlooked
by the federalbankingagencies.
S. 406 would establish a mechanism to counter the tendency

of depositoryinstitutionsto shun neighborhoodsin which destabilizing

trendshaveappeared.By conditioning
the privilege
of bankexpansion
on a showing of adequate service in the local community the bill
would reward those financialinstitutionswhich provide adequate
credit services in their local communities.

S.406 would, in effect,

interject the communityservice factor into the market calculations
of depositoryinstitutions.

a consequence, bank expansion and

adequate communityservice would be interlocked.

S.406

would

make

it possibleto moderateneighborhood
destabilization
whileat the
same timemaintaining
a flexiblebankingstructure
and freecredit
flows.

The strategyembodiedin S.406is particularly
relevantfor a
period in which the federal budget must be carefully managed.

The

bill does not depend on a federal subsidy, such as a tax credit,
to generateincentives. Rather, the incentive derives from the

privilege
to establish
additional
bankingfacilities.The right to

grant this privilegeis a public resource that would be used more
effectively if s.406 were enacted.

S.406 does not provide community organizationswith the right

to seek judicialreviewwhena federalbankingagencyhas abused
its discretionor acted contrary to law. Whether community
organizationshave standing to seek judicial review of bank agency

actionson applications
is unclearunderexistinglaw. The banking
agencies are naturallyhostile to such a right. For example, on

November16, 1976 the FederalHomeLoan BankBoard'sActingGeneral
Counsel, Daniel J. Goldberg in a speech before the U.S. League of

Savings Associationsstated:
Under our branchingregulations,if you look at
them for federals, really only another financial institution

can file what we view as a substantialprotest.
Like Congressionaloversight,legal standing for community

organizations
is essential
if the federalbankingagenciesare to
be held to their statutorymandate. 5.406 should provide for
standing for community organizations.

Attachment
Before
REGIONAL

ADMINISTRATOR

]
the
OF NATIONAL

BANKS

Richmond Region
Richmond,Virginia

the

matter

of :

The Applicationof American Security
and Trust Company, N.A., Washington,
D.C. to establish a branch office at

229 PennsylvaniaAvenue, S.E.,
Washington,D.C.
PETITION

DENY

BRANCH

APPLICATION

The Ward 1-A Advisory NeighborhoodCommission(1-A ANC), the
Ward 2-C Advisory NeighborhoodCommission(2 -CANC), the Ward 4-B

AdvisoryNeighborhood
Commission
(4-B ANC)
, the Ward 5-C Advisory
Neighborhood
Commission
(5-C ANC),the Ward6-A AdvisoryNeighbor
hood Commission(6-A ANC), the Ward 7-D Advisory NeighborhoodCom
mission (7-D ANC), James Powell, Dolores Dews, Columbus Burrell,
Edward Gill and Earl Bryant hereby request the Comptrollerof the
Currency to deny AmericanSecurity and Trust Company's(AS&T)
applicationto establisha branch at 229 PennsylvaniaAvenue,S.E.,
Washington,D.C.. AS& T has failed to provide adequate banking
services in the neighborhoodsrepresentedby the ANC petitioners
and in which the individualpetitionersreside and seek to purchase
and rehabilitate homes and operate small businesses.

The

Comp

troller cannot properlyextend to AS&T the privilegeof establishing
an

additional

branch

new location until AS&T agrees to provide

more adequate banking services in petitioners'neighborhoods.

Moreover, AS&T's lending policieshave impermissible
discriminatoryeffects on minority persons and minority neighborhoods

and the Comptroller
cannotproperlypermitAS&Tto establish
additional
branches until it agrees to adjust its lending policies to eliminate
these

effects.

The testimonypresentedon behalf of Charlotte Holmes, Chairperson
of the Housing and Community DevelopmentCommittee,6-A ANC, Charles
Richardson,Jr., Chairperson,2-C ANC, Juanita Barfield,Chairperson
5-C ANC, Samuel Carson, Chairperson1-A ANC, and Richard Lohmeyer,

Vice-Chairperson
4-B ANC at the January10, 1977 hearingon thisappli
cation beforethe Regional Director for Corporate Activities,Richmond
Region, is incorporatedby reference.

The

Parties

The 1-A, 2-C, 5-C, 4-B, 6-A, and.7-D ANC's (protestingANC's) are
local governmentalcommissionselected to represent the residentsof
particularneighborhoodswithin the Districtof Columbia. The neighbor
hoods representedby the protesting

ANC's

are

indicated

in the

chart

below(protesting
ANC neighborhoods)
. These neighborhoodshave a resi
dential population ranging from 14,000 to 39,000.

ANC's were authorizedby Section 738 of the District of Columbia
Self Governmentand GovernmentalReorganizationAct. Public Law 93-198,
December 24, 1973.
ment

has

divided

recognized

the

35 ANC's.

Pursuant to that act the District of Columbia Govern
District

into

36 ANC

eighb

hoods and has formally

An ANC is establishedwhen 5% of the registered

voters of a designatedneighborhoodpetition the Council of the District
of Columbia (D.C. Council) to establish an ANC.

Each ANC is comprisedof a number of individualcommissioners.
Each commissioneris elected by the registeredvoters from a single
member district located within the ANC.

The number of single member

districts and hence the number of commissioners varies between ANC'S,

but is generally between 7 and 15. Each ANC has a chairperson who
is elected at large by all the registeredvoters in the ANC.
AS&T currentlyoperates at least one branch office in each of
the protestingANC's neighborhoods. Thus, as the elected representatives

of the residents
of theseneighborhoods,
the protesting
ANC'sand their
individualcommissionershave a vital interest in this proceeding. Many
of their constituents are moderate and lower income persons who seek to

purchase or rehabilitatehomes or to operate small businessesin the
neighborhoods.

88-032 0 - 77 - 3

These constituentshave been injured by AS&T's lending

30
policies and will be further injuriel
boyin continualionof

these

policies. Thus the ANC's, the individualcomissioners, and their

constituents
will be directlyinjuredif the Comptroller
approves
AS&T's branch applicationwithout a commitmentfrom AS&T to modify
its lending policies.

James Powell and Dolores Dews are minority persons who reside
in protestingANC neighborhoods. AS&T

has

denied

both

them

mort

gage loans with low downpaymentrequirements. James Powell, Dolores

Dewsand otherminorityresidents
of the protesting
ANC neighborhoods
have been adverselyaffected by AS&T's current lending policiesand
will be directly injured if the Comptrollerapproves AS&T's branch
applicationwithout a commitmentfrom AS&T to modify its lending

policies.

Columbus Burrell and Edward Gill are minority persons who operate
Earl
smallbusinesses
in the protesting
ANC neighborhoods.

Bryant

is a minoritypersonwho seeksto establish
a smallbusinessin a
protestingANC neighborhood.
loans.

AS&T

has

denied

them

small

business

Columbus Burrell, Edward Gill and other minority small

businessmenin the protestingANC neighborhoodshave been adversely
affected by AS&T's current lending policies and will be directly in
jured if the Comptroller approves AS&T's branch application without a

commitment
from AS&Tto modifyits lendingpolicies.
Moreover,

residents of the protesting ANC neighborhoods who do

not seek mortgage loans and small business loans for themselves are
adversely affected when other residents and small businesses in their

neighborhoods
cannotobtainmortgageloansand smallbusinessloans.
These residents will be injured if the Comptroller approves AS&T's branch

application
withouta commitment
from AS&Tto modifyits lendingpolicies.

II.

AS&T's obligationto servetheprotestingANC'sneighborhoods.
The National Bank Act and the Federal Deposit Insurance Act direct

the Comptrollerto charter national banks for two basic purposes--to
develop a sound monetary system and to serve community convenience
and

needs.

12 U.S.C.

sec. 21, 24,26,27,1814,1816.12 C.F.R. sec. 4.2(b) .

Thus national banks have an obligation to serve the banking needs of the
communities in which they operate.

When a national bank establishesbranch offices, the areas sur
rounding these branch offices become part of the community to be served.
Thus the national bank's obligationto serve community banking needs
extends to each of these branch office areas.

The home office or branch office area to which a national bank's
service obligationextends is known as the primary service area.

The

Comptrollerhas defined the primary service area as the area from which
a home office or branch office generates75% or more of its deposits.
Comptroller'sPolicy Statementon Corporate Activities,October 26, 1976
at 6, 11.

In a densely populatedurban area which has many competing

depository institutions,such as the District of Columbia, a primary
service area can be accuratelycharacterizedas a neighborhood.

The Comptroller's
regulations
recognize
a branchoffice'sobli
gation to serve its local neighborhood. A national bank requesting

permission
to establish
a branchofficemustdescribein detailthe
economic character of the primary service area and indicate the primary
service area's credit needs.

The applicantnational bank must also

describe the banking services that the proposed branch will offer.
Comptroller'sForm CC 7024-0.6. (Replacedon January 2, 1977, by
Form

CC 7021-01) .

The obligation
to servethe bankingneedsof the primaryservice
area means that a national bank must make reasonable efforts to meet
the area's credit needs.

Whena branchapplication
indicates
that

the applicant
will not makesuch reasonable
efforts,the Comptroller
cannot properly approve the application. Similarly,when an applicant
has not made reasonable efforts to serve the credit needs of the

primary service areas surroundingits existing branch offices, the
Comptrollercannot properly authorizeit to expand by establishing
additional

branches.

AS&Toperates11 branchofficesin the protesting
ANC neighbor
hoods.

The primary service areas of these branches represent more

thanone-halfof the totalareaof the protesting
ANC neighborhoods.
The protestingANC neighborhoods,the location of AS&T's branch

officesoperating
in theseneighborhoods,
and the estimated
primary
service area for each branch office are indicated on the chart

below.

Most of these branch offices were establishedprior to 1960 and
their primary service areas were not delineatedin the branch appli
cations.

HoweverAS&T's1962 application
to establish
a branchoffice

at 5911 Blair Road, N.W. (within the 4-B ANC) delineateda primary
service area roughly equivalentto a circle with a one mile radius.

Similarly,
the Comptroller's
fieldinvestigation
concerning
AS&T's
1962 application
to relocateits GeorgiaAvenuebranchoffice(within
the l-A ANC) from 3608 Avenue, N.w. to 3500 Georgia Avenue, N.W.
indicates a circular service

area with a one mile radius.

However,

AS&T'sapplications
to establish
branchofficesat 120 C Street,N.W.
(within the 2-C ANC) in 1966 and 21st and L Streets, N.W. in 1974,

and its application
in thisproceeding
havedelineated
primaryservice
areaswith radiiof approximately
1/3.ofa mile.
Two factors account for the smaller primary service areas in the

laterapplications.
First, new branches establishedby other financial
institutions
haveincreased
the competition
for depositsand thereby
shrunk the primary service areas. Second, primary service areas are
smaller in business areas where most consumer deposits are obtained

fromemployees
at theirplaceof work thanin residential
neighborhoods.
Consideringboth these factors, petitionersestimate the primary service
areas for AS&T's branch offices to have currently a 1/2 mile radius
in residentialneighborhoodsand a 1/3 mileradius in business areas.
However, the assumptionof circular primary services areas in
some cases significantlyunderstatesthe portionsof the protesting
ANC neighborhoodsthat lie within the primary service areas.

The

ANC's

generallyrepresent natural neighborhoodsand thus provide a natural
customer deposit base. Therefore the primary service areas often
conform more closely to ANC boundariesthan to circular areas.
Moreover, by definitiona branch office receives 25% of its deposits
from outside its primary service area. Since the portions of the pro

testing
ANCneighborhoods
whichlieoutside
theprimary
service
areas
are close to the AS&T branch offices, AS&T will receive a significant
volume of deposits from these areas.
Based on an evaluationof neighborhoodcharacteristicspetitioners
have estimated the percentageof deposits at each AS&T branch that is
The
obtainedfromthe protesting
ANC neighborhoods.

estimation indicates

that the 11 AS& T branch offices, with three exceptions,obtain at least

The
50% of theirdepositsfromthe protesting
ANC neighborhoods.

threeexceptions
involvebranchofficeslocatedon the boundary
of
the 2-C ANC, an ANC in which AS&T operates a total of 7 branch offices.

In viewof thiscontribution
of depositsby the protesting
ANC neighbor
hoods, AS&T has an obligationto serve the banking needs of these neigh
borhoods .

Petitionershave also estimated the percentageof deposits at
each AS&T branch that are obtained from commuters--persons
who work
in the protestingANC neighborhoodbut do not reside there.

Commuter

deposits representa high percentageof total deposits at AS&T's seven
branches

located

in the

2 -CANC.

In residentialneighborhoodssuch

as the 7-D ANC and the 4-B ANC commuter deposits do not representa

significant
shareof totalbranchdeposits.
AS&T's obligationto serve the banking needs of the protesting
ANC neighborhoodsderives from their role as primary service

areas.

The primary service area is defined in terms of total branch depositscommuter deposits as well as resident deposits.

Thus the total deposits

obtained from an ANC neighborhood,includingcommuter deposits,is the
relevant factor in determiningthat obligation.

However,

once

that

obligationhas been established,resident deposits are a relevant
factor in assessing the impact of the branch on the neighborhood.
The Federal Deposit InsuranceCorporation(FDIC) has provided
petitionerswith the volume of deposits by deposit category held by
each AS&T branch office as of June 30, 1975.

Based on the FDIC deposit

data petitionershave estimated the volume of AS&T branch office deposits
obtained from each protestingANC neighborhoodand from resident consumers
and businesses.

1-A

ANC

Georgia Avenue Branch
3500Georgian Ave., N.W.

EstimatedPercent of Branch Depositsobtained from ANC Area:
Estimated Percent of ANC Area Deposits obtained from Commuters:
Estimated Percent of Branch Deposits obtained from ANC Area

702

30%

residents and businesses:
Deposit Type

49%

Branch

ANC

Area

ANC

Residents

Businesses
(FDICData)
(Estimation)
(All amounts in millions) (Estimation)

Time

$5.136
$8.405
$ .669

$3.595
$5.884
$ .468

$2.517
$4.118
$ .328

Total Deposits

$14.210

$9.947

$6.963

Demand

Passbook Savings

2-C

ANC

Mt. Vernon Square Branch
7th

Street

and

Mass.

Ave. , N.W.
80%
75%

EstimatedPercent of Branch Deposits obtained from ANC Area:
Estimated Percent of ANC Area Deposits obtained from Commuters:

EstimatedPercent of Branch Deposits obtained from ANC Area
20%

residents and businesses:
Deposit Type

Branch

ANC

Area

ANC Residents
Businesses

(FDIC Data)
(Estimation)
(All amounts in millions)(Estimation)
Time

Demand

$19.745
$11.355
$2.232

$15.796
$ 9.084
$ 1.786

$3.949
$2.271
$ .446

Total Deposits

$33.332

$26.666

$6.667

Passbook Savings

2-C

Northeast

Branch

8th and

Streets, N.E.

ANC

EstimatedPercent of Branch Depositsobtained from ANC Arca:

30%

Estimated Percent of ANC Area Deposits obtained from Commuters:
Estimated Percent of Branch Deposits obtained from ANC Area
residents and businesses:

30%

Deposit Type

Branch
(FDIC Data)

ANC

Area

Time

$11.253
$ 1.444

$3.376
$ .433

$2.363
$ .303

Total Deposits

$18.777

$5.633

$3.943

ANC

Residents

21%
&

Businesses
(Estimation )
(All amounts in millions) (Estimation)
$1.824
$1.277
$ 6.080

Demand

Passbook Savings

15th

and

M Streets

Branch

15th and M Streets, N.W.

EstimatedPercent of Branch Depositsobtained from ANC Area:

40%

Estimated Percent of ANC Area Deposits obtained from Commuters :
Estimated Percent of Branch Deposits obtained from ANC Arca

80%

residentsand businesses:

Deposit Type

Branch

Demand

$10.564
$ 3.506

Time

$26.411
$ 8.765
$ 1.576

Total Deposits

$36.752

$14.700

Passbook Savings

ANC

Area

ANC

Residents

(FDIC Data)
(Estimation)
Businesses
(All amounts in millions (Estimation)
$

.630

$2.113
$ .701
$ .126

$2.940

2-0

( Street

ANC

Brunch

Tst and ( Strects, N.F.

Estimatedl'crcentof ANC Area Deposits obtained from Commuters:

30 %
40%

Estimated Percent of Branch Deposits obtained from ANC Arca
residents and businesses:

188

Estimated Percent of Branch Deposits obtained

Deposit Type

from ANC Area:

ANC

Residents

Branch
(FDIC Data)

ANC

Time

$7.860
$3.546
$ .676

$3.144
$1.418
$ .270

$1.414
$ .638
$ .122

Total Deposits

$12.082

$ 4.833

$2.174

Area

(Estimation)
Businesses
(All amounts in millions) (Estimation)

Demand

Passbook Savings

Columbia
Branch
911 F Street,
N.W.

EstimatedPercent of Branch Deposits obtained from ANC Area:

80%

Estimated Percent of ANC Area Deposits obtained from Commuters:

92%

Estimated Percent of Branch Deposits obtained from ANC Area
6%

residents and businesses:

Deposit Type

Branch
(FDIC Data)

ANC

Area

(Estimation)

ANC Residents &
Businesses

(all amounts in millions)(Estimation)
Time

$13.732
$ 3.782
$
.887

$10.986
$ 3.026
$ .710

$
$
$

Total Deposits

$18.401

$14.721

$ 1.104

Demand

Passbook Savings

.824

.227
.053

2 -C

ANC

l'ederalTriangleBranch
111] Pennsylvania Ave., N.w.

EstimatedPercent of Branch Deposits obtained from ANC Area:
EstimatedPercent of ANC Area Deposits obtained from Commuters:
EstimatedPercent of Branch Deposits obtained from ANC Area

50 %
97%
2%

residents and businesses:
Deposit Type

Branch

ANC

Area

ANC

Residents

(FDIC Data)
TEstimation )
Businesses
(All amounts in millions) (Estimation)
Demand

.128
.083

$ .448

$
$
$

$5.704

.228

$6.375
$4.138
$ .895

$3.188

Time

Total Deposits

$11.408

Passbook Savings

120

C Street

$2.069

.018

Branch

120 C Street, N.W.
50%
95%

Estimated Percent of Branch Deposits obtained from ANC Area:
Estimated Percent of ANC Area Deposits obtained from Commuters:

EstimatedPercent of Branch Deposits obtained from ANC Area
residents

Deposit

and

businesses

Type

Branch
(FDIC Data)

ANC

Area

(Estimation)
(All amounts in millions)

ANC

Residents

Businesses

TEstimation)

$5.142
$ .872
$ .122

$2.571
$ .439
$ .061

Time

.154
.026
.004

Total Deposits

$6.142

$3.071

.184

Demand

Passbook Savings

4-B

ANC

Blair Road Branch
5911 Blair Road, N.W.

EstimatedPercent of Branch Deposits obtainedfrom ANC Area:
EstimatedPercent of ANC Area Deposits obtained from Commuters:
EstimatedPercent of Branch Depositsobtained from ANC Area
residents

and

businesses:

Deposit Type

64%

Branch

(FDIC
Demand
Time

$4.395
$4.589
$1.232

Total Deposits

$10.216

Passbook Savings

ANC

Area

ANC Residents
Businesses

(Estimation)
(All amounts in millions) (Estimation)
$3.296
$2.813

Data)

5-C
O Street

75%
15%

$3.440
$ .924

$2.937
$ .788

$7.662

$6.538

ANC

Branch

lst and O Streets, N.E.

EstimatedPercent of Branch Deposits obtained from ANC Area:

50%
30%

Estimated Percent of ANC Area Deposits obtained from Commuters:
Estimated Percent of Branch Deposits obtained from ANC Area
residents and businesses:

Deposit Type

Branch

ANC

TFDIC Data)

TEstimation)

Area

ANC Residents
Businesses

(All amounts in millions)
(Estimation)
$2.751
$1.241

Passbook Savings

$7.860
$3.546

$3.930
$1.773

Time

$ .676

$ .338

$ .237

Total Deposits

$12.082

$6.041

$4.229

Demand

35%

6-A

Northeast
Branch
8th and H Streets,

ANC

N.E.
50%

EstimatedPercent of Branch Depositsobtained from ANC Area:
Estimated Percent of ANC Area Depositsobtained from Commuters:
EstimatedPercent of Branch Depositsobtained from ANC Area

20%

residents and businesses:

40%

Branch

ANC Residents&

Passbook Savings
Time

ANC Area
(Estimation)
(FDIC Data)
(All amounts in millions)
$3.040
$ 6.080
$11.253
$5.627
$ 1.444
$ .722

$ .578

Total Deposits

$18.777

$7.511

Deposit Type
Demand

$9.389

Businesses

TEstimation)
$2.432
$4.501

East Capitol Street Branch

9th and East Capitol Streets
EstimatedPercent of Branch Depositsobtained from ANC Area:
Estimated Percent of ANC Area Deposits obtained from Commuters:
Estimated Percent of Branch Deposits obtained from ANC Area

50%

residents and businesses:

40%

Deposit Type

Branch

ANC

Area

ANC Residents&

(FDIC Data)
(Estimation)
Businesses
(All amounts in millions) (Estimation)
Time

$3.142
$5.279
$ 903

$1.571
$2.640
$ .452

$1.257
$2.111
$ .361

Total Deposits

$9.324

$4.662

$3.730

Demand

Passbook Savings

208

7 -D

ANC

BenningBranch

3839 Minnesota Ave., N.E.

Estimated Percent of Branch Depositsobtained from ANC Area:
Estimated Percent of ANC Area Depositsobtained from Commuters:
Estimated
Percent
of Branch Depositsobtained from ANC Area

50%

residents and businesses:

40%

Deposit Type

Branch

ANC

Area

ANC Residents &

TEstimation) Businesses
(All amounts in millions)Testimation)

TFDIC Data)
Demand

$3.934

$1.967

Passbook Savings

$4.655

Time

$9.310
$1.170

$ .585

$1.574
$3.724
$ .468

Total Deposits

$14.414

$7.207

$5.765

20%

III. The creditneedsof the protestingANCneighborhoods.
Each protesting
ANC neighborhood-encompasses
a substantial
residential
area and varyingsizedcommercial
stripscomprisedof
small

businesses.

The 2-C ANC also encompasses a large business

district and many office buildings of the federal government.
a. Mortgage credit needs.
The residents of the six protesting ANC neighborhoods are
predominantly moderate and lower income persons and predominantly
Black

persons.

Residential Population

Percent

Black

Persons*

Income**
(1973)(1970)

(1970)
1-A

26,000

2-C
4-B
5-C
6-A
7-D

39,008

94.4%
80.5

22,195

80.0

29,165
38,249
14,166

91.9
82.6

Average Family

$9,423
8,168
14,597
10,212

9,785
11,190

98.6

Districtof Columbia$15,842
The housingstockin the protesting
ANC neighborhoods
represents
a mixtureof 1-4 familyhomesand multi-family
buildings.
Distribution of Housing Units
1-A

2-C

4-B

5-C

6-A

1970

Census

7-D

Family

74%

54%

56%

49%

21%

24%

15%

20%

25%

20%

36%

35%

24%

11%

16%

54%

60%

6,916

8,322

2-4

Family
5 or
More
Total
Units
* 1970

9,865
Census

16,588

11,274 4,552

Data

**Data provided by the D.C. Commission on Residential Mortgage
Investment.

A substantialnumber of the housing units in the 1-4 family

structures
in the protesting
ANC neighborhoods
are owneroccupied.
Percent of

1-4 Family Units Owner Occupied*

1-A

2-C

50%

22%

1970

4-B

5-C

6-A

7-D

83%

44%

39%

57%

Census

Thus the residentsof the protestingANC neighborhoodshave a
substantial need for mortgage credit.

Total Dollar Amount of Mortgage Loan Originations
For the Purchase of 1-4 Family Homes** Dollars in Millions
1-A

2-C

4-B

5-C

6-A

7-D

1973

$1.625

$2.245

$3.163

$2.705

$8.268

$1.249

1975

$3.527

$3.578

$4.494

$3.586

$15.924

$1.286

During the last 3 to 5 years,

the demand for mortgage credit

on the partof protesting
ANC neighborhood
residents
has increased
significantly
becausea growingnumberof suchresidents
desireto
become

home

owners.

This increased interest in home ownership arises

froma desireto participate
in the upgrading
of the protesting
ANC
neighborhoods
and the realization
thathomeownership
may be necessary
to prevent future displacementfrom the neighborhoods.
However, this

increased interest in home ownership on the part

of the neighborhoodresidents has been frustratedby the fact that in
recent years home prices have risen faster than the incomes of the

neighborhoods
manymoderate
andlowerincome
persons.
*This

assumes

that all owner occupied housing units excluding

co-operatives and condominiums are in 1-4 family structures and
that all co -operative and condominium units are in structures
with

5 or more

units.

**Data provided by the D.C. Commissionon ResidentialMortgage
Investment.

AverageSales Priceof 1-4 Familyllomes*

1-A

2-C
4-B

5-C
6-A
7-D

1973

in75

$18,774
18,941

$23,266
22,282

26,406
16,965

36,964
21,490

21,659

37,659
25,075

19,350

Increase
24%
18
40
27
74
30

Districtof ColumbiaAverageFamilyIncome
1973*

$15,842

1975**

% Increase

$17,262

When home pricesrise fasterthan familyincome,moderateand
lowerincomepersonsexperience
increasing
difficulty
in setting
asidethe cash neededfor down paymentson home purchases.Thus
thereis a greatneed in the protesting
ANC neighborhoods
for mortgage
loanswith low down paymentrequirements.
In spiteof this need,mostof the commercialbanksand savings
and loanslocatedin the Districtof Columbiaimposea 25% down payment
requirement
on personsseekingmortgageloansto purchasehomesin
the protesting
ANC neighborhoods.
FHA and VA insuredloansreducedown paymentrequirements.
However,
commercialbanksand savingsand loansin the Districthave generally
refused to provide FHA insured mortgage loans. As a result the great

* Data providedby the D.C. Commission
on Residential
MortgageInvestment.
**Dataprovidedby the Councilof Governments
Metropolitan
Washington.

majority of home purchasers in the protesting ANC neighborhoods have

been forcedto rely on mortgagebankingcompaniesfor FilAinsured
mortgage loans.

Percentof TotalMortgageCreditProvidedby Mortgage
BankingCompanies,
S&L's,and Commercial
Banks 1975 *
MortgageBanking**

S&L's

Commercial

Banks

Companies
1-A

60.3%

2-C
4-B
5-C
6-A
7-D

24.8%

6.7%
16.1%

64.2%
61.0%
49.5%
70.2%

20.1%
4.3%

14.3%
12.6%

0.38
0.2%
0.4%
1.2%

1.4%
0.0%

This forcedrelianceon mortgagebankingcompanieshas had
several

adverse

effects.

First, mortgage bankers will not refinance

the mortgageloanswhichthey originateand service. Thus,

the

home purchaseris cut off from this sourceof creditfor home rehab
ilitationor otherexpenditures.Information
providedby the D.C.
Commission on Residential Mortgage Investment. Second, mortgage

banking
companies
forclose
on home owners who experience temporary
mortgage payment difficulties much faster than depository institutions.

Third,mortgagebankersdo not performhome inspections
with the
same thoroughness as depository institutions and thus afford less
protection to home buyers. Thus there is a great need in the pro

testingANC neighborhoods
for commercialbanksand savingsand
laosn to provide FHA insured mortgage loans.

However,even if commercial
banksand savingsand loansprovide
FHA insured mortgage loans, moderate and lower income residents will

continueto be disadvantaged
if the commercialbanksand savingsand
loansdo not also provideconventional
mortgageloanswith reduced
*Data provided by the D.C. Commission on Residential Mortgage Investment

**Thesepercentages
includemortgageloans providedby creditunions.
According to the D.C. Commission on Residential Mortgage Investment, credit
unions provide approximately 2% to 3% of the total mortgage credit in
the ANC neighborhoods.

88-032 0.77

- 4

down payment requirements.

Some

home

sellers

and

real

estate

brokers

are unwillingto sell homes to buyers who will obtain FIIAinsured
mortgage loans.

Lenders providingFHA insured mortgage loans often

requiresellersto pay "points",
HUDinspectors
may requirethe seller
to undertakerepairs, and FHA insured mortgage loans may take longer
to arrange than conventionalmortgage loans. Moreover, because of

widespread
relianceby minoritypersonson FHA financing,
manyhome
sellersor brokerswho seekto avoidsalesto minoritypersonsrefuse
to sell to buyers who will use FHA financing. Thus when FHA financing
is the only financingavailable to moderate and lower income residents,
these

residents

housing market.

are

denied

access

to a substantial

the

There is thereforea large unmet demand in the

protestingANC neighborhoodsfor commercialbanks and savings and
loans to provide conventionalmortgage loans with liberal down
payment requirements.
Many housing units in the protestingANC neighborhoodsare in
need of substantialrehabilitation. Surveys by the D.C Department
of Economic Developmentindicate that in portionsof the l-A ANC,
5-C ANC, and 6-A ANC neighborhoodsand in the entire 2-C ANC neigh
borhood 678 of the housing units require rehabilitation. District
of Columbia Departmentof Housing and Community Development,Application
for Federal Assistancefor a CommunityDevelopmentBlock Grant
Program

1975

at V-6.

Thus, the protestingANC neighborhoodshave

an unmet demand for mortgage credit to finance home rehabilitation.
As home prices have risen faster than family income a growing
number of residents have found the monthly paymentson the mortgage
loans required to purchase homes to be beyond their means. Thus,
an interest rate subsidy is needed to enable such residents to purchase

47
homes.

The Flla 235 proyran enables moderate and lower income

personsto purchaseand rehabilitatc
low pricedhomeswith 52 interest
rate

mortyayes.

TIUDhas authorizedfinancing for 1,000 235 units

in the District
of Columbiaduringfiscalyear1977. However, due
in large measure to mortgage lender unwillingnessto participatein
the FHA 235 program this allocationis not being used. Thus,
is

there

an unmet need in the protestingANC neighborhoodsfor commercial

banks and savings and loans to make mortgage loans under the FHA
235 program.

Multi-family
buildings
(5 or more units)providefrom 20% to
60% of the housing units in the respectiveprotestingANC neighbor
hoods.

Almost all of these multi-familybuildingsare renter occu

pied and many are in need of rehabilitation. Various non-profit

organizations
havesoughtto convertthe tenureof certainmulti
familybuildings
fromlandlordownership
to co-operative
ownership
by tenants.

Co-operative ownership would provide tenants with an

incentive to rehabilitatethe buildingsand allow them to participate
in the upgradingof the protestingANC neighborhoods. At

the

same

time, it would also enable tenants to minimize the cost of rehab
ilitation and thereby avoid the danger of displacementfrom the
building due to expensive rehabilitationdesigned to attract high
income persons.

The FHA 213 is designed to insure mortgage loans made to non
profit organizationssponsoringco-operativehousing projects.

llow

ever, the commercial banks and savings and loans in the District
have been unwilling to provide mortgage loans under the FIA 213
program.

Information
providedby JohnLunsford,
a director
of Jubilee

Housing.

The FHA 235 program, in addition to providingmortgage insurance

and on interestrate subsidyfor singlefamilyhousing,also extends
to the conversion
of multi-family
buildingsto condominium
owner
ship for moderate and lower income persons. However, as noted above,

commercialbanksand savingsand loansin the Districthave been
unwilling to participate in the FHA 235 program.
b. Small

business

credit

needs.

The businesses
locatedin the protesting
ANC neighborhoods
are
a

mostly small businesses.

Theonlymajorexception
is,portion
of the

2-C ANC area southof Massachusetts
Ave, whichcontainslargeretail
storesand federalofficebuildings.Petitioners

estimate

that there

are roughly1,300small businesses
locatedin the protestingANC
alsoestimatethat approximately
90% of
neighborhoods. Petitioners
the small businesses located in the 1-A ANC, 2-C ANC, and 5-C ANC
areas are minority owned.

The smallbusinesseslocatedin the protesting
ANC neighborhoods
have been severelyhandicapped
by the inabilityto obtaincommercial
loans .
Petitioners
have surveyed74 smallbusinesses
locatedin the
1-A ANC, 2-C ANC, and 5-C ANC areas. Only 12% of the businesses

surveyedcurrentlyhad a commercial
loan from a commercialbankor
had obtained a commercial loan from a commercial bank in the last
several

years.

On the other hand, 49% of the businesses surveyed

statedthat they had triedto obtaina commercial
loan and had failed
or had not tried because they felt it was useless.
Small
Total

Percent

Businesses

Number

Testimate) Minority Surveyed
Owned

Obtained

Commercial

Denied Commercial
Loan or did not

Loan

Apply Because They

Tin last

Felt It Was Useles:

several years)
1-A
2-C
4-B
5-C
6-A

7-D

150
500
250

150
150
100

85%
95%

5
4

12
22

When an adequate supply of commercialcredit is availibloa
high percent of small businessesborrow from commercialbanks.

For

example, The National Capital Bank of Washingtonindicates that it
extends commercial loans to 28 of the 39 small businesses located on
Pennsylvania

Ave., S.E. between 2nd and 7th streets, S.E. and on 2

blocks of 7th Street, S.E. which have deposit accounts with it.

Memorandum
of NationalCapitalBankof Washington
Protesting
the Branch
Application
of AmericanSecurityand TrustCompany,
Jan.6, 1977 at
Attachment

Thus, 72% of these small businessesreceive loans from commercial
banks.

This borrowingrate of 72% contrasts sharply with the 12%

rate in three ANC neighborhoodssurveyed. The contrast indicates

thatcommercial
bankshavegenerally
refusedto servethe creditneeds
of the small businessesin the protestingANC neighborhoods.
The unwillingnessof commercialbanks to extend commercialcredit
in the protesting ANC neighborhoodshas not only curtailed the oper
ations of existing small businessesbut has also impeded the estab
lishment of new small businesses.

A study performedfor the District

of Columbia RedevelopmentLand Agency indicates that there are sub
stantialopportunitiesfor new small businessesin several of the
protestingANC neighborhoods. D.C RedevelopmentLand Agency, Shaw
CommercialStudy, 1973.

IV. AS&T's mortgaye lendiny record in the proleslingANC_neighborhouds.
AS&T has virtually refused to provide mortgage loans for the
purpose of 1-4 family homes in the protestingANC neighborhoods.

During
theperiod
fromMay,1972toJune,
1976,
AS&Tmadeonlyfive
mortgage loans with a total dollar amount of $174,000 for the purchase

of 1-4 familyhomesin the area represented
by the six protesting
ANC's.

Lusk's District of Columbia Real Estate DirectoryService,

May, 1972

June, 1976.

AS& T Mortgage Loans For 1-4 Family Home Purchases
May, 1972
Purchase

ANC

Price

$95,000
86,000

6-A

6-A
4-B
4-B

13,000
15,800

to Price

Ratio

75.6
73
73
63

0
0

5-C
7-D

Loan
68%

$65,000
65,000
19,000
13,000
12,000

26,000

1-A
2-C

June, 1976

Mortgage Loan

Total Mortgage Loans For Home Purchases

$174,000

AS&T dollar volume of mortgage credit for home purchasesin the

protesting
ANC neighborhoods
over the entirefouryearand one month
periodrepresents
only 0.5%of the totaldollarvolumeof suchmortgage
credit provided by all lenders to these neighborhoodsduring the single
year

of 1975.

Mortgage Loans To Purchase 1-4 Family llomes in the

Six ProtestingANC Neighborhoods
AS&T

All

May, 1972
Lenders

1975

June,

1976

$.174

$32.395 million*

*Data providedby the D.C. Commissionon ResidentialMortgage
Investment

AS&T has conducted its banking operations in a manner to dis

courage residentsof the protestingANC's from applying for mortgage

At leasttwo of the branchofficeslocatedin the protesting

loans.

ANC neighborhoodshave not been given authority to extend mortgage
loans

AS&T officers at the Blair Road Branch 4-B ANC and the Benning

Road Branch in the 7-D ANC have told neighborhoodresidentsseeking
mortgage

loans that they must inquire at AS&T's main office at 15th

Street and PennsylvaniaAve., N.W. Moreover, among the six personal
banking services listed in AS&T's advertisingmaterial, mortgage
loans

are conspicuously absent.

See Appendix A.

AS&T requires mortgage loan applicantsto pay a non-refundable
fee of $99.50 before its loan officers will begin to process an

application.See Appendix B.

Moderate and lower income applicants

who believethattheymay not succeedin obtaining
mortgageloans
are generallyreluctant to risk $99.50 to determineif they are
qualified. Other mortgage lenders in the District do not employ
such

tactics.

For example, IndependenceFederal Savings and Loan

Associationwill examine a mortgage applicationon the asumption

that the information
providedby the applicant
is correctand make
a preliminarydecision. Only after a preliminaryapproval is given
is the applicantrequired to pay a loan originationfee to cover the

cost of a creditinvestigation
and homeappraisal.
AS&T has refused to provide mortgage financing with low down
payment requirements and has thereby denied the moderate and lower

income residentsof the protestingANC neighborhoodsaccess to mort
gage credit.
of

loan

AS&T will not participatein any of the FHA programs

insurance.

Thus, neighborhoodresidents cannot obtain

the followingtypes of mortgage loans from AS&T--(1) loans under the
FHA 203(b) program to purchase 1-4 family homes; (2) loans under the

FIIA235 proyram to purchaseand rehabilitatel family homes and con
dominium units; (3) loan under the FIA 213 program to purchase multi
family buildings for co-operativeownership.
The record of AS&T's mortgaye loans providedfroinMay, 1972
to June, 1976 indicates that AS&T has required at least a 25% down
payment on conventionalmortgage loans in the protestingANC neigh
borhoods .

Few moderate and lower income persons are able to purchase

homes with such down payment requirements.
On February 14, 1976, James Powell, a minority person and
resident of the 7-D ANC inquired at AS&T's main office as to whether
AS&T would provide a mortgage loan to purchase a $44,000 home in the
7-D

ANC.

Mr. Powell sought an FHA insured mortgage loan but was

informed by AS&T's loan officer that AS&T did not make FHA loans.
Mr. Powell then asked about A.S
&T's down payment requirementson
conventionalmortgage loans. The loan officer informed Mr. Powell
that AS&T required a 25% down payment.

However,

when pressed by

Mr. Powell, the loan officer subsequentlystated that AS&T might provide
a mortgage loan with a 20% down payment requirement.
Thus AS&T may have reduced its down payment requirementfor
the purchase of homes in the protestingANC neighborhoods,but, if
SO,

it is reluctant to inform neighborhoodresidentsof this fact.

However, even if AS&T has reduced its down payment requirementto
20%, this is still an unnecessarilyburdensomerequirement.
AS&T continues to use high down payment requirementsas

Thus

means

to deny the protestingANC neighborhoodresidentsaccess to mortgage
credit.

AS&T has also refused to provide mortgage loans to purchase and

rehabilitate
moderately
priced
home. On

Fabruary 15, 1977 Delores

Dews, a minority person, inquired at AS&T's main office as to whether
AS&T would extend her a mortgage loan to enable her to exercise her

first option to purchase a home for $19,000 located on Columbia
Road, N.W., the boundary line of the 1-A ANC. An AS&T loan officer

informedMs. DewsthatAS&Twouldnot providea homepurchase
and
rehabilitation mortgage loan. The loan officer also discouraged Ms.
Dews from applying for a conventionalhome purchase mortgage loan,
stated that AS& T would not provide FIA insured mortgage loans, and

suggestedthatshe contacta mortgagebankingcompanyin Marylandin
order to obtain an FHA insured mortgage loan.
AS& T has also been unwillingto provide conventionalmortgage
loans to non-profitcorporationsthat seek to sponsor co -operative

housingfor moderateand lowerincomepersons.For

example, in 1974

AS& T indicated to Jubilee Housing that it was not interestedin

providingmortgagecreditto JubileeHousingfor the purchaseand
rehabilitationof multi-familybuildingswith theultimateobjective
of conversion to co-operativeownership by the tenants. Information
provided by John Lunsford, a director of Jubilee Housing.
AS& T has privided a minimal supply of mortgage credit to exist
ing home owners in the protestingANC neighborhoodsin the form of

refinancing
outstanding
mortgageloansand grantingsecondmortgage
loans.

However, AS&T's refinancingsand second mortgage loans have

been concentratedalmost entirely in the portion of the 6-A ANC that
is west of 15th Street, N.E..

Over the last 7 years this area has

experienceda dramatic displacementof moderate and lower income

minoritypersonsand an influxof affluentwhitepersons.Pctitioners
estimate that the area's residentialpopulationhas changed from 80%
Black

in 1970

50%

Black

in 1977.

Most of AS&T's mortgage credit

extended to existing home owners has gone to White persons under
taking rehabilitationin this area. Outside this limited area AS&T's
record of providingmortgage credit to existing home owners in the

protesting
ANC neighborhoods
is almostas dismalas its recordof
providingmortgage credit for home purchases.

AS&T Mortgage Loans To Existing llomeOwners
Refinancingsand Second Mortgages,May, 1972
ANC
6-A

$52,000
West of 15th St., 40,039
N.E.

37,069

28,875

28,002
25,282
22,002

1976*

$8,988
8,760

$20,000
15,000
14,673
14,673
13,194
13,092

29,319
29,206

June,

8,394

6,278
6,082
5,044
3,616

11,599

11,332
10,987
9,936

21,898

20,892
TOTAL

6-A

$607,369
5,461

East

of 15th
N.E.

St. ,

2-C

4-B

$29,307
12,864

6,514

$25,000

$12,477

$8,282

$9,246

$8,000

$4,698$6,918

5-C
1-A

$8,935

7-D

Total Excluding 6A West of 15th Street, N.E.:

$137,702

AS&T'sbranchapplication
in thisproceeding
provides
further
evidenceof AS&T'sattitudetowardmortgagelendingin the District
of

Columbia

East

Rock

Creek.

In listing the credit needs of the

proposed primary service area which is located in the 6-B ANC neigh
borhood, AS&T fails to even mention mortgage loans even though $21.356

millionin mortgageloanswas extendedin 1975in the 6-B ANC.
AS&T Application,Summary of Informationat 1. AS&T's application
also indicates that the proposed branch office would not have authority
to originate mortgage loans. Summary ofInformation

at 1.

Moreover,

* Lusk's Districtof Columbia Real Estate Directory Service,
May, 1972 - June,1976

AS&T'sestimateof the loan volumethalwouldbe outstanding
ül
the proposed branch office after five years of operationdoes not pro

at 2B.
vide for any mortgage loans. Summaryof Information

AS&T'sSmallBusinessLoan Recordin theProtesting
ANC's.
AS& T has severely restrictedits supply of small businessloans

in the protestingANC neighborhoods...
AS&T has refused to make many
small business loans which could have been made without undue risk.

For example,in 1976 AS&Trefusedto providea smallbusiness
loan
to Columbus Shoe Repair located at 4051-A MinnesotaAvenue, N.E.
(7-D ANC).

The store owner, Columbus Burrell, a minority person,

had been in business for 11 years.

Likewise, in 1975 AS&T refused

to providea smallbusinessloan to Gill'sValetlocatedat 4051
Minnesota Avenue, N.E. (7-D) .

The store's owner, Edward Gill, a

minority
person,
hadbeeninbusiness
for13 years.
AS&T's refusal to provide small business credit has thwarted
the establishmentof new small businessesas well as handicapping
existing ones. On January 31, 1977 Earl Bryant, a minority person,
sought a small business loan from AS&T in order to install a new
ventilationsystem in a new bakery store which he proposed to open
at 312 14th Street, N.W. (1-A ANC).

Mr. Bryant had purchased with

his own savings and installed$8,000 of bakery equipment and was ready

to openfor business
when the District
of ColumbiaGovernment
informed
him that he would have to install a new ventilation system.

AS&T's

Georgia Avenue, N.W. branch office refused to extend a small business
loan of $5,000 to cover the estimated cost of installing a new

system. AS&T could easily have made the loan with noventilatio
undue risk by taking a $5,000 lien on the $8,000 worth of bakery
equipment.

VI .

AS&T's failureto fulfillitsserviceobligation
to the pro
testing ANC neighborhoods.
a. Refusal to make reasonable efforts to serve unmet credit
needs.

As shown above AS&T's obligationto serve the banking needs of
its primary service areas requires that it make reasonableefforts
Pe
to serve the creditneedsof the protesting
ANC neighborhoods.

titioners have demonstratedthat there is a large unmet demand for
mortgage credit and small business credit in these neighborhoods.
Moreover, the provisionof mortgage loans, reductionof down payment

requirements
on conventional
loans,participation
in FHAprograms
and expansion

of loans to small businesses are reasonable activities

for a commercial
bankwith AS&T'sfinancial
and managerial
resources.
As a national bank, AS& T is authorizedto provide a variety of credit
services.

Though a national bank may properly limit the range of

credit services it offers, it cannot refuse to provide a certain type
of credit service in its primary service area if there is a substantial
unmet demand for such credit. Therefore, AS &T's virtual refusal to

providemortgagecreditand its restricted
supplyof smallbusiness
creditin the protesting
ANC neighborhoods
are unreasonable
and result
in a breachof its obligation
to servethe protesting
ANC neighborhoods.
b. Provisionof mortgage credit outside the protestingANC
neighborhoods
.
Even if AS& T were to argue that it could avoid its obligation
to its primary service areas by excludinga credit service in all

areasof operation,
AS&Tcannotadvancesuch an argumentin this
proceeding. AS&T can hardly claim that mortgage lending is a type

of credit service which it does not provide. During the four year
and one month period in which AS&T virtuallyrefused to provide

mortgage
creditfor homepurchases
in the protesting
ANC neighbor
hoods, it provided a substantialvolume of such loans in the portion
of the District of Columbia West of Rock Creek--an area in which
AS&T has six branch offices--and outside the District of Columbia-

an area where AS&T has no branch offices.
AS&T Mortgage Loans
Outside D.C.--January,1972--June,1975*

$38.541 million

Purchase of 1-4 Family Homes
Outside D.C.--January, 1975--June, 1976**
Purchase of 1-4 Family Homes and

$6.336

million

Refinancingsfor Home Improvement
D.C. West of Rock Creek Park--January,1972--June,1975* $9.048 million
Purchase of 1-4 Family Homes
D.C. West of Rock Creek Park--January, 1975--June, 1976**
Purchase of 1-4 Family Homes and

$3.446

million

Refinancings
for HomeImprovement
Protesting NC

Neighborhoods--May,

1972--June, 1976***

$.044 million

Purchase of 1-4 Family Homes (Excluding 6A ANC
West of 15th Street, N.E.)

Protesting ANC Neighborhoods--May,
1972--June,1976***

$.182

million

(Excluding 6A ANC West of 15th Street, N.E.
Purchase of 1-4 Family Homes,

Refinancings,and Second MortgageLoans
Thus, AS&T's virtual refusal to extend mortgage credit for
home purchasesin the protestingANC neighborhoodsis not the result of
mortgage lending
applied in all areas but is instead a
a general policy against
selectiverefusal to lend in particularneighborhoods. Rather

than

give priorityto its primaryserviceareasoveroutsideareas,AS&T
*Dataprovided
by the D.c.Commission
on Residential
Mortgage
Investment

**AS&T, Mortgage Loan DisclosureStatement,September 30, 1976 .
***Lusk'sD.C. Real Estate DirectoryService, May, 1972-June,1976.

gives priority to outside areas. This classic pattern of redlining
constitutesa fundamentalviolationof AS&T's obligation to serve

the creditneedsof the protesting
ANC neighborhoods.
Moreover, AS&T's distorted distributionof mortgage credit

is not the unfortunate
resultof lendingcriteriaappliedin an
even

handed

hoods.

AS&T's mortgage loan data indicate that AS&T has

more liberal mortgage financing in the affluent portion of

provided
D.C.

manner .

west

Rock

Creek

than

has in the protestingANC neighbor

Undoubtedlythese same liberal policieswereappliedin areas

outside the District of Columbia where AS&T made

by far the greatest

number of its home purchase mortgage loans.
Maximum Loan To Price Ratio--AS&T Home Purchase

Mortgage Loans--May,1972 to June, 1976*
Protesting ANC Neighborhoods

75.6%

D.C. West of Rock Creek:
Price

$150,000
45,000

72,000
22,000
99,750
84,500
63,000
47,500
47,500
44,000

AS& T Mortgage Loan
$150,000
38,000
60,000
18,000
80,000

67,600
50,400
38,000
38,000
35,200

Ratio

100 %
84.4
83

81.8
80.2
80
80
80
80
80

Rather than adjust its mortgage lending criteria in order to
serve the credit needs of the protestingANC neighborhoods,AS&T
adjusted its criteria in order to divert mortgage credit away from
these neighborhoods.

Breach of branch application commitments.
As shown above, in order to discourageresidents from applying

for mortgage loans AS&T refuses to provide mortgage loan services
as its branch offices in the protestingANC neighborhoods. Mortgage
loan applicantsare required to apply at AS&T's corporate head
quarters on 15th Street and PennsylvaniaAvenue, N.W.

Yet

AS&T's

applicationto establish a branch at 120 C Street, N.W. (2-C ANC)
stated that the proposed branch would offer first mortgage loans.*
Likewise, AS&T's applicationto establish a branch at 5911 Blair
Road, N.W. indicated that there was a major demand for mortgage

credit in the neighborhoodand stated that AS&T would offer com

pletebankingservicesof the proposedbranch.**AS&T's

refusal

to provide mortgage loan originationservices at these branch
offices representsa flagrantbreach of commitmentsif made in

obtaining
the approvalof the Comptroller's
Officeto establish
these branches.
d.

Disinvestmentof the protestingANC neighborhoods.
AS&T's unwillingnessto provide mortgage credit and small

business credit in the protestingANC neighborhoodshas resulted
in a situationin which the deposits that it receives from neigh
borhood residents and businessesare far greater than the loans
it

makes

them .

The level of AS&T's disinvestment of the

protestingANC neighborhoodscan be approximatedby estimating
the total volume of AS&T mortgage loans, commercialloans, and
*AS&T Applicationto Establish a Branch Office at 120 C Street, N.W.
Summary of Information, 1966 .
**AS&T Application toEstablish
a BranchOffice
N.W., Summary of Information, 1962.

at 5911 Blair Road,

consumer loans outstandingto neighborhoodresidents and businesses

and subtracting
thistotalfrom the volumeof depositsof neighbor

hoodresidents
andbusinesses
heldby AS&T.
Deposit totals have already been calculatedfor each protesting
ANC neighborhood.
An estimate of the total dollar amount of AS&T mortgage loans
outstandingin each neighborhoodcan be derived from the dollar
amount of AS & T mortgage loans originatedin each neighborhoodfrom
May, 1972 to June, 1976. In the District of Columbia financial
institutions hold mortgage loans for an average of 12 years.

Thus,

AS&T's total volume of mortgage loans currentlyoutstandingshould
be roughly 2 times the total volume of mortgage loans it originated
over the last four years.

An estimate of AS&T's outstandingconsumer loans in each
neighborhoodcan be derived from the volume of savings deposits
which AS&T obtains from each neighborhood. AS&T indicates that

itsconsumerloanvolumeby censustractis approximately
30%
of its savingsdepositvolume. AS&T Applicationat 2B. Thus,
AS&T'sconsumer loan total in each neighborhoodcan be derived from
the prior estimate of its savings deposit totals.*
An estimate of AS&T's outstandingsmall businessloans in each
neighborhoodcan be derived from estimatesof the number of small

businesses
in each neighborhood,
the averagecommercial
loanper
small business, and AS&T's market share of small business loans.

* This estimationis based on AS&T's volume of passbooksavings
and time deposits,even though AS&T may have included only
passbooksavings deposits in its 30% calculation. Thus, the
estimate may overstate AS&T's consumer loan totals.

88-032 0 - 77 - 5

Petitionershave cstimated the number of small businesseslocated
in each protesting ANC neighborhood.

AS&T estimates that in the

serviceareaof its proposedbranchthereis an average$3,000of
commercialloans outstandingper small business. AS&T Application,
Summaryof

Information at

Attachment

2B.

Petitioners estimate

that in the protestingANC neighborhoodsdue to the limited number
of small businesseswhich are able to obtain commercialloans,the
average commercialloan per small business is no greater than $1,000.
Petitionersalso estimate that AS&T provides 25% of all the small

business
loansin theseneighborhoods,
althoughthisis mostlikely
in overly generous estimationof AS&T's market share.
Petitionershave not included AS&T's commercialloans to large
corporationslocated in the protestingANC neighborhoods. In providing
the FDIC with branch office deposit data AS&T appears to have attributed
all the demand deposits of large corporationsto its main office at
15th Street and PennsylvaniaAvenue, N.W. AS&T indicates that its
main office has $122 million in demand deposits. Petitioners estimate

that roughly$100millionof thisrepresents
largecorporate
deposits.
As of December 31, 1975, AS&T had $90 million in commercial loans

outstanding. Thus petitionersestimate the AS&T's loans to large
corporationsare roughly equal to the demand deposits it obtains from
large corporations. Therefore,excluding both the demand deposits
and commercialloans for large corporationsshould result in an
accurate picture of the impact of AS&T's branch office on the pro
testing ANC neighborhoods.

AS&T'sNeighborhood
Disinvestment
Neighborhood Funds

TO AS&T
(estimate)
Deposits of ANC
Residents and
SmallBusinesses
1-A

2 -C

$ 6.963 million
17.240

5-C

6.538
4.229

6-A
7-D

11.241
5.765

4-B

Consumer
to ANC

Loans

Residents
$1.334 m.
2.214
1.118
.443

2.265
1.258

AS&T Funds To Neighborhood
Testimate)
Mortgage
Commercial
Loans

Residents

Small

Businesses

$.052 m.
.176

$.038 m.

1.532
0.000

ANC

Disinvestment

Loans

.194
.043

ANC

.125
.063

.038
.038
.025

$5.539
14.725

5.163
3.705

7.406
4.482

This massive level of disinvestment can hardly be viewed as a

transfer
of fundsfromwealthy,
capital
surplus
beighborhoods
to more
needy areas. The protesting
ANC neighborhoods
are moderateand lower
income and it has been shown that they have substantial unmet credit
needs.

AS&T'slargescaledisinvestment
of theseneighborhoods
under

mineshomeownership
andsmallbusiness
opportunities
forneighborhood
residents.

Such financialstripmining
is in clearviolationof AS&T's

obligationto servethe creditneedsof theseneighborhoods.

vi.Discriminatory
effectsof
Asal's
lendingpolicic:.
Petitioners have demonstrated that 1.5&'':;has provision

mortgagecreditfor home purchases
almostcxrlusively
lo pre
dominantly white neighborhoods and has avoided predominantly

Black neighborhoods. See also,Petitioners'
Exhibits
6-2,6-5,
and D-l presentedat the January 10, 1977 learing in this
proceeding. Thus, AS&T's mortgage lending policies have a
substantialdiscriminatoryeffect on minority persons.
This discriminatory effect results from AS&T's mortgage

lendingcriteriaand its operating
procedures.Minority
residentsin the Districtof Columbia have incomes substantially
below those of white persons.

Petitioners

Exhibit

E-l.

Thus,

AS&T's high down payment requirementson conventionalmortgage
loans and its refusal to participatein FIIAprograms have a dis
criminatoryeffect. See also, Petitioners'

Exhibit

E-2.

AS&T's

refusal to process mortgage loans at its branch offices in
predominantlyminority neighborhoodslimits the number of minority
loan applicants. AS&T's policy of charging a loan origination
fee prior to initial processingof mortgage loans is designed
to discouragemoderate and lower income persons who,in the

District
are predominantly
minoritypersons,from applying
for
mortgage loans.

Likewise, AS&T's small business lendina policieshave a
discriminatory effect on minority businesspersons.

The

small

businessesin several of the protestingANC neighborhoodsto
which AS&T refuses to provide commercialcredit are predominantly
owned by minority persons.

The discriminatory
effectsof AS&T'smortgagelendingand

small business policies are not justifiedby business necessity.
Thus, the policies are in violation of the federal Civil Rights
statutes

42 U.S.C.

sec. 3601 et seq.'s 42 U.S.C. sec. 1981, 1982;

Public Law 94-239 (1976 Amendmentsto the Equal Credit Opportunity
Act) .

The Comptrollercannot properly approve the branch appli

cationof an applicant
such as AS&Tthatpursuesimpermissibly
discriminatory
policies.Moreover,Section 3608(c) of the Civil
Rights

Act of 1968 as well as the 5th and 13th Amendments require

the Comptrollerto take affirmativemeasures to end discrimination
in lending.

Respectfullysubmitted,

Counsel

Jonathan

Louis J. Sirico, Jr.

:
A.

Brown

Attorney for Charlotte Holmes et. al.
Public Interest Research Group
1346 Connecticut Avenue, N.W.
Suite

419A

Washington, D.C.

20036

202-833-3931

I certify that a copy of this motion was mailed this day to
American Security and Trust Company, 15th Street and Pennsylvania

Avenue, N.W. Washington,D.C.
February 16,

1977

Louis J.

Sirico,

Jr.

ACHECK
PERSONAL
SERVICES

LISTOFBASIC BANKING SERVICES
BANKING

COMMERCIAL BANKING
SERVICES

Hereareafewofthemanyservicesweprovidetohelp AmericanSecurityprovidesthefullspectrum
servicesforbusinesses,organizations,andassocia
AskanyCommercialBankingOfficerabout:
PersonalCheckingAccounts.
AlAmerican
Se
curly,
youneednotpayany service
chargeof
CommercialChecking
youmaintainasullicientlyhighaveragebalance
SavingsAccountspay
interest
computeddaily
PayrollService

youmanageyour money.

and compounded quarterly
from day of deposit

Lock Box
todayofwithdrawal.
SystematicSavingsautomaticallytransfersfunds
A
AccountReconciliation
eachmonthfromyourcheckingtoyoursavings
account

CommercialLoans

ReadyReserveisa
personal
line
ofcredit
that
letsyou
write
yourselfa
loansimply
by writing

Wire Transfer

acheck
Collections

CertificatesofDepositareavailableat
competi
tiveratesandwithvaryingmatunities.
O ConsumerLoansareavailableforhomeimprove

ShortTermInvestment/MoneyCenter

ment,automobilefinancing.majorappliances,or
foranysoundpurpose.

TRUST

SERVICES

AmericanSecurityhasmoreassetsundertrustmanage

INTERNATIONAL BANKING

mentthananyotherbankinWashington.Ourspecialized

SERVICES

servicesforindividualsandorganizationsinclude:

AmericanSecurityhasaworld-widenetworkof
foreign
La EstatePlanningandAdministration
correspondents.Ourinternationalservicesinclude:
TrusteeunderAgreementandbyWill
Foreign
CurrencyExchange
A Drafts
InvestmentManagementAccounts
Mail/CablePaymentordersinU.S.
DollarsandForeignCurrencies
A

CommercialLettersofCredit

EmployeeBenefitPlans
C

CustodianAccounts

AMERICANSECURITYBANK
AMERICAN SECUNUTYAND

APPENDIX A

TRUST COMIMNYNA

AMERICAN

SECURITY CORPORATION

(PARENT COMPANY OF AMERICAN SECURITY AND TRUSTCOMPANY, N.A )
730FIFTEENTH

STREET, N.W.,WASHINGTON,DC

20013

624-4120

NOTICE

APPLICANT

In connectionwith your proposedreal estate loan application,the
followingforms are attachedhereto:
1.

Loan Application FHLMC Form 65.

Verificationof Depositform for each institution
holding depositsthat will be utilizedfor purposes
of down payment,to be returnedto the Real Estate
Department,

We requestthat the applicationbe typed or printedneatly,and com
pletedin full. The applicationshould be accompaniedby a legible
copy of sales contractacceptedby the seller(in cases of purchase

moneyloanrequests),
anda checkin theamountof $99.50whichwill
coverthecostof creditinvestigation
and property
appraisal
in most
cases.

These fees are non-refundable.

Pleaseattacha statement
indicating
the proposed
settlement
date,and
the name of the attorneyor titlecompanyconductingthe settlement.

Timerequired
forprocessing,
fromourreceipt
of completed
application
to final settlement,is generallynot less than 30 days.
The FederalEqual Credit OpportunityAct prohibitscreditorsfrom dis
criminatingagainstcredit applicantson the basis of sex or marital
The FederalAgencywhich administerscompliancewith this law

status .

concerning
thisbankis Comptroller
of theCurrency,
Consumer
Affairs
Division,Washington,D.C. 20219. Additionally,
the Fair HousingAct

so prohibits
discrimination
on thebasisof race,color,religion,
sex
or nationalorigin,
If you have any questions,pleasedo not hesitateto contactthe Real Es
tate Department,telephone624-4120.

B
APPENDIX

Atachment

Before

the
0

Federal

Home

Loan

Bank

Board

Washington,D.C.

In the matter of:

The Applicationof Perpetual Federal
Savings and Loan Association,Washington,
D.c. to establish a branch office at the
intersection of 18th Street and Columbia

Road, N.W., Washington,D.C.

MOTION FOR ADEQUATE COMMUNITY GROUP NOTICE

The Adams Morgan Organization(AMO) requests that when the
Federal Home Loan Bank of Atlanta advises PerpetualFederal

Savingsand Loan Association
(Perpetual)
to publishnoticeof
the abovecaptioned
application,
that the FederalHomeLoanBank
Board (the Board) send directly and without delay to AMO written
notice informing AMO that such advise has been given.
Pursuant to 12 C.F.R. sec. 545.14 federal savings and loans
give public notice of branch office applicationsby publishing
a notice in a newspaper of general circulationin the proposed
branch's community.

This notice appears in fine print buried

amidst the newspaper'sclassifiedadvertisements. AMO contends
that this inconspicuous and obscure manner of publication does

not provide adequate notice to community groups such as AMO.
AMO is a non-profitorganizationcomposed of residentsof
the Adams Morgan neighborhood. AMO presentlyhas 3,000 members.
The Adams Morgan neighborhoodis located within the District of

Columbia.

The specific area representedby AMO 13 outlined on

the map attached as Appendix A. (hereinafter AMO Area).
AMO endeavors to advance the interests of the Adams Morgan
neighborhood. In particular,AMO seeks to further the home owner
ship opportunitiesof the neighborhood'sresidents and to improve
the

neighborhood's housing stock.

ing

neighborhood residents who desire to purchase homes in the

AMO

Area.

Many AMO members are longstand

Other members are home owners who require mortgage ::

credit and home improvementloans to upgrade their homes.

December 9, 1975, AMO participatedin proceedingsbefore the
District of Columbia City Council on real estate speculationin
the District.
businesses

AMO also works to further the developmentof small

in the neighborhood.

AMO provides
assistance
in ob

taining loans and other technicaladvice to ten small businesses.
The site of Perpetual'sproposed branch office, the inter

sectionof 18thStreetand ColumbiaRoad,N.W.,liesat the
heart of the AMO Area.

See Appendix A.

of 32,000 residents. 1970 Census Data.
small business enterprises .

The AMO Area is composed
The

AMO

Area

has

numerous

The AMO Area would clearly provide

the primary service area for a savings and loan branch office

located at 18th Street and Columbia Road.
Section five of the Home Owners Loan Act authorizes the

Board to approve charters for federal savings and loan associations

upona findingof "necessity"
and "usefulness"
in the community
to be served.

12 U.S.C. Sec. 1464. The Board, by regulation,

has adopted the same criteria of necessity and usefulnessin

approving
federal
sålbranch
applications.
In view

of these

criteria,statementsby community groups, such as AMO, on the

banking needs of their communitiesare an importantpart of the

recordin branchapplication
proceedings.
However,AMO cannotproperlypreparea statement
describing
the banking needs of the Adams Morganneighborhoodand carefully
evaluate a branch applicationunless it is given effectivenotice
that such an applicationhas been accepted for public comment.
Publicationof an inconspicuousnotice amidst the classifiedad

vertisements
of a Washington,
D.C.newspaper
does not provide
adequate notice.

Such notice is easily overlooked,especiallyby

community groups, such as AMO, with few full time staff persons.
Where the newspaper notice is discoveredsubsequentto the day
of publication,valuabletime has been lost. The evaluation of
a branch applicationand preparationof a statementtake con

siderable
timefor a community
groupwith11mitedresources.
Sincethe Boardrequiresthatstatements
be filedwithin30 days,
community groups can ill afford to have their already short
preparationtime truncatedby delays in notice.
The Board has authorizedthe various Federal Home Loan
Banks to establish notice proceduresto supplementnotice by
newspaper publication.

The Board's formal policy statement on

the processingof branch applicationsprovides:
The SupervisoryAgent at the time of advice to an
applicant to publish notice of the application

may send a copy of such advice to State savings
and loan authorities,any trade organizationswhich
have local thrift and home financing institutions
as members, and any local thrift and home financing

institutionswhich the SupervisoryAgent considers
might have a competitiveinterest in the application.
12 C.F.R. sec.
• 556.5

The Supervisory
Agentfor the Districtof Columbiaarea,the

Federal
HomeLoanBankof Atlanta,
doesin factsenddirect,
written notice to competitorS &Ls. By providingdirect written

noticeto competitor
S&Ls,the Boardhas tacitlyadmittedthat
newspaper publication18 not adequate. If newspaperpublication
is not satisfactoryfor S&Ls with professionalcounsel, then it

certainlyis not adequatefor communitygroupswithlimited
resources

The federal courts have admonishedthe federal regulatory
agencies to take affirmativemeasures to insure that citizens
groups participatein agency proceedings. See, e.8., Scenic

HudsonPreservation
Conference
v.FPC, 354 F.2d608 (2d Cir. 1965)
("the right of the publi must receive active and affirmative
protection at the hands of the Commission. " )

National Association

of IndependentTelevisionProducers and Distributors,et. al. v.
FCC 502 F.2d 249 (2nd Cir. 1974) ("the Commissionmust take the

initiative
to seek out[public)partiesand developa meaningful
record." )

Far from complyingwith this arrirmativeaction mandate,

the Board'snoticeprocedures
do not even providecommunity
groups
with the same advantages
offeredto the Board'sregulatees,
the
savings and loan industry.

AMO urges the Board to cure this

procedural
biasby providingAMO with the same direct,written
notice that is provided to competitor S &Ls.

Respectfullysubmitted,

Marth.
Roghi

Martin H. Rogol
Attorney for AMO

August 23, 1976

Public Interest Research Group

1832 M Street, N.W., Suite 101
Washington,D.C. 20036
(202) 833-3935

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CONNECTICU

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Before
FEDERAL

HOME

LOAN

the
BANK

ATLANTA

Atlanta, Georgia

the

matter

of:

The Applicationof PerpetualFederal
Savings and Loan Association,Washington,
D.C.

to establish

a branch

office

at the

intersection of 18th Street and Columbia

Road, N.W., Washington,D.C.

AMENDED

PETITION

TO DENY

A BRANCH

APPLICATION

The Adams Morgan Organization(AMO), the Adams Morgan Advisory
NeighborhoodCommission(Adams Morgan ANC), the Mount Pleasant
Advisory NeighborhoodCommission(Mt. Pleasant ANC), Jean Smith, and
Horace T. Harris hereby petition the Federal Home Loan Bank of Atlanta

(AtlantaBank)to deny the abovecaptioned
application.
AMO'sPetitionto DenyA BranchApplication
of September
24,
1976 (hereafter AMO Petition), excluding the section entitled

Conditions
For Perpetual's
EntryInto The ProposedP.S.A.,is
incorporated by reference.

The testimony presented on behalf

of AMO at the November9, 1976 hearing on this application

beforethe AtlantaBank(hereafter
Hearings)
, excluding
the por
tionsof thattestimony
outlining
conditions
underwhichAMO
would accept a Perpetual branch office, is also incorporatedby
reference.

The portionsof the AMO Petition and the testimony

not incorporatedby referencehave been supercededby the

pro

posed Loan Policy Agreement between Perpetual, AMO , the Adams
Morgan ANC, and the Mt. Pleasant ANC.

74
I.

The Parties

AMO and its purposeshave beenfullydescribed
in the AMO
Petition and the Hearings. Many of AMO's minority and moderate
and lower income members who seek to purchase or improve homes

in Adams Morgan are being adversely affected by Perpetual's
lending policies. Were Perpetual to establish a branch at 18th

Street
andColumbia
Roadwithout
changing
itslending
policies,
the most favorablebranch site in the community would be
occupied by an S&L whose lending policiesadverselyaffect the
great majority of the area's residents. The resultingexpansion
of Perpetual'soperationsin the communityand the pre-emption
of the most favorablebranch site by a non-responsiveS&L
would injure both AMO, an organizationestablishedto promote

a raciallyand economically
diversebut harmonious
community,
and many of AMO's individual members .

The Adams Morgan ANC and the Mt. Pleasant ANC are local
governmentalcommissionselected to representthe residentsof
They
the AdamsMorganand Mt. Pleasantneighborhoods.

were

establishedin 1975 by the District of Columbia Governmentas
required by Section 738 of the District of Columbia Self Govern
ment and GovernmentalReorganizationAct. Public Law 93-198,
December 24, 1973.

Each ANC Commissioner
is electedby registered

voters from a single member district located within the ANC's
The

neighborhood. The Adams Morgan ANC has 12 commissioners .
Mt. Pleasant ANC has 5 commissioners.

The area representedby

the Adams Morgan ANC is outlined on the map in Appendix A.
area of the Mt. Pleasant ANC is shown in AppendixB.

The

Adams

75
<

Morgan and Mt. Pleasant ANC's represent the entire P.M.A.

proposed
by Perpetual
in itsbranch
application
(census
tracts
40, 38, 39, and 27.02), as well as an additionaltwo census
tracts (42.01 and 27.01) .

As elected representativesof the residentsof Adams Morgan
and Mt. Pleasant, the two ANC's and their individualcommissioners
have a vital interest in this proceeding. As with AMO's members,
many of the ANCs' constituentswould be injured if Perpetual's
applicationwere approved without a change in Perpetual'slending
policies.
Jean W. Smith is a mir

ty person, and a resident of the

Adams Morgan neighborhood. Jean W. Smith and her husband, Frank
Smith, have entered into negotiationsto purchase a home located
in the Adams Morgan neighborhood. In an effort to obtain econo
mical financing to purchase the home,Jean Smith, on November22,
1976, asked Perpetual to make an FHA insured mortgage loan on the
property.

Mrs. Smith was told that Perpetual did not make FHA

insured loans in the District of Columbia .

Jean

Smith

and

Frank

Smith and other minority residentsof Adams Morgan and Mt. Plea
sant are being adversely affected by Perpetual'spresent lending

policies
and wouldbe injuredwerePerpetual's
application
approved
without a change in Perpetual'slending policies.

Horace T. Harris is a minority resident who owns a
moderatelypriced home located in Adams Morgan.

an ef

fort to obtain financingto upgrade his home, Horace T.
Harris on December9, 1976 asked Perpetual to make a
renovation loan

on his

home.

Mr. Harris was told by

Mr. Graves of Perpetual's Farragut Square Office that "we
don't make those kinds of loans."

Mr. Harris then asked Mr.

Gravesif Perpetual
wouldrefinance
his presentmortgage
loan from another institutionin order to provide funds
for renovation.
did

not

make

such

Mr. Graves again replied that Perpetual
loans .

Horace Harris and other minority

residentsof Adams Morgan and Mt. Pleasant are being
adverselyaffected by Perpetual'srefusal to provide
second mortgage loans for home rehabilitation and refinan

cing for rehabilitationof mortgage loans made by other
lending institutions.

HoraceHarrisand otherminority

residentswould be injured were Perpetual'sapplication
approved without a change in Perpetual'slending policies.
II .

Liberal financingpoliciesare needed to provide home
ownershipopportunitiesfor the greatmajority of the
community'sresidents.
A.

Income of Community Residents

The record in this proceedingdemonstratesclearly that

the great majority of the residentsof the AMO Area and the

Mt. PleasantANC Area(hereafter
the community)
are moderate
and lower income persons.

According to Perpetual:
Almost half of the P.M.A. is a significantlylow
income area; about one fourth is average; and about
30% are moderatelyhigher than average income people.
Perpetual Applicationat 9.
Perpetual estimatesthe median family income in the P.M.A.
to be currently $12,000.

Perpetual Applicationat Section 6,4.

AMO estimates
the medianfamilyincomein an areacomprised
of the P.M.A. and census tract 42.01 to be $11,686.

Throug

out the AMO Petition this area was referred to as the PSA.

AMO further estimates the followingdistributionof income
for the families in the PSA.
ESTIMATED

FAMILY

INCOME

IN THE

Family Incomes

PROPOSED
Percent

P.S.A.-1976
of

Families

Below $10,500

45%

Greater than $10,500 but
Less than $22,5000

38%

Above $22,500

17%

AMO Petition

at 7.

Thusthereis no disputebetweenpetitioners
and Perpetual
concerningthe income level of the community'sresidents.
B.

Rising Price of Single Family Homes in the Community
The record in this proceedingalso establishesthat the

price of housing in the communityis rising much faster than
the incomes of the community'sresidents. In 1970, the median
value of owner-occupiedsingle family homes in the P.S.A. was

88-032 0.77

$24,667. AMO Petition at 4.

Yet data provided by Perpetual

indicate that by 1975 and 1976 the median value of single
family homes sold in the AMO Area and the Mt. Pleasant ANC

Area--an
areaincluding
theP.S.A.
andan additional
13/4
tracts--was $39,500.

census

Perpetual's Responseof

October 19, 1976 to AMO's Petition to Deny at 4. (hereafter

Perpetual
Response)
. Assumingthatthe homessold are
representativeof the area's single family housing stock,
this representsa 60% increase in the price of the area's
single family homes. By contrast, Perpetual has estimated
that between 1970 and 1976 the median family income in the
P.M.A.

rose by only 43%. Perpetual Applicationat C,4.

Perpetual'sResponseshows an even more dramaticprice

increase
in theareaduring
thelast11/2years.Perpetual's
data on the 525 single family home sales transactionsin the
AMO and Mt. Pleasant ANC Areas between January 1, 1975 and
June 30, 1976 indicate
twice

within

Addendum

this

that 44 single family homes were sold

month period.

(see AppendixC).

PerpetualResponse at

The median increase in the

purchase price of these 44 homes was 36f--an

increase

which

occurredwithin a period of 18 months or less. Undoubtedly
some degree of rehabilitationwas undertakenon some of
these homes, which would account for a portion of the price
rise.

However, rising market prices and speculationplayed

a major role.

A precise measure of price increases due

entirely to rising market prices and speculationis provided

by an AMO analysis
of singlefamilyhomesaleson Willard

Street in Adams Morgan.
(see

Appendix E) .

AMO Case Study of Land Speculation

Analysis of the AMO Case Study indicates

that the 13 homes surveyed experienceda median annual price
increase

of 1118 even though no rehabilitationor renovation

was undertakenduring the survey period.
The recent escalationin home prices has been particularly
great in the western half of Adams Morgan--censustract 40.
Census data indicate that in 1970 the median value of owner

occupied single family homes in census tract 40 was $40,700.
Yet the AMO Petition shows that the median purchase price of
1-4 family homes purchasedin census tracts 40 and 41 during
1975 was $95,000.

AMO Petition at 5.

Census tract 41 lies

outside Adams Morgan, but data on census tract 40 alone were
not available to AMO.

Addendum E in Perpetual's Response

confirms that many high priced homes are located in census
tract 40.

Single family homes recently purchasedon Kalorama

Roadwestof 19th Streetwere all pricedabove$90,000;4 single
family homes purchasedon Ashmead Place had prices ranging
from $70,000 to $172,000.
of

See Appendix C.

A recent edition

The InTowner,a local newspapercited by Perpetual,

describes these rising prices.

Illustrativeof the economic and demographic
changes in the Adams Morgan area are the most

recent sales for developedtownhousesin
the 1800's of Wyoming and Belmont for over
$100,000.
The InTowner, October 1976 at l.

(See Appendix D)

Thus there is clearly no dispute in this proceeding
concerningthe fact that home prices in Adams Morgan and Mt.
Pleasant have recently risen much faster than the income of
the area's residents.
C.

Rising Prices and the Renovation of Single Family Homes

The recordin thisproceeding
alsoshowsthatthe renovation
of homes has been a major factor in the rapid rise of housing
prices in Adams Morgan and Mt. Pleasant. The communityhas
in effect a bifurcatedhousing market composed of separate
markets for non-renovatedhomes and for fully-renovatedhomes.
Evidence of this dual market is found in the D.C. Office of

AssessmentAdministration'sestimate that sales prices in
census tracts 38, 39, 27.01, and 27.02 (the northern and
eastern half of Adams Morgan and all of Mt. Pleasant)were
clusteredin two ranges--unrenovated
propertiesbetween
$20,000 and $40,000, and renovatedpropertiesbetween $60,000

and$70,000. AMO

Petition at 5.

Data provided by Perpetual confirm this analysis.
As mentionedabove Addendum E in Perpetual'sResponse lists
44 homes that were purchasedand then resold within less than
18

months.

(See Appendix C.) of these 44 homes , 26 had first

sale prices below $29,500 and thus were generallynot renovated.
Several of these homes which appear to have been rehabilitated
between

the

first

and

second

sales

are

listed

below .

The

data

indicatesthat rehabilitationhas raised the purchase price
by $20,000 to $40,000.

DOUBLE

SALES

TRANSACTIONS

SINGLE

FAMILY

HOMES

BETWEEN

January 1, 1975 and June 30 , 1976
Address

First

1837

Monroe

1831

Ontario

3423

St.

Sale

$30,000

Second

Sale

$67,000

Price

Increase

$37,000

Pl.

23,000

55,000

22,000

Mt.

Pleasant

17,500

42,500

25,000

Pleasant

17,500

38,500

21,000

43,000

67,500

24,000

40,000

82,000

42,000

15,000

55,000

40,000

3425

Mt.

1941

Calvert

2807

18th

1804

T St.

St.

Furtherevidenceof largepriceincreases
due to rehabili
tationis providedby the manystreetslistedin Addendum
E
on whichsimilarly
constructed
andsimilarlysituatedrow
houses sell for prices ranging from $20,000 to $70,000,
the higher or lower price dependingon whether a
particularhouse has undergonerehabilitation. Thus
Perpetual's Response confirms AMO's contention that the manner

in which rehabilitationis being undertakenraises the price
of 1-4 family homes by $20,000 to $40,000 .

D. Conversionsand the Price of Multi-FamilyHousing Units
Like 1-4 family homes, condominiumand co-operativeunits

in the community
are becomingveryhigh priced. For

example,

condominiumunits recently sold in the Airy View Condominiums,
located at 2415 20th Street in Adams Morgan had the following

prices.

8
2
AIRY

VIEW

CONDOMINIUM

December
Purchase

UNITS

PURCHASED

BETWEEN

1, 1975 and June 30, 1976

Number
of units

Price

Above $60,000

$50,000 to $60,000
Below $50,000

Lusk's Real Estate Directory.
An example of high priced co-operativeunits is provide

by the Chancellery,
a co-operative
housingprojectlocated
at 2141 Wyoming Avenue in Adams Morgan. The following
mort
gage loans were recently made on these co-operativeunits.
THE

CHANCELLERY

MORTGAGE LOANS MADE ON CO-OPERATIVE UNITS

Retween December 1, 1975 and June 30, 1976
Mortgage Amount

Number

of Loans

Above $60,000

$50,000 to $59,000

$40,000 to $49,000

Below $40,000

Lusk's Real Estate Directory
Such high prices provide landlords, speculators, and

developers
withstrongincentives
to convertmulti-family
rental
For
projectsintohighpricedcondominiums
or co-operatives.

example, the above mentioned Airy View multi-familybuilding
was purchasedin 1974 for only $145,000 and converted into

20 individual
condominium
unitswhichsold for roughly$50,000

each--a total of $1 million dollars.

TestimonyOf The CommunitySpeculation Task Force, June 19, 1975.
at

(hereafterSpeculationTask Force). (See Appendix E).

Conversions such as that undertakenat the Airy View have

resulted in the eviction of many lower income, minority,
and elderly tenants.

Speculation

Task Force at 6.

A similar

eviction and conversionin Adams Morgan ocurred

in 1974 in a 73 unitmulti-family
projectknownas the Woodley,
located at 1851 Columbia Road.
In order to halt these evictions the District of Columbia

in August, 1974, imposed a moratoriumon conversions. However,
this moratoriumwas ended by the EmergencyCondominiumRegulation
Act of 1976.

Although the new conversionordinance imposes

some restrictionson conversionsthere is great liklihood
of a substantial number of conversions in the near future in
Adams Morgan and Mt. Pleasant.

For example, a 10 unit apartment

building located at 1831 CaliforniaStreet in Adams Morgan was
recently approved for conversionto condominiumownership.

As has beenshownsuchconversions
generally
resultin very
high priced multi-familyunits.
E.

Home Financing Needs of the Community'sResidents
Both petitionersand Perpetual agree that the rapidly

rising home prices in the communitymake it increasinglydifficult
for moderate and lower income residents to purchase homes.
However, there is sharp disagreementbetween petitionersand

Perpetualas to whether Perpetual'slending policies have any

impacton homeownership
opportunities
for such persons.
Perpetual refuses to recognize the impact that its lending
policies have on home ownershipopportunities. According to
Perpetual,the renovationof the housing stock in Adams Morgan
and Mt. Pleasant for purchase by affluent persons and the
attendantdisplacementof moderate and lower income personsis
a matter over which Perpetual has no influence.
Letter To William Branham,

Perpetual

SupervisoryAgent, Federal Home

Loan Bank of Atlanta, July 29, 1976. Perpetual Responseat 2.
Contrary to Perpetual'sdisclaimers,adjustmentsin lending
policies can have a significantimpact on home ownership
opportunities. The following
lendingpolicies,
if adopted

by Perpetual,
wouldsubstantially
broadenhomeownership
opprotunitiesand minimize the displacementof moderate and

lowerincomepersons:1) lowerdown paymentrequirements;
2) extensionof 5% loans under the FHA 235 program; 3) wrap
around mortgage loans, second mortgage loans and home improvement
loans for moderate rehabilitation with low cash investment

requirements;4) mortgage loans to non-profitcorporationsfor
co-operativehousing.
As home prices in the community have risen faster than
incones, the accompanyingincreases in down payments and monthly
mortgage payments have become substantial obstacles to home

ownership by the majorityof the community'sresidents. Larger

downpaymentsare particularly
burdensome
to moderate
and
lower income persons who have difficultysetting aside

substantial
savings. The

chart

below

demonstrates

that

liberalizedfinancing(higher loan/valueratios) is required
if down payments are to be held to a level within the means
of the majority of the community'sresidents.
Home

Price

Loan /Value Ratio

Down Payment

$25,000

75%

$6,250

$50,000

75%

$12,500

$50,000

87.5%

$6,250

Of course lower down payments mean higher mortgage loan

amounts and thus higher monthly mortgage payments.

Lenders

cannotbe expectedto providemortgages
at subsidized
interest
rates in order to reduce monthly payments. However, lenders
can provide loans under the FHA 235 program which enables

moderateand lowerincomepersonsto purchase
substantially
rehabilitatedsingle family homes or condominiumunits with
5% mortgages.
As demonstrated above, the rehabilitation of 1-4 family

homes in the communityhas raised home prices by an average
of $30,000.

Accordingto Perpetual raising the price of a

home from $25,000 to $55,000 has the effect of reducing from

50% to 15% the percentageof the community'sfamilies that are
financiallyeligible for home ownership. Perpetual Response
at 5.

However, the manner in which rehabilitationis being under
taken has unnecessarilyinflated home prices. Rehabilitation

is currentlybeing undertakenby professionalreal estate

developers
and affluenthome buyers. The

strong demand for

homesin the community
and the rapidlyrisinghome prices.
provideprofessional
developers
withstrongincentives
to
undertakeexpensiverenovationin order to place a high
priced home on the market. Likewise,affluent home buyers
often undertakehigh cost, full scale renovationthat results
in a very high priced home.
While professionalreal estate developersand affluent
individuals have both the cash and the access to financing

required for rehabilitation,moderate and lower income persons
have limited cash and experiencedifficultyin obtaining
financing.

Thus

moderate

and

lower

income

residents

are

discouragedfrom purchasingnon-renovatedhomes in the
The
community
and undertaking
moremodestrehabilitation.

end result,correctly
notedby Perpetual,
is thatexpensive
renovationis driving the price of homes beyond the means of
the community'sresidents.
Wrap-aroundmortgage loans with liberal down payment and
cash outlay requirementswould enable more moderate and

lower

income residentsto purchase and rehabilitatehomes in the
community.

Such loans would minimize the need for large cash

outlays and would eliminate the need for relying on high cost
second mortgages and personal loans.

On the other hanri,
where moderate and lower income residents

already
ownhomesthatarein needof rehabilitation,
second
mortgage
loanson favorable
termswouldmakeit easierfor themto
undertake rehabilitation .

Such second mortgage loans would

amortize the cost of improvementsover a long period of time
and would minimize cash outlays.

Unsecured home improvement

loanswithlongmaturityperiodswouldhavethe same effectalthough their interest rates are generallyhigher than those for
mortgage loans.

As shown above, rising realty prices provide strong incentives
to convert multi-familyunits into high priced condominiumor
co-operativeunits. However, the price of converted housing units
can be minimized if conversionsare undertakenby non-profit
corporationsestablishedto promote housing opportunitiesfor
moderate

and

lower

income

persons .

Jubilee Housing, a non-profit

corporationthat has establishedsuch co-operativehousing projects

in the Districtof Columbia,
including
AdamsMorgan,estimates
that there are in Adams Morgan many multi-familybuildingsthat

couldbe converted
to co-operative
ownership
and modestlyrehabilitated
for approximately
$10,000per unit--roughly
$5,000for the purchase
price and $5,000 for rehabilitation.(Informationprovided by John
Lunsford,a director of Jubilee Housing.)When conversion

and

rehabilitation costs are minimizedin this manner most of a building's

tenants can afford to become co-operativeor condominiumowners and
thereby continue to reside in the building.
Co-operativehousing provides a particularlydesirable vehicle

for preserving
homeownership
opportunities
for moderateand lower

income
residents
in themanymulti-family
buildings
located
in the
community.
Establishing
ownership
on a co-operative
basiscan
shield
thehousing
unitsfromthesurrounding
escalation
of realty
prices.

Thereare no landlords
to convertthe buildings
into

expensive
rentalor condominium
units--a
constantdangerwith

multi-family
rental
buildings.
Likewise,
thereareno individual
condominium
ownersto purchase,
rehabilitate
and sell theirown

unitsin thehousing
market--a
drawback
to condominium
ownership.
In a cooperative, the residents
of the building
collectively
decide the price of occupancy shares and the amount of rehabilitation
to be

undertaken.

Anotheradvantage
of co-operative
housingsponsored
by non
profit corporationsis that such corporationsare often able to

obtaincharitable
grantsto helpfinanceco-operative
housing
projects for lower income persons, and these grants substantially
reduce the monthly residencyfees. For example, in June, 1976, Jubilee
Housing received a $200,000 foundationgrant to purchase and

rehabilitate
for co-operative
housingfor lowerincomepersons
two apartmentbuildingslocated in Adams Morgan--oneat 1631
Euclid Street, and another at 1630 Fuller Street.

The two buildings

have a combined total of 90 units--60 units in one building
and 30 units in the other. The residency fees on the new co
operative units will range from $135 to $185 per month. (Infor

mationprovidedby JohnLunsford,
a directorof JubileeHousing.)
Thus there is a great need for mortgage loans with low down

payment requirementsto be made to non-profitcorporationsfor the

purchaseand rehabilitation
of multi-family
buildings
to be owned
on

a co-operativeor condoniniumbasis by moderate and lower income

residents.

Such financingwould enable many of the community's

residentswho are presently
tenantsto becomehousingco-operative
membersor condominium
ownersand therebybenefitfromthe upgrading
of the neighborhood.
4

The community'smoderate and lower income residentscould also
better afford to purchase condominiumunits if lenders provided
loans under the FHA 235 program.

This program enables moderate

and lower income persons to purchase condominiumunits in substan
Under
tiallyrehabilitated
buildings
with58 mortgages.

present

HUD guidelines up to 40% of the condominiumunits in a rehabilitated

multi-family
projectmay receiveinterest
rate assistance.
III .

Failure to provide home ownership opportunitiesfor residents

will insure their continueddisplacementfrom the community.

The need to broadenhomeownership
opportunities
for the community's
residents does not arise solely from the general desirabilityof home
ownership.

As shown above the renovationand general price rise currently

underway
in AdamsMorganand Mt. Pleasantis placingmuchof the housing
stock beyond the means of the community'smoderate and lower income
residents.

Because this renovationand price rise is occurring

throughoutthe entire community,the inability to purchase renovated units
generallymeans involuntarydisplacementfrom the community.
The most dramatic form of involuntarydisplacementinvolves
the eviction of tenants from 1-4 family homes or multi-familybuildings
by landlords who desire to renovate the propertiesand resell them at
p ices beyond the means of the tenants. Such evictions have generated

substantialdisruptionin the community. Recent examples of such
evictionsoccurred at the followingrow houseslocatedin Adams
Morgan :
1.

26 families evicted

from homes on Seaton Place.

WashingtonPost, April 24, 1976 at 8,2. (Appendix F)
2.

21 families evicted from homes on Ontario Road.
The Columbian, March, 1976, at 1.
(Appendix G)

15 families evicted from homes on Willard Street.
Speculation
TaskForce,June19, 1975 at 6. (Appendix E)

Recent examples of evictionsof moderate and lower income

tenantsfrommulti-family
buildings
in AdamsMorganpriorto
conversionto condominiumsoccurred at the followinglocations:
1.

73 families evicted from the Woodley apartmentbuilding
at 1815 Columbia Road.

24 familiesevictedfromthe AiryViewApartment
building at 2415 20th Street.
Speculation Task Force, June 19, 1975 at 6. (AppendixE)

Because minority persons comprise the majority of the community's
residents and because the community'sminority residents have
family incomes substantiallylower than white residents,the
burden of displacementhas fallen primarilyon minority residents.
With a few exceptions,the families evicted in the above mentioned
examples were Black or Spanish speaking. See citations above.

The displacement
of minoritypersonshas becomeso substantial
that it threatensto undermine the integratedcharacterof the
community.

The InTowner recently described the displacement of

minoritiesfrom the western half of Adams Morgan as

follows :

In the lower northwest middle-classwhites are now
in the majoritywest of 18th throughoutthe entire
area

and

west

of 17th

far

north

as S Street.

Even these street markers will perceptiblychange
as housing projects,now underway or contemplated

on Swann, T, Willard, Seaton and Beakman Place attain
completion. The decision of Perpetual to install its
llth branch at Columbia Road and 18th may have been

influencedby its own projectionsof anticipated
growth for the area.
The InTowner, October 1976 at 1.

(See Appendix D).

A draft committeereport preparedby the District of Columbia
Government

Council's Committee on Finance and Revenue describes

the end result of such displacement.

While neighborhoodchange is not necessarilybad,
speculation-induced

change takes place at the sac

rifice of racially and economicallydiverse, yet
This is particularlyat issue
in the Adams-Morganand Mount Pleasant Communities.
The vast majorityof converted property buyers are

stable, communities.

and affluent.
Of course, this is not itself
undesirable at all--the problem is that the pendulum
swings too far. The transitional speculation
white

neighborhoodshave historicallybecome "resegregated"
as are Georgetown,Foggy Bottom and close-inCapital
Hill .

D.C. Government Council, Committee on rinance and Reserve,

Partial Draft Report, Real Property TransactionsAct of
1976,

November 8, 1976 at 29.

Lendingpolicies
whichprovidebroaderhomeownership
opportunities
for moderate and lower income residents are needed if the displacement
of such persons from the community is to be limited.

It is manifest

that lending policies that underminethe ability of the great majority
of the community'sresidents to continue living in their community
do not serve community convenienceand needs.
Moreover,because the moderate and lower income persons displaced

areprimarily
minority
persons,
lending
policies
thatfailto broaden
home ownershipopportunitieshave a racially discriminatoryeffect.

Sincelendingpoliciesthatwouldminimizethe displacement
of minority
residentscould be readily implemented,the discriminatoryeffect is
impermissibleunder the Civil Rights Statutes and the 14th Amendment.

IV.

Perpetual's
lendingpoliciesrestrict
homeownershipopportunities
for the majorityof the community'sresidents and accelerate
their displacementfrom the community.
The record in this proceedingdemonstratesthat Perpetual does

not provide liberal home financing policies that would facilitate
home ownershipby the community'smoderate and lower income residents.
See Hearings at 43 to 47.*

Ratherthanprovidefinancing
thatminimizes
down paymentrequire
ments , Perpetual has required at least a 25% down payment on conven

tional mortgage loans in the community. However, Perpetual appears
to have made an exception to this policy in the case of the
approximately100 mortgage loans which it is providingon the newly
contructed213 town house developmentknown as Beekman Village located
in Adams Morgan. Thorton W. Owen's testimonyindicates that Perpetual
is providing82% financingon these $67,950 homes--themaximum
allowable under the FHLBB's regulations. Hearings at 86.

Thorton

W. Owen also refers to "savings and loans' abilities to go over $55,000
on 90% loans with proper mortgage insurance;however, this would be
in violationof 12 C.F.R. Sec. 545.6(a)(4). Hearings at 86.
Perpetual estimatesthat an annual income of $24,800 is required
to purchase a home for $55,000. Perpetual Response at 5.

Under

Perpetual'sassumptionsan income of about $30,000 would be required
to purchase the $67,950 homes in Beekman Village.

Yet

based

AMO's

* The first sentenceon page 44 should read, "Perpetualdoes engage
in rehabilitationby refinancingexisting mortgages."

estimated distributionof family incomes in the community,less than
10% of thecommunity's residents have incomes above $ 30,000.

Thus

Perpetual is providingthe most liberal financingon homes which the
community's residentscannot afford. This policy clearly accelerates
the displacementof the community'smoderate and lower income persons.
Rather than finance the purchaseof lower priced 1-4 family homes,
Perpetual has concentratedits lending in the communityor high
priced

properties.

Accordingto Perpetual the median value of single

family owner-occupiedhomes in the P.M.A. is only $24,000. Perpetual

Application
at SectionC, Part I.

Yet the median purchase price of

the 18 loans made by Perpetual in the community between January 1, 1975

and June 30, 1976 for the purchase
of singlefamilyhomeswas $62,000.
Perpetual Responseat Addendum F.

As shown above Perpetual's cal

culations indicate that a $62,000 home is beyond the means of roughly
90% of the community'sresidents. Moreover,
the 100 or moreloans
which Perpetual is making on the $67,950 town houses at Beekman

Villagewill aggregate
to a totalloan volumeof about$5 millionan

amount which is 6 times gre

than

the

total

loan

volume

all single family home purchase loans made by Perpetual in the
community over the last 1

years .

Perpetual Response at Addendum F.

Rather than provide wrap around mortgage loans with low down
payments to finance the purchase and rehabilitationof non-renovated
single family homes, Perpetual limits its rehabilitationlending to
the refinancingof existing mortgagesin cases where home owners
have built up substantial equity.

88-032 0.77.7

Perpetual Response at 2.

Thus, only those who can afford to purchase a home with a large
down payment can obtain rehabilitationfinancing from Perpetualat
the time of purchase. This policy would become manifestwere Perpetual
to provide the followingdata for each of the 25 refinancings
listed in AddendumF in which the loan proceedswere used for home
improvementor rehabilitation:1) the outstandingloan balance as a
percentageof the property value at the time of refinancing; 2) the
refinanced loan amount as a percentage of the improved value of
property.

Thus, by restrictingthe opportunityof moderate and lower income

community
residents
to purchaseand to rehabilitate
homesin the
community,
Perpetual
is accelerating
the displacement
of these
persons from the community.

This effect could be seen clearly were

Perpetual
to providethe following
data:1) the numberof home
buyersreceiving
the 18 home purchase
loanslistedin Addendum
F
who resided outside Adams Morgan and Mt. Pleasant prior to the time

of purchase;
2) thenumber
of homeowners
receiving
refinancings
listed in Addendum f which were used for significantrehabilitation

who residedoutsideAdamsMorganand Mt. Pleasantpriorto purchasing
the home which was rehabilitated by the refinancing.

Perpetual'sconservativepolicy on refinancingsis paralleled
by its refusal to make second mortgage loans for home rehabilitation,
even though it has authority to do so under 12 C.F.R. 454.6-26.
Perpetual also refuses to provide unsecured home improvement loans.

Perpetual Response at 2. As petitionershave shown above the
inability to obtain such secondaryfinancingon liberal terms has
underminedthe ability of the community'smoderate and lower income

residents to undertake
rehabilitation
or improvement
of homes.
RatherthanmakeloansunderFHA programs
such as 203(b)
,
213,

234, and 235 which are designed to assist moderate and lower

income persons,
Perpetual
has refusedto participate
in any FHA/VA
programs.

Perpetual Response at 3. A recent example of such

refusal occurred on November 22, 1976 when petitionerJean Smith,
a community resident,sought an FHA insured mortgage loan from

Perpetualto purchasea singlefmailyhomelocatedin AdamsMorgan.
Jean Smithwas informedby Mr. Gravesof Perpetual's
Farragut
Square
of

Office that Perpetual did not make FHA loans in the District

Columbia and that it "hasn't done so for ten years.

Perpetual'sreluctanceto provide mortgage loans to non
profit corporationsinterestedin operating multi-familyrental

projectsfor moderateand lowerincomeresidents
is particularly
unfortunate. For example,in 1974Perpetual
and otherDistrict
of Columbia lenders indicated that they were not interestedin
making a mortgage loan to Jubilee Housing for the purchase
and rehabilitationof the two above mentionedapartment buildings
located in Adams Morgan.

Thus, a private individual had to

purchase the two multi-familybuildingsand lease them to
Jubilee Housing.

(Informationprovidedby John Lunsford, a

director of Jubilee Housing.)

Moreover,Perpetual'sunwillingnessto provide low down
payment loans for co-operativehousing under the FHA 213

insurance
programis particularly
detrimental
to the development
of co-operative
housingfor the community's
moderateand lower
income residents.

Another example of Perpetual'sunwillingnessto accommodate

the home financing needs of the community'smoderate and lower
income residentsis its recently announcedrefusal to provide
mortgageloans on multi-familyrental buildingslocated in the

Districtof Columbia.Washington
Post,August14, 1976at B-1.
(Appendix H)

Since 71% of the housing units in the community

are multi-familyrental units, this policy representsa complete
disregard for the housing needs of the great majorityof the
community'sresidents.(1970 Census Data.)
Perpetual'slending record in the area cannot be properly
judged merely by examining the dollar volume of mortgage loans
provided.

As recognizedby the Chairpersonof the Perpetual's

Executive Committee, Samuel Scrivener, Jr. , the fundamental

issue is whether Perpetual'slending policiesare "tailored"

to the needsof the neighborhood's
residents.Hearingsat 61.
The basic need is for economicalfinancing,not loans for high
priced housing and expensiverenovation. Hearings at 82-86.
As has been shown above, a large volume of loans for high priced
homes, expensive renovationand conversionof multi-familyunits

to expensive
condominiums
and co-operatives
willaccelerate
the displacementof moderate and lower income persons.

Thus

the

overall result of Perpetual'slending policies has been to
accelerate the displacement of moderate and lower income residents

from the community.

V. Perpetual's
lendingpolicies
have a discriminatory
effecton
the community'sminority residents.
The most current census data indicate that the minority residents

of Adams Morgan and Mt. Pleasant have lower incomes that the
community'swhite residents. The chart below indicates the
median family incomes in the 6 census tracts that comprise
Adams Morgan and Mt. Pleasant.
MEDIAN
Census

Tract

FAMILY

INCOME

1969

42.01

27.01

27.02

$5,111

$7,007

$7,526

$6,405

$7,306

$8,818Black

7,833

7,524

9,947

Families

Spanish
Speaking
Families
(including

7,136

12,035

13,606

7,609

9,154

10,309All

minorities)
1970

Census

Data

The "All Families" category includes minorities,whom as of

1970 represent
approximately
80% of the residents
in thesecensus
tracts--roughly60% Black persons and 20% Spanish speaking persons.
1970

Census

available,

Data.

The median income of white families is not

but it must have been substantiallyabove the median

incomeof minorityfamiliesin orderto raisethe medianincome
of all families so far above the median income of minorities who

due to the influx
represented
80% of the population.Moreover,
of affluentWhite persons into the communitysince 1972, the
income differentialbetween White persons and minority persons has
undoubtedly widened.

See Appendix D.

Because the community'sminority residentshave incomes

substantially
belowWhiteresidents,
theyare moredisadvantaged
than White persons by conservativelending policieswhich require

Thus, Perpetual'slending policiesdescribed

large down payments.

above, includingits refusal to participatein FHA insurance
programs,have a discriminatoryeffect. Moreover, because a
greater percentage

of minoritypersonsthanWhitepersonsare

eligible for interest rate assistanceunder the FHA 235 program
a discriminatoryeffect also results from Perpetual'srefusal

to participate
in the FHA 235 programfor interestrateassistance.
The limited data availableon the racial compositionof

borrowers
purchasing
homeswithmortgage
loansinsuredunderthe
FHA 203(b) program documentsthis discriminatoryeffect.
RACIAL

DISTRIBUTION

Mortgage Loans Approved by
Commercial

Banks

and

S&L's

in the D.C. S.M.S.A. , June 1,
1974 to November 30, 1974*
Share

of Total

Loans

OF MORTGAGE

LOANS

Mortgage Loans Approved under
the

FHA

203(b)

of Total

White

Persons

80.0%

54.7%

Black

Persons

15.1%

37.9%

1.6%

2.1%

Spanish -American

Insurance

Program on Existing Homes in
the D.C. S.M.S.A. 1975**
Loans

Persons

Total

100.0%

* FHLBB, Fair Housing InformationSurvey, August 19, 1975 at
** Data provided by H.U.D.

Data for concurrenttime periods are not available,but no
great shift in the racial compositionof loans in the D.C. S.M.S.A.
can be reasonablyexpected to have occurred over a 6 month period.
In Section III above petitionershave shown that the community

residents
who have beendisplaced
becauseof the inability
to
obtain financingwere predominantlyminority persons.

This

further

establishes
thediscriminatory
effects
of Perpetual's
lending
policies.
VI .

Perpetual's Implementation
of The Loan Policy Agreementwould
serve the Home Financing Needs of the Community'sResidents

MinimizeDisplacement,
andEliminatel'nlawfully
Discriminatory
Effects .

AMO, the Adams Morgan ANC, and the Mt. Pleasant ANC have
drafted

and submitted to Perpetual a Loan Policy Agreement.

(hereafter the Agreement)
. The specific provisionsof the

Agreementare basedon the homefinancing
requirements
outlined
in Section II,part E. Implementation of the Agreement would trans
form Perpetual'slending policies from an obstacle into an aid to
home ownershipfor many of the community'sresidents.

the

Agreementwere implemented,
Perpetual's
lendingpolicies
would
minimize rather than acceleratethe displacementof the community's
residents.

Its implementation would also eliminate those

discriminatoryeffects of Perpetual'spresent lending policies
that are not justified by business necessity.
If Perpetualsigns the Agreementand incorporatesit into

its branchapplication
priorto approval
of the application
by
the AtlantaBankor the FederalHomeLoanBankBoard,petitioners
will withdraw all oppositionto the applications
. The Agreement
as mailed to Perpetual on December 6, 1976 and a brief summary of
the Agreementare provided.

100

Implementationof the Agreementwould not impose any unreasonable
burdens or undue risks on Perpetual.

FHLBB regulationsauthorize

each type of loan specified in the Agreement.

These regulationsare

carefullydesigned to prevent undue risks to S&L's from their con

ventional
mortgage
lending. Concerning
fullparticipation
in FHA/VA
programs,Perpetual,an $807 million asset associationwith a robust
10.5% capital to deposit ratio, has ample financialresourcesand
managementexpertisewith which to participatein these programs.
A FHLBB regulationauthorizesthe establishmentof branch
advisoryCommissionsand the attendanceof their members at association
board of directors meetings.

In fact, Perpetual has already estab

lished such branch commissions for two of its branch offices.

AMO's prior condition that Perpetual'smanagementnominatefor

electionto Perpetual's
boardof directors
a personselectedbythe
Adams Morgan ANC is hereby withdrawn.

AMO Petition at 16. Petitioners

believe that a branch advisory Commissionwould be more effective
in implementingthe Agreement. The condition that Perpetual enforce
the right of first refusal of tenants has also been withdrawn on.
the ground that enforcementcould be more effectivelyundertaken
by title insurance companies.
Perpetual cannot legitimatelyclaim that business necessity
prevents implementationof any portion of the Agreement.

view

of the above demonstratedcompellingneed for the Agreementand the
Agreement'sability to moderate discriminatoryeffects, business
is

tainlythe only appropriate
standardfor evaluation

objectionsto the Agreement.

101

VII .

The Loan Policy Agreement must be incorporatedinto Perpetual's

Application
priorto AtlantaBank Approval
of the Application.
Petitioners have demonstratedthat Perpetual must change its
lending policies before it can properlyestablish a branch office
at

18th

Street

and

Columbia

Road .

In the Agreement,petitioners

have formulated new lending policieswhich Perpetual must undertake
if it is to serve the needs of the community and avoid unlawful
discrimination.

In order to insure that these new lending policies

are promptlyadoptedandremainin operation
a formalbinding
commitment from Perpetual must be included as part of its application.
Without such a commitmentthere is no mechanism to hold Perpetual
to any promised change in lending policies.
Neither petitionernor the Atlanta Bank can rely on informal
promises from Perpetual that it will change its lending policies
at

some time in the future.

The record in this proceedingshows

how quickly Perpetual can change its attitude toward and willingness

to work with community
organizations
and the ANC's. When Perpetual.'s
management
soughtto impressthe AtlantaBankwith the depthof its
commitment to serve and "assist the people of the community,"Perpetual
emphasized its close relationship with AMO , and described AMO as

" a community bettermentgroup that is striving to assist the economic
development of the residents . " Perpetual Applicationat 37.

Yet when AMO challenged
Perpetual
to changeits lendingpolicies,
suddenlyPerpetualviewedAMO as a groupopposedto community
improve
ment

Thus Perpetual adopted the recklesslyfalse statementsof

Martin F. McMahon to the effect that AMO opposed the establishment
of a neighborhoodpolice center and a

restaurant.

Hearings at 29.

102

Rather than work in good faith with communityrepresentatives

to adoptmoreadequatelendingpolicies,
Perpetual
has chosento
use

its considerable
financial
resources,
its privileged
accessto

depositors
and borrowers,
and its positionof publictrustto
misrepresentthe views and underminethe positionof a community
organizationthat has challengedits policies. On November 2, 1976

Perpetual
sent to its depositors
and borrowers
in Zip Codes20009
and 20010
a letterwhichseriouslymisrepresented
AMO'sposition
in this proceeding. Perpetual'sletter implied that AMO was uncon

ditionally
opposedto Perpetual
establishing
a branchin AdamsMorgan,
when in fact AMO had stated to Perpetual that it would withdraw

its oppositionto Perpetual'sapplicationif Perpetual changed its
lending policies and nominatedfor election to its board of directors
a person selected by the Adams Morgan ANC. AMO Petition at 16, 17.
The letter failed completelyto indicate the basis of AMO's protestthe relationshipbetween Perpetual'sconservativelending policies
and the displacement of community residents.

Perpetual'sletter to its depositorsand borrowersalso misrepre
sented

the

cation.

results

AMO's

referendumon Perpetual'sbranch appli

AMO's referendum, held on September 11, 1976, resulted in

254 votes "no", 181 votes "Maybe, if AMO can work out agreementsto
safeguard the community interest,"and 161 votes "Yas.' Hearings
at

35-37.

(See Appendix I ).

Rather than explain the significance

of the "Maybe" vote Perpetual merely characterizedit as a "qualified
" in favor'" .

Perpetual,however, did not stop at merely misrepresentingAMO's

103

position. Accompanying
Perpetual's
letterto its depositors
and
borrowers

was a pre-paid, pre-addressedpost card on which Perpetual

asked its customersto vote "yes" or "no" on whether Perpetual
should

(See

establish a branch office at 18th Street and Columbia Road.

Appendix J ). Thus Perpetual'scustomerswere not given an

opportunityto expresstheirviewon the centralissuein this
proceeding--whetherPerpetualshould adjust its conservative
lending policies as a condition for entry into the communitybut were instead forced to vote an unconditional"yes" or an
unconditional "no."
Perpetual asserts that the great majorityof the customers
responding to its post card survey voted in favor of its branch
application.

However, in view of the misleadinginformation

provided by Perpetual and its failure to allow for a meaningful

vote, the AtlantaBank cannotproperlyattachany significance
to
the

results,

If the Atlanta Bank desires an accurate reading of the attitude
of Perpetual'scustomers toward the issue raised by petitionersin
this proceeding,it must require Perpetual to mail to each of its
customers in Adams Morgan and Mt. Pleasant a copy of the Agreement
and the accompanyingExplanationand a ballot which provides an
opportunity to vote for or against the Agreementas
entry .

a condition

for

Moreover,such a survey should not extend to all of the

residents of Zip Codes 20009 and 20010 since these Zip Code Areas
extend far beyond Adams Morgan and Mt. Pleasant. Perpetual surveyed

9,400customers,
even thoughit admitsthatit has only 3,599
cutomersin the community.

Statement

of Thomas

J. Owen

before

104

the Atlanta Bank, November 6, 1976 at 11.

Perpetual Response at 2.

Perpetual'sdemonstratedwillingnessto use its considerable
economic power and its positionof public trust in order to undermine
the efforts of democraticcommunityorganizationsposes a threat
to the community

ich cannot be taken lightly.

measure

Perpetual'seconomic power is shown by its advertisingexpenditures
which were $.417 million during the first 6 months of 1975.
Informationprovidedby the D.C. Commissionon ResidentialMortgage
Investment.

On the other hand, AMO's total operatingbudget for

1976 was only $12,000. Were Perpetual to enter the communityafter
refusing to reach an agreement,it certainlyhas the resourceswith
which to undercut the positionof communityorganizationswhich
challengeits policies.
The unacceptabilityof relying on non-bindingpromisesby

Perpetual
to adjustits lendingpoliciesis furtherevidenced
by
Perpetual'sstatementsand testimonyin this proceeding.

Rather

than face squarely the issue raised by AMO--the impact of its
conservativelending policieson communityresidents--Perpetual
has
focused

its efforts on discreditingAMO. For example, Perpetual

claims that AMO's ExecutiveCouncil does not representits total
membership--anassertionthat can only be premisedon contempt
for the democratic

process, since the members of AMO's Executive

Council are elected from single member districtswithin Adams Morgan.
Perpetual Response at 2.

105

Moreover,
Perpetual's
minimalstatements
concerning
its lending
policiesare often misleading. For example, Perpetualstates that
it makes 90% loans with private mortgage insurance,but no such
loans have been made in Adams Morgan or Mt. Pleasant.
Response at 3.

Perpetual

Perpetualstates that it makes loans for property

modernization,but Perpetual told petitionerHorace Harris that
it did

not

make

renovation

loans .

PerpetualResponse at 5.

Perpetual
statesthatit will refinance
existingmortgageloans
for the purpose of renovation,but Perpetual also told petitioner
Horace Harris, who had an existing mortgage loan from another
institution, that it would not provide refinancingfor renovation.

Perpetual Responseat 2.

an effort

to demonstrate

its

commit

ment to home financingPerpetual lists 25 loan refinancings
undertakenin the community,but Perpetual failed to indicate that
the loan proceeds on as many as one-half of these refinancings

were not expended on housing. Perpetual Response,AddendumF.
Without executionof the Agreementthere is no mechanismwith
which

to holdPerpetual's
management
accountable
to the community.

AMOhas alreadyshownthatPerpetual's
management
is not
members

the association'sdepositorsand

accountable

to its

borrowers.

AMO Petition at 13.

Perpetual'sproceduresfor member

participationare totally inadequate. Perpetual'smanagement
solicits permanent proxies which turn over members' voting rights
to managementunless formally revoked by the members.

Even

worse,

a complaintfiled with the FHLBB by a Perpetual depositoron
November 15 , 1976 , indicates that Perpetual leads persons to

106

believethatsigninga revokable
proxyis a condition
for
openinga savingsaccount.Petitionfor a Temporary
Cease
And-DesistOrder, November15, 1976 (AppendixK).

Perpetual's
management
doesnot evenmailwrittennotice
of its annualmeetingsto its me.kurs.

The only notice of

annual meetings that Perpetual'smembers receive is a fine print,

postagestampsizednoticewhich is buriedin the classified
advertisement
sectionof TheWashington
Starand also xeroxed
and postedinconspicuously
in Perpetual's
branchoffices.
(Appendix
L).
Such disregard
of a fundamental
prerequisite
to viablemutuality
is consistentwith Perpetual'swillingnessto mail to its

memberslettersand votingcardsfor the purposeof misrepresenting
and undermining
a democratic
community
group'sposition.
Further evidence of the disdain with which Perpetual's
managementviews democraticprinciplesis found in its conduct at

Perpetual's
annualmeetingon November16, 1976.

When a Perpetual

depositor
askedPerpetual's
management
to disclosethe association's
annual income and the salaries of its officers,he was greeted with
laughter from Perpetual's management.

Such contempt for the rights

of members could not survive for long in a truly accountable
association.

Because Perpetual'slending policies are establishedby its
managementwithout any effectiveinput from its members, the
attitudesand self-interestsof Perpetual'smanagementdeserve
special attention.

Perpetual'smanagementhas pursued a rolicy

of seeking maximum retained earnings. The end result of this policy
is Perpetual'sremarkablyhigh level of net worth, or capital,as
it is commonly called. As of April 30, 1976, Perpetual's

107

management
hadbuiltup theassociation's
capital
to $74million,
an

amount equal to 10.5% of Perpetual'ssavings balances.

This

capitalratiois far in excessof the 7% targetsuggested
by the
FHLBB or the savings and loan industry average of 6.6%.
Perpetualhas achieved this high level of earnings and

high capitalratioby maintaining
an unusually
highspreadbetween
;

the interest rate that it charges to borrowersand its cost of
funds and operatingexpenses. Perpetual'sdeposits consist
entirely of pass book savings accounts on which Perpetual pays
a uniform 5 % interest on all deposits.

Yet Perpetualearns

at least 8-3/4% on the mortgage loans that it currently makes.
This represents a sprcad of 35% between cost of funds and interest
rates

assets

a remarkablyhigh spread. In the S &L industry

a spread between cost of funds and mortgage rates of 2% is
generally consideredadequate. The S&L industry as

a whole

presently has a spread of only 1.5%.
Perpetual'spolicy of maintainingmaximum earnings is not
consistent

with

the

interests

of its

members .

For example, were

Perpetual'smanagementto choose to operate with the normal 2%
spread, then Perpetual could make mortgage loans at 71,8 instead of
8-3/4% .

In fact Perpetual's desire to maximize this spread is the

underlying
reasonfor its conservative
lendingpolicies.
Participation
in FHA/VAloan programs,
extension
of smallerloans,
and loans with higher loan to value ratios, could marginally
increase Perpetual'soperatingcosts and are thereforeconsidered
to be undesirableby Perpetual'smanagement.

However,

petitioners
haveshown,the provision
of such loanswouldresult
in substantialbenefits to Perpetual'smoderate and lower income

108

members.

Perpetual'smanagementhas pursued a policy of maximum
retained earnings against the interestsof its members because
the policy has allowed for maximum growth of Perpetual'sassets.

Mutualsavingsand loan associations
can groweitherby
expanding
theirdepositbaseor by converting
retainedearnings
into

new

assets.

However,Perpetual,like other S&Ls in the

District
of Columbia,
haslimited
opportunities
forexpanding
its
deposit base.

The Districtis a limited,relatively
maturemarket

in whichthe aggregate
volumeof savingsdepositsgrowsvery
slowly.
D.C.

S&Ls

Federal and State laws prohibitPerpetual and the other

fromestablishing
any new branches
outsidethe District,

therebyshuttingthe dooron geographic
expansion
as a

means

increase deposits. Thus the primary vehicle for rapid growth

available
to Perpetual's
management
is the maximization
of retained
earningsand theirreinvestment
in new assetsand thisis
facilitatedby a conservativelending policy.

A policyof maximizing
assetgrowthis clearlyin the self
interest of Perpetual'smanagement. The salaries of Perpetual's
executive officers are directly related to the size of the
association.

Equally important are the indirect benefits and the

prestige that accompanythe managementof a large and expanding
financial institution.

Finally, some of Perpetual'sofficers and

directors,in particularthe members of the Owen family, have
outside interests in business which are ancillaryto Perpetual's
mortgage lending operations,and these businessesare in a position
to benefit from a rapid growth in Perpetual'sloan volume.
For example, in 1970 a Federal DistrictCourt found that Perpetual's

109

management had unlawfully diverted credit insurance income

to a business operated by its directors.
There is, however, a secondary vehicle for increasing
the deposit base availablein Adams Morgan and Mount Pleasant.
Although the housing stock and the number of families residing

in the cormunity
are not likelyto increase,
the displacement
of moderate and lower income persons by affluent persons would

substantially
increaseper capitasavingsin the community.With
a branch office located at a choice site in the heart of the

community,Perpetual would be in a favorable position to gain a
substantial share of the increased savings.
Thus, Perpetual's management has an unmistakable personal

interestin maintaining
Perpetual's
conservative
lendingpolicies
and acceleratingthe displacementof mo:erate and lower income
residents from the community. This adverse interest makes the
incorporationof the Agreementinto Perpetual'sapplicationa
vital necessity for the community.
reover,

it is essential

that

the entire Agreement be

incorporated. The Agreementrecognizesthe need for a comprehensive
approach to loan policy modification.

If only portions of the

Agreement are adopted, these provisionscan be easily evaded.
For example, a commitment

to make 90% loans is meaningless without

an agreementon credit worthinessstandards and appraisalpractices.
Liberalizationof credit worthinessstandards is more workable
if an effective housing counselling service has been established.

Finally, the Agreementcannot be successfulrithout

the

establishmentof the Branch AdvisoryCommission. The Branch Advisory
Commission is necessary to insure that individuals who have the

88-032 0.77

-8

110

confidence
ofthe community
are in a positionto effectively
monitorthe implementation
of the Agreement.Moreover , the
BranchAdvisory
Commission
is the only effective
meansfor
generatingrecommendationsto modify the Agreementthat will have
the support of the community. Most important,if the co-operative
and condominiumprojects are to be undertaken as outlined in the
Agreement,the Branch AdvisoryCommissionis needed as a forum

for the requiredco-operation
betweencommunity
representatives,
non-profitcorporationsand Perpetual.

Respectfully submitted,

th Righ

counsel:

Jonathan A. Brown

Martin ll. Rogol

Louis J. Sirico, Jr.

Attorneysfor AciamsMorgan Organization
Adams loryan Advisory Neighborhood
Commission

Mount Pleasant Advisory Neighborhood
Commission

Jean

Smith

Horace

Harris

Public Interest Research Group
1346

Connecticut

Suite 419
Washington , D.C.

Avenue,
20036

N.W.

111

Attachment

LOAN

POLIC"
BET

PERPETUAL

FEDERAL

SAVINGS

med

AND

REEMENT
:

LO:

iSSOCIATION , WASHINGTON , D.C.

Ali

ADAMS MORGAV ORGANIZATION , WASILINGTON, D.C.
**3

W:S MORGAN ADVISORY NEIGHBORIIOOD COMMISSION , WASILINGTON, D.C.
PLEASANT ADVISCRY NEIGHBORIOOD COMMISSION, WASHINGTON , D.C.

HIDUNT

The

parties to this Agreement share a common belief that Adams

Morgan and MountPleasantshouldbe maintained
as sociallyand economically
neighborhoods. In furtherance of this common goal, the parties
to
this Agreement
shallworktogetherto providehomefinancing
oppor

diverse

tunities
these
A.

to the lower and moderate income and minority residentsof

neighborhoods.

Conventional

Perpetual

Loans

agrees to make the conventional loans enumerated below

to any credit-worthy
residentof the arearepresented
by the AdamsMorgan
Organization,

the Adams Morgan ANC, the Mount Pleasant ANC, (hereafter

collectively referred to as the Agreement Area) or to any non-profit
co-operative housing corporationapproved by the Branch Advisory
Commission (BAC) establishedby Part 6 of this Agreement for the purchase,
improvement or rehabilitationor the combined purchase and rehabilitation
of

any

property located in the Agreement Area or any share of a co

operative housing corporationowning such property. All such loans
shall be made at interest rates no greater than those rates available
to Perpetual's other borrowers. Maturity periods on such loans shall
be available up to the maximum allowable under federal regulation. In
the case of mortgage loans, property securing such loans shall be
valued at either market price or by an appraiser acceptable to the BAC.

loans to owner-occupants of 1-4 family homes
and condominium units:

Mortgage

a. Mortgage loans at 90% financingto purchasesingle family
homes priced at $45,000 or less,and condominiumunits priced
at $30,000 or less.

b. iortgage loans at 95% financing to purchasesingle

familyhonespricedat $30,000or less,
and condonimium

units priced at $20,000 or less.

Such' loans shall

be available only to householdswith incomes below the
Agreement Area's median income. Perpetual shall maintain
a special 18 reserve for such loans.

112

Mortgageloansto both: rchaseand rehabilitate
single
mortgage loans. ) The purch e priceportion
of the loanshall
C.

family homes and individual ondominium units. (Wrap-around

be financed according to a or b above .

The rehabilitation portion

of the loan shall provide 90% financing. The improved value
of the propertyshall be no greater than $60,000 in the case of
single family homes, or $40,000 in the case of condominiumunits.
Mortgage loans at 80% financingto purchaseor to both
purchase and rehabilitate(wrap-around mortgage loans) 2-4
family homes priced at $65,000 or less. The rehabilitation
portion of such loans shall be no greater than $30,000.

Refinancing
of outstanding
Perpetual
mortgage
loansto

e .

provide rehabilitationfunds equivalentto those availableto
home buyers under c and d.

Secondmortgageloansfor rehabilitation
at 90% financing.

The improved value of the home shall not exceed $60,000 for single
family homes, $95,000 for 2-4 family homes, or $40,000 for
condominium unis.
(FHLBB regulationsprovide Perpetualwith

leeway authorityto make second mortgage loans.)
2.

Co-operativehousing_loans:
Mortgage loans to non-profitcorporationsfor the purchase
and rehabilitationof co-operativehousing projectslocated in
To be eligible for such loans, a non-profit
corporationmust be approved by the BAC. In order for such a
a .

the Agreement Area.

loan to finance conversion from multi-family rental tenure to

co-operativeownership,the tenants of the building must receive
at least 70% of the co-operativeunits.
i.

Whereunitsrepresenting
90% 0% a co-operative
project's

value are presold,Perpetualshall provide:
-95% financing and maintain a special 1% reserve, if 80%

or more of the units will have an improved value of $20,000
or less;

-90% financing,if 80% or more of the units will have an
improved value of $40,000 or less.

ii. Wherepresoldunitsdo not represent
90% ofthe property
b .

value, Perpetualshall provide 80% financing,if 80% or more
of the units will have an improved value of $40,000 or less.
Share loans to AgreementArea residentsto purchase

occupancy shares in co-operative housing projects located in the
Agreement Area. To be eligible for such a loan, the occupancy

share must be purchasedfrom a non-profitco-operativehousing
corporationapprovedby the BAC, and the unit to be occupied
must have an improved value of $40,000 or less.

Such

loans

shall be made at the same interest rate availableon mortgageloans

113

provided under this Agreement. Such loans shall be available
with maturity periods as lonr as15 years. Perpetual shall
establish a Service Corpor !' in for the purpose of making

co-operativehousing share

Dans .

Home improvementloans (not secure by realty) to owner-occupants

of 1-4 family homes and condominium units.

Such

loans

shall

be in amounts up to $10,000, with maturity periods as long
as 15 years, and payable in monthly installments.
B.

Credit-worthinessStandardsfor conventionalMortgageLoans
Perpetual agrees to employ the followingcriteria in determining

the credit-worthiness of an applicant seeking a conventional mortgage
loan under Part A of this Agreement.
1.

All income of the applicant and applicant'sspouse--including
income from overtime and part-time employment--that is reasonably

stableandwill most likely continue shall be included as
part of effective gross income.
2.

Labor performedby a borrower to improve realty securing a
loan shall be considered as the equivalent of a cash investment

for the purpose of calculatingloan to value ratios.
3.

In caseswherethe applicant's
credithistoryis limited,the
applicant'srental payment and employnentrecord shall be
used

lieu

a credit

record.

Perpetualshall make loans to an applicantwith a satisfactory
credit record if the applicant's total payments on debt

obligationsand housing expenses will be less than 50% of
his or her effective net income.
5.

For applicantswith records showing proriptrental payments
and steacy employrient,
Perpetual shall make loanswheretotal
payments on debt oblicationsand housing expenses will be
greater than 506 of effective net income, if the application

has the approval of the AgreementArea HousingCounseling
service established under Part E of this Agreement.
C.

FHA/VA Insured And Assisted Loans
Perpetual agrees to make the FHA/ VA insured and assisted loans

enumeratedbelow to any of the followingindividualsor corporations
qualifyingunder FIIA/VAeligibilitystandards for the purchaseand/or
rehabilitationof any property located in the AgreementArea: 1)
individualresidentsof the reement Area, and 2) non-profit

co-operative
housingcorporations
and condominium
developers
approved

BAC.
All such loans shall be availableat the maximum
allowableloan amounts, loan to value ration, and maturity periods.

by the

114

1. MortgageloansinsuredunderFHA Program203(b)to individual
residents to purchase and ! ih purchase and rehabilitate (wrap

aroundmortgageloans)one : four familyhomes.
2. MortgageloansinsuredunderFHA Program203 to developers
approved
by the BAC to purchase and substantially rehabilitate single

familyhomesthat will be sold to home buyerswith mortgage
financing under FHA Program 235.

3. Mortgageloansinsuredand assistedunderFHA Program235
to individual
residentsto purchasesubstantially
rehabilitated
single family homes.
43

4. Mortgageloansguaranteed
underVA Programsto individual
residents to purchase one to four family homes.

5. Mortgageloans insuredunderFHA Program234 to individual

SAS

residents to purchase individual condominium units.

6. MortgageloansinsuredunderFHA Program213 to non-profit
co-operative
housingcorporations
to purchaseand both purchase
and rehabilitate projects for co-operative housing.

The

non-profit
co-operative
housingcorporation
shallbe approved
by the BAC.

In order for such a loan to finance conversion

from multi-family
rentaltenureto co-operative
ownership,
the tenants of the building must receive at least 70% of the
co-operative units.

7. MortgageloansinsuredunderFHA Program234 to developers
to purchase and substantially rehabilitate multi-family rental
projects for conversion to condominium ownership. The developer
must be approved by the BAC. Such condominium projects must

includelow and moderateincomehousingunits. The building's
tenants

must receive

at least

70% of the units.

Where possible,

at least30% of the unitsmust be reservedfor AgreementArea
residents obtaining permanent financing and assistance under
FHA Program 235.
8. Mortgage loans insured and assisted under FHA Program 235
to individual residents to purchase substantially rehabilitated
conominium units.
9. Unsecured home improvement loans insured under the FIA Title
I Program.
D.

D.C. Government
If the District

Loan Program
of Columbia

Government

establishes

a rehabilitation

loanprogram or a loan insurance program, Perpetual agrees to make loans
qualifying under such programs to residents of the Agreement Area and to

non-profit
co-operative
housingcorporations
and condominium
developers
approved by the BAC in cases where the price and value of property
securing such loan is within the limits established for conventional
qualifying under Part A of this Agreement.

loans

115

Agreement Area

Housing Counseling Service

TheArea
BACshalldesignate
a pos
onorpersons
to constitute
the
Agreement
Housing Counseling
silvice.
At least one person so
designated shall be bilingual. Perpetual agrees to contribute funds
for the salary and expenses of the Housing Counseling Service in an amount
not less than the amount of such funds contributed by the BAC. Perpetual
shall provide the Housing Counseling Service with copies of its current
application forms for mortgage loans, co-operative share loans, and

unsecured
home improvementloans,and a copyof its mortgagelending
manual

Perpetualshallalsoprovide
eachAgreement
Arearesident
whohas
applied for and been denied a loan at its 18th Street and Columbia Road

branchoffice with a referralstatementpreparedby the HousingCounseling
Whenever authorized to do so by the loan applicant, a member
of the Housing Counseling Service may review any such loan application.

Service.
F.

SpecialLoan Officer
at 18thStreetandColumbia
RoadBranch
Office
Perpetual agreesto establisha SpecialLoan Officerto process

applications
by Agreement
Arearesidents
forthefollowing
typesof conven
tional or FHA/VA loans under this Agreement: mortgage loans on 1-4 family

homes and condominiumunits,co-operativeshareloans,and home
improvement loans.

The Special Loan Officer shall be a full time

officer at Perpetual's18th Streetand ColumbiaRoad branchoffice.
The Special Loan Officer shall be a resident of the Agreement Area and
shall be bilingual. The SpecialLoan Officershall providetechnical
assistance

to the Housing Counseling Service. The Special Loan Officer

shall also participate
in the processing
of applications
for loanson
co-operative and condominium projects filed by corporations approved
by the BAC pursuant to Part A, Part B, or Part D of this Agreement.
G.

Branch AdvisoryCommission
There is herebyestablished
a BranchAdvisoryCommission
(BAC)
The BAC
of six members.
Perpetualshall appointtwo membersfrom

for Perpetual's 18th Street and Columbia Road branch office.
shall

consist

a list of nominees submitted by the Adams Morgan ANC. Perpetual shall
appoint two members from a list of nominees submitted by the Mount
Pleasant ANC . Perpetual shall appoint any Agreement Area residents
as the remaining two members. All members shall serve one-year
terms, but may be reappointed.

The BAC shall performthe specificdutiesassignedto it under

this Agreement. The BAC shall also monitor the implementation of this
Agreement
and shallrecommendmodifications
of theAgreement. The members

of
theBAC shall be permittedto attendmeetingsof Perpetual's
boardof
directors.
Membersshall also be permittedto inspectPerpetual's
financial
records;providedthat no membershallinspectany record
containinginformation concerning any identifiable borrower or depositor
withoutprior authorization from such borrower or depositor.

116

Bilingual
Facilities
at the 18thStreetand Columbia
RoadBranch

Offices

Perpetual
shallmakeavail le'inSpanishloan applications
and
material relating to savings accounts, such as savings account rules
and proxy cards.

This Agreementshall be incorporatedinto Perpetual'sApplication
to Establish a Branch Office at 18th Street and Columbia Road, N.W.

prior to any Federal Home Loan Bank Board approval of the application.
In considerationfor the incorporationof this Agreementinto Perpetual's
applicationprior to the applicationsapproval, the Adams Morgan
Organization,the Adams Morgan ANC, and the Mount Pleasant ANC shall:
1. withdraw their oppositionto the application;
2.

not undertakeor participatein a depositorboycott against
Perpetual on account of its lending policies in the Agreement Area;
ot undertake or participat

management

Frank

in a proxy challenge to Perpetual's

account of its lending policies in the Agreement Area.

Smith, Jr.

ChairpersonAdams Morgan ANC

Stanley K.

Williams

Chairperson Mount Pleasant ANC

Chairperson Adams Morgan
Organization

Thorton

Owen

Thomas

J. Owen

Chairpersonof the Board

President

Perpetual Federal Savings
and Loan Association

PerpetualFederal Savings
and Loan Association

117

Attachment

Before
FEDERAL

HOME

the
LOAN

BANK

BOARD

Washington, D.C.

In the

matter

of :

The Applicationof Perpetual Federal
Savings and Loan Association,Washington,
D.c.

to establish

a branch

office

the

intersection of 18th Street and Columbia

Road, N.W., Washington,D.C.
MOTION

EXPUNGEMENT OFBIASED

FOR

FINDINGS AND RECOMMENDATIONS,

A HEARING CONDUCTED BY AN UNBIASED HEARING OFFICER,
AND

SUBMISSION

ADDITIONAL

INFORMATION

The Adams Morgan Organization(AMO), the Adams Morgan Advisory
NeighborhoodCommission(Adam Morgan ANC), the Mount Pleasant Advisory
Neighborhood Commission (Mt. Pleasant ANC) , Jean Smith, and Horace T.
Harris hereby request that the Federal Home Loan Bank Board (Board)

strike from the record the findings and recommendationsof the officers
of the Federal Home Loan Bank of Atlanta (Atlanta Bank) .

The

bias

the Atlanta Bank officers reguires that the Board undertake this action.
Petitionersfurther request that the Board appointan unbiased
hearing officer to conduct an unbiased hearing.

At present, the re

cordin thisproceeding
in regardto the applicant's
lendingpolicies
in the Adams Morgan and Mount Pleasant neighborhoodsof Washington,D.C.
(hereinafterjointly referred to as the community)is inadequate.

largemeasurethisinadequacy
is attributable
to the biasof the Atlanta
Bankofficerwho presidedat the hearingin this proceeding
and failed
to develop

necessary information.

Petitionersalso request that the Board require the applicant to
submit additional information for the record.

118

1. Therecordrequired
for a proper
finding
in thisproceeding.
The llome
OwnersLoan Act requiresthe Boardbeforechartering
a

Federal
S&Ltofind"a necessity
forsuchaninstitution
inthecom
munityto be served"and " a reasonable
probability
of its usefulness."
12 U.S.C. sec. 1464 (e).

That act also requires the Board in chartering

and regulatingfederal S&L's to give "primary considerationto the best

practices
of localmutualthriftand homefinancing
institutions."
12.

U.S.C.

sec. 1464(e) .

The Board has incorporatedthe statutorycharteringcriteria of
"necessity"and "usefulness"in its branchingregualtion.12 C.F.R.
Sec. 545.14 (c):

The Board requires branch applicantsto " indicatethe

typeand extentof servicesto be offered...describe
the socio-economic
characteristicsof the market area population(level of population,

medianincome,familysize,etc.),and discusshow thesecharacteristics
indicate the need for a savings and loan facility with the type and ex
tent of services being proposed."

FHLBB

FORM

700

Thusfederalstatuteand the Board'sown regulations
requirethat
a full record be developedconcerningthe community'shome financing

needsand the applicant's
lendingpolicies.In this undertakingthe
issueof homefinancing
needsis particularly
complexbecauseit may
require ascertainmentof community valuesas well as social facts.
Ascertainmentof such valves requires an examinationof the attitudesof
community residents.

In thisproceeding,
community
attitudeis a centralissue. Peti
tioners have demonstratedthat the great majority of the community's
residents desire to preserve the racially and economicallyintegrated
nature of the community.

For that reason they desire a financial in

stitution that will adjust its lending policies to minimize the

119

displacement
of moderateand lowerincomepersonsfromthe community.
Yet the applicant claims that petitionersrepresentonly a small

segmentof the community's
residents
and that,in fact,the majority
of the community's
residents
supportapplicant's
effortsto establish
a branch without adjustmentof its lending policies. Perpetual's
Response of October 19, 1976 to AMO's Petition to Deny at 2. (Perpetual
Response). Statement of Thomas J. Owen submitted to the Atlanta Bank
on November 9, 1976 at 11, 12.

It is clear from the above that in

this proceeding
community
homefinancing
needscannotbe ascertained
merely from examing social and economic facts, but also requires a
determination of the values and attitudes of the community's residents.

Moreover, where, as in Adams Morgan and Mount Pleasant, there is
strong need for particularhome financingservices, a full record on

the applicant's
lendingpoliciesis particularly
important.If

the

applicant'slending policiesdo not meet these particularhome financing
needs, then the applicant,in order to pass the test of usefulnessand
necessity,must make reasonableadjustments.
Petitionershave demonstrateda substantialdisparitybetween
the community'sparticularhome financing needs and the applicant's
lending policies. Thus a record must be developedon the issue of
reasonableadjustments. In order to determine what adjustments can be

reasonably
expected,
the recordmustcontaindata to showthe point
at which lending policies adjustmentswould expose the applicant to
undue

risk.

Moreover, the federal civil rights laws and the Board's regulations

prohibiting
discrimination
in mortgagelendingimposeon the Boarda
furtherobligationto develop a record concerninglending policies in

cases
wheretheapplicant's
lending
policies
havediscriminatory
effects

120

on a community'sminority residents.
42 U.S.C.

U.S.C.

sec. 1981, 1982, Public Law 94-239.

sec.

3601

et.

seq.;

If the applicant's

lending policieshave unlawfuldiscriminatoryeffects in the community
prior to establishment of a branch, then the Board cannot properly

find"usefulness
and necessity"
in an expansion
of the applicant's
scope of operationsin the community.
Petitionershave shown that the applicant'slending policies
have a discriminatoryeffect. Thus these lending policies must be
subjectedto the business necessitytest as required by federal civil
rights laws and the Board's regulations. In order to apply that test
the record must contain data on the risks associated with less
discriminatory lending policies.

Even where the applicant'sexistinglending policies have no
unlawfuldiscriminatoryeffects, the applicant'sextablishmentof
a new branch without adjustingits lending policies may generate
discriminatory effects.

Thus, the Board's obligationto take affir

mative action under Section 3608(c) of the 1968 Civil Rights Act
requires that the Board in this proceeding develop a full record on

the issue of alternativelending policieswith less discriminatory
impact.

II .

The role of the AtlantaBank Officers in developingthe record
required in this proceeding.
The Board has delegated to the officers of the Atlanta Bank

primary responsibilityfor developinga record in this proceeding.
William Branham,a Senior Vice Presidentof the Atlanta Bank, ordered,
scheduledthe time and location, and conducted the hearing held on

121

on the applicationat the Atlanta Bank on November 9, 1976.
See

12 CFR Sec. 545.14(h), 556.5(a)(3).

Mr. Branham also organized

and led a fieldinvestigation
of the community
thatincludedinterviews
of community residents to determine their attitude toward the appli
cation.

See 12 C.F.R. sec. 556.5(a)(3) .

Mr. Branham was delegated

authority to require the applicant to submit additionalinformation
for the record, although he appears not to have exercized that authority.
See

12 D.F.R. Sec. 556.5 (a)(2) .

Finally, Mr. Branham submitted to

the Board a summary and analysis of the proceedingand a recommended
decision.

See

12 C.F.R. Sec. 556.5 (a)(4) .

Carl Kamp, the President

of the Atlanta Bank, found on October 4, 1976 that the AMO Petition to
Deny of September 24, 1976 was not a "substantial " protest.

See

C.F.R. Sec. 545.14 (g)(4). (See. Appendix A).
The portion of the record submitted by the Atlanta Bank officers
will have a major impact on the Board's decision.

Mr.

Branham's

summary, analysis and recommendeddecision will greatly influence the
Board's judgement.

In particular,the results of the field investigation

and survey of community attitude conducted under Mr. Branham'sleadership
will be given great weight by the Board in its evaluationof a central
issue in this proceeding--thehome financing needs of the community
and the attitudes of the community'sresidents. Additionally, the

findingby Mr.Kamp thatthe AMO PetitionTo Denywas not a "substantial"
protestwill prejudice
petitioners'right
to seekjudicialreviewof
the Board's final order in this proceeding.
The Atlanta Bank officers have also exercized control over the

portionof the recordsubmitted
by the applicant.Perpetual

has sub

mitted in this proceedingonly minimal and often misleadinginformation

122

concerning
its lendingpolicies.In spite of the inadequacyof Per
petual'ssubmissions,Mr. Branham failed to question Perpetual con
cerning its lending policies at the hearing. It also appears that

neigherMr. Kampnor Mr. Branhamhaveinvokedtheirauthority
provided
by 12 C.F.Rº Sec. 556.5(a)(2) to require the applicant to submit addi
tional information.

III. The conflict
of interest
inherentin thedelegation
of authority
to the Atlanta Bank officers .

The senior officers of the Atlanta Bank are selected, employed,
have their salaries fixed, and discharged by the Atlanta Bank's
board of directors.

Although the Board (FHLBB) has authority to veto

the Atlanta Bank's selection of an officer, and in the case of the
Presidentauthority to fix a salary range, the officers of the Atlanta
Bank are very much creatures of the Atlanta Bank's board of directors .

The AtlantaBank'sboardof directors
is composedof 14 directors;
8 directors elected by the S&L's located within the Atlanta Bank

Region and 6 public directorsappointed by the Board.* Thus, the
majority of the persons who employ the Atlanta Bank officers are

electedrepresentatives
of the S&L industry.This relationship
results in an inherent conflict of interest whenever the officers are

involvedin a disputebetweenon S&L and a community
organization.
Wherethe officersare assignedprimaryresponsibility
for developing
*As of April, 1976, the Board had not even bothered to fill all of

the publicdirectorpositions.FHLBB

Journal, April 1976 at 77.

235

123

the recordand makingrecommendations
in such a dispute,thisconflict
of interest cannot help but bias the record and the recommendations.
In order to appreciatethe extent of this bias one need only consider
the reaction of the S&L industry were the eight S&L representativeson

the AtlantaBank'sboardof directors
replacedby the leadersof
neighborhoodassociations.
Moreover, the delegationof authority to the Atlanta Bank officers

resultsin a conflictof interestevenwherecommunity
organizations
have not intervened.

As shown above, the Board has an obligationto

develop a full record on community necessityand usefulnessin all
applicationproceedings. clearly officers who are beholden to the S&L
industry cannot be expected to make vigorousefforts to develop a
record that might suggest that an applicant be required to adjust its
lending policies as a conditionfor approval.
The Board has attempted to legitimizethis delegationof authority
by designatingthe Atlanta Bank officers as the Board's Supervisory
Agents.

Thus William Branham, a senior vice presidentof the Atlanta

Bank, is referred to as a SupervisoryAgent. Carl Kamp, the Atlanta

Bank'sPresident,
is knownas the Principal
Supervisory
Agent. However,
the designationof the officers as "agents" of the Board represents
nothingmore than the formal act of delegatingauthorityto them to

process
applications.
Thoughnominally
agentsof the Board,the officers
are in fact still employees of the Atlanta Bank and the conflict of
interestremains unchanged.

IV.

Biased actions of the Atlanta Bank officers in this proceeding.

Theconflict
ofinterest
underlying
thedelegation'of
authority
to the Atlanta Bank officers has been manifest in their biased actions

124

in this proceeding. William Branham has made a number of procedural
On
rulingswhichindicatebiasagainstpetitioners.

September 17, 1976,

AMO filed with the Atlanta Bank a request for additionaltime in which
to file a statementin this proceeding. The request indicated the home
financing problemsin the communityand pointed out the inadequacies
in Perpetual'sapplication. Yet Mr. Branham, claiming that the Board's
regulations did not authorize any extensions of the 30 day filing dead

line, refused to grant the extensionand did not offer to request
additionalinformationfrom AMO pursuant to 12 C.F.R. Sec. 545.14(g)-a means by which AMO could have submitted statementsfor the record
after the filing deadline.
Mr. Branham'srefusal to provide additional time for AMO stands
in sharp contrast to his willingnessto misinterpretthe Board's regu
lations in order to provide additionaltime for Perpetual. Perpetual
was required by 12 C.F.R. Sec. 545.14(g) to file its response to AMO'S
protest within 15 days of the filing deadline for protestants.

However,

Mr. Branham misinterpretedthis regulationin order to allow Perpetual
a response period of 25 days after the filing deadline. Hearing
before the Atlanta Bank on November 9, 1976 at 51,55.

On October 4, 1976 Carl Kamp ruled that AMO's protest was not
"substantial"and thus that AMO had no right to a hearing even though

the protestdid,in fact,complywith the requirements
anumerated
in
12 C.F.R. Sec. 545.14 (g) (4) .

(See. Appendix A.)

Yet three days later,

on October 7, 1976, William Branham ordered a hearing on his own motion.
(See. Appendix B.) Since AMO was the only protestantof record,
ordering the hearing was clearly a tacit admission that AMO had filed
a "substantial" protest.

At the hearing William Branham indicatedthat

125

the AtlantaBankofficersneverjudgedAMO'sproteston its merits,
but rather acted on the assumptionthat a communityorganizationby
its very nature could not file a substantialprotest. Hearing at 68.

The positionthata community
groupcannotfilea "substantial"protest
is not supported by the language of 12 C.F.R. Sec. 545.14(g)
(4).

The

AtlantaBankofficersmisconstrued
the regulation
in orderto deny
AMO the opportunity,
shouldAMO seek judicialreviewof the Board's
final order, to claim standing on the ground that the Board had found
its protest to be substantial.
William Branham's failure to consider AMO's views concerningthe

schedulingof the hearingprovides
furtherevidenceof bias.

On October

7, 1976 Mr. Branham informed AMO that a hearing would be held, indicated
that it could not be scheduled until after October 19, 1976, and

requested that AMO advise the Atlanta Bank on or before October 19, 1976
as to a convenient hearing date.

(See Appendix C.)

AMO

filed

a statement

concerningthe time and location of the hearing on October 19, 1976,

butMr. Branham,contraryto his commitment,
had alreadyscheduled
the
hearingat least a day earlier.

Moreover

in schedulingthe hearing in

Atlanta,Georgia, Mr. Branham disregardedthe requests of AMO and other

community
residents
that the hearingbe heldin Washington,
D.c.in order
to minimize the burden of participationby communityresidents.
Further evidence of bias is found in the manner in which William
Branhampresided over the November9, 1976 hearing. At the hearing,

Mr.Branhamrepeatedly
questioned
AMO concerning
the natureof its organi
zationand the basisfor its opposition
to Perpetual's
application.
Hearing
at 66, 67, 69, 83, 84, 87. Vet Mr. Branham failed to question
Perpetual
concerning
its loan policies.In fact, Mr. Branham eventually

88-032 0.77.9

126

went so far as to endorse a totally misleadingstatement of Perpetual
concerningits lending policies. In response to AMO's stated concern

thatPerpetual
provide
moreliberal
financing
on themoreexpensive
homes in the community,first Perpetualand then Mr. Branham implied
that this was a problem caused by the Board's regulations--a otally
erroneoussuggestion. Hearings -t 86, 87.

Since Perpetual's loan

policies are a central issue in this proceedingMr. Branham'sfailure
to develop a record on this has fatally flawed the proceeding.
On November 19, 1976 William Branham led a four member team that

conducted
a fieldinvestigation
of the community
in orderto determine
the social and economic characteristicsof the community'sresidents,
the housing stock, and, most important,the attitude of the community's

residents
towardPerpetual's
application.The

investigation team con

sisted of Mr. Branham, two other employeesof the Atlanta Bank, and
an employee of the Board.

A key element of the field investigationwas a street interview
of community residentsto determine their attitude toward the application.
The Atlanta Bank had prepared interview forms that asked whether the

personinterviewed
was a residentof the community,
whetherhe or she
had heard of Perpetual'sapplication,and whether he or she wanted a
Perpetual branch in the community.
Chris

Summers ,

a community
resident,
was approached
and interviewed

by a woman member of the investigationteam while walking down 18th
Street, N.W. in Adams Morgan. The team member read the questionson
the interview form and recorded Mrs. Summer's answers.

At no time

did

the team member ask Mrs. Summers whether Perpetual should change its
lending policies before entering the community.

127

Alex Wright, another community resident, was stopped while
walkingdown 18th Street near Columbia Road and interviewedby
two members of the investigation team.

The

team

members,

a man

and a woman, stated that they were from the Federal Home Loan Bank

of Atlantaand that they were conductinga survey to determinewhether
the communitywanted Perpetual to build a branch office at 18th Street
and Columbia
form.

Road.

They asked Mr. Wright to fill out the interview

Based on the type of questionsasked Mr. Wright received the

impressionthat the team members were actually working on behalf of
Perpetual.
Thus, Mr. Branham'sinvestigationteam conducted the interviews
in a biased

manner.

The interviewquestionswere phrased in terms of

whether
Perpetual
shouldestablish
a branch,not whetheradjustment
of Perpetual'slending policiesshould be a condition for entry into
thecommunity. No effort was made to determinewhether community

residents
desireda branchthatwouldmodifyits lendingpolicies
in
orderto minimize the displacementof moderate and lower income persons
fromthe community. The thrust of the interview was similar to the

question
askedby Perpetual
in its customersurvey," Do

you favor

Perpetualestablishinga new branch office at Columbia Road and
18th St. N.W. , Wash. , D.C. "

AmendedPetition To Deny of Dec. 10,

1976 at J-2. Like Perpetual,Mr. Branham's investigationteam avoided

thekey issue and created the false impressionthat AMO had uncondi
tionally
opposed Perpetual'sbranch application.

Amended

Petition

Deny at 30, 31.

Emil Summers, another community resident,was also interviewed
whilewalking down 18th Street, N.W., in Adams Morgan.

A male

mamber

oftheinvestigation
teamstatedthat he was fromthe FederalHomeLoan

128

Bank of Atlanta and asked Mr. Summers whether Perpetual should be
allowed to build a branch at 18th and Columbia Road.
stated that he was opposed to the branch.

The

team

Mr.

member

Mr. Summers whether he had ever been associatedwith AMO.
replied yes.

Summers
then
Mr.

asked
Summers

The team member then terminated the interview and did

not fill out the interview form.

Thus,Mr. Branham's
investigation

team excluded from its survey data the response of a communityresident
who opposed Perpetual'sapplication.

Elimination of Bias from the record

As shown above this proceedinghas been flawed by the bias of
the Atlanta Bank officers.

This bias has directly injured petitioners

and has violated their right to due process under the 5th Amendment
and Sec. 558 of the Administrative Procedure Act.
In order to remove this bias the Board must strike from the

record the work product of these officers. Thus, the Board must
strike the findingsof the field investigationconducted by Mr. Branham.
The Board must also strike the recommendeddecision,summary and
analysis of relevant informationprovided by Mr. Branham. Finally,
the Board must strike Mr. Kamp'sfinding that AMO's protest was not
"substantial" .

Moreover, the hearing held at the Atlanta Bank was inadequate
due to the bias of the presidingofficer, Mr. Branham. Thus, the
Board must order another hearing to be conducted by an unbiased hearing
officer.

The unbiased hearing officer should also be assigned respon

sibility for conductingany field investigationsand submittingthe
recommendeddecision, summary and analysis of relevant information.
The unbiased hearing officer should also make a finding as to whether

AMO and the otherpetitioners
havefileda "substantial"
protestas

129

defined by 12 C.F.R.

VI.

sec .

545.14 (g) (4).

Development of an adequate record

In additionto insuringthatits proceedings
are freefrombias,
the Board has an obligation to develop
issues.

a full

record

on all

the

relevant

As petitionershave shown above, the disparity between

the community'shome financing needs and Perpetual'slending policies

andthe impermissible
discriminatory
effectsof Perpetual's
lending
policiesare central issues in this proceeding.

Thus

the

Board

must

develop a full record on Perpetual'scurrent lending policies and
alternativelending policies before it can properly take action on

Perpetual's
application.
At present the record in this proceedingcontains only scant

information
concerning
Perpetual's
lending policies.The

minimal

informationsubmitted by Perpetualin its October 12, 1976 Response
TO AMO'sPetition To Deny and its December 21, 1976 ResponseTo Amended
PetitionTo Deny is often misleading. In order to correct this defi

ciency
the Boardmustask Perpetual
to submitfor the recordthe follow
ing information:

(1) A copyof Perpetual's
MortgageLendingManual(including
all instructionsfor loan officers)
.
(2) A detailed description of Perpetual's policies concerning

loanto valueratiosfor mortgageloanson olderprop
ertiesand non-renovated
properties
locatedin the Adams
Morgan and Mt. Pleasant neighborhoods.
(3) A detailed descriptionof Perpetual'spoliciesconcerning
single mortgage loans for both the purchase and rehabili
tation (wrap-aroundmortgage loans) of propertieslocated
in the Adams Morgan and Mt. Pleasant neighborhoods.

130

(4) A description
of the criteriausedby Perpetualin

evaluatingthe credit worthinessof mortgage loan applicants,
including family income, net worth, and prior credit history
requirements.

The inclusionof Perpetual'sMortgage Lending Manual is
essential.

It is not a self-servingsubmissionand would provide

valuable evidence of Perpetual's lending policies.

The submission

information
concerning
Perpetual's
financing
of the purchaseof
older and non-renovatedresidencesand the rehabilitationof such
residencesis critical given the nature of the housing stock in the
community.

Since79% of the community's
housingunitsare in multi

family buildingsthis should include should include policies on multi
family residencesas well as single fmaily homes. Finally, given the
predominanceof moderate and lower income residents in the community

and the disproportionately
highpercentage
of suchresidents
who are

also minority persons, the submissionof informationconcerningPerpetual'
credit worthinesscriteria is essential.

VII. Improper
delegation
of authority
to take finalagencyaction.
As discussedabove, the Board has delegatedauthority to Atlanta

BankPresident
to determine
whetherprotestants
havefileda "substantial
protest.
Bank

The Board has also provided that the decision of the Atlanta

President

shall

be final .

12 C.F.R. Sec. 545.14(g)(4)(ii).

As demonstrated
by Mr. Kamp'sdecisionin thisproceeding,
the Atlanta
Bank President exercizes significantdiscretionin applying the criteria
enumeratedin 12 C.F.R. Sec. 545.14(g)(4)(i) to the facts of a particular
protest.

Moreover,

stated

above,

the

decision

to whether a protest

is substantialdetermineswhether the protestanthas the right to a
hearing and bears directly on the question of whether a communitygroup

131

protestant has standing to seek judicial review of a Board order.
Federal

courts have held that the heads of federal administrative

agencieshave broadpowerto delegateauthority
to theirsubordinates.
However,the delegation
of authority
to personswho are neitherem
ployeesof the federalagencynor CivilServicehearingofficersto
takefinal,non-reviewable
agencyactionon a matterthatsubstantially
effectsthe rightsof participants
in an agencyproceeding
exceedsthe
bounds of permissibledelegation. Thus, Mr. Kamp's ruling that AMO'S
protest was not "substantial"cannot be viewed as "agency action."
Therefore, the ruling was in violationof Section 1461 of the Home

Owners'Loan Act whichrequiresthe Boardto regulatefederalsavings
and loans and Section 558 of the Administrative Procedure Act which
requires the Board to set and complete proceedings.

Respectfully submitted,

Of counsel:
Jonathan

A. Brown

Louis J. Sirico, Jr.
Attorneysfor Adams Morgan Organization
Adams Morgan Advisory Neighborhood
Commission

Mount Pleasant Advisory Neighborhood
Commission
Jcan
Smith
llorace
T.

Harris

Public Interest Research Group

1346 ConnecticutAvenue, N.W.,Suite419A
Washington,D.C. 20036
February 22, 1977

I certify that a copy of this motion was mailed to Thornton W. Owen,

Chairperson
of the Board,Perpetual
FederalSavingsand LoanAssociation,
llthand E Streets,N.W.,Washington,
D.C.20004. February 22, 1977

Louis J. Sirico, Jr.

132
TheCHAIRMAN.

Ms. Cincotta.

STATEMENT OF GALE CINOTTA, CHAIRPERSON,
CHAIRPERSON, NATIONAL
PEOPLE'S ACTION

Ms.CINCOTTA.
Thankyou.
Goodmorning,
Senators.
I am hereto
testifyontheneed
forandthecomponentsofana
tional
reinvestment
act.
I address
my commentstoS.406,theCom
munityReinvestment
Act of 1977thatis now before
the Senate

BankingCommittee.
Weagreefullywiththeconceptthatallfinancialinst
an affirmative
obligationto
meetthecredit
needsof
allourcitizen
andtheirneighborhoods.
However,inordertoaccomplishthe
pur
poseof community
reinvestment,the
actmustcontain
provisions
thatrequire
all
financial
institutions
notjust
theinstitutions
that
applyforsometypeofexpansionauthority—butallinst
theFederal
regulators
toundertake
affirmative
programs
to meet
localcreditneeds.

I submitto thecommittee
an amendedbill
containing
such pro

visions.
Iwillcoverinmytestimonysomehighpointsofthe
amend
ments.

TheCommunity
Reinvestment
Actof1977beginswiththeprem
thatmany communities'
credit
needs
arenotcurrently
beingmet.
Followingthat
logic,
Congressmust
recognize
thatmanycommuni
ties
havehistorically
beenunderserved.
S.406should
include
pro
visions
thataddressthe
needsof thehistorically
underserved
areas

aswell
asassuringadequatecreditopportunity
forallcommunitie
The billshouldtherefore
be amendedto includeunderserved
areas

asspecific
areaswherecreditneedsaremoreacuteand
wherefinan
cialinstitutionsshouldplacespecialemphasisonmee
For thepurposeofadequately
andfairlyservingthecreditn
of an entire
community
and particularly
theunderserved
areas,
a
financial
institution
mustnecessarily
define
a service
areaandan

affirmative
marketingplan.
PrimaryService
areas
forsavings
and

loaninstitutionsshouldbedefined
inthe Actasthat

geographicterritory
whichincludestheareasin
whichtheinstitutionoriginat
80 percent
ofitsloansandallotherareaswhichareascloseasorcloser
to the
association'sfacilityassuchareas.

Similarly,
thetermprimary
service
area
forcommercial
banks

shouldbe defined
in the Act as thoseareas

fromwhichtheinstitution
receives
80percent
ofits
consumer
depositsand
all
other areas which are as closeas or closerto the institution's
offices
as such

areas.

And by that,
Imean youshouldbe
abletodrawafullcircle,i

percent
of theinstitution's
loansareoutside,
and iftheinstitution

canmakeajudgmentthatfaroutofanareaa
fullcircle
fromthat
should
bedrawnaround
theinstitution
that
itshould
beservicing

In applyingdefinitionsofloansandconsumerdeposits,in

mustdefinethemfortheentireinstitution,notonabra

basis.

The underserved
areas
whichrequire
affirmative
marketing
pro
gramsshouldbedefined
intheactas

133
census
tracts,
or aggregate
of censustracts
withinthePSA, whichare charac

terizedbyminorityorraciallychangingpopulations,lowerincomeho
an olderhousing
stock.

Also,thehomemortgage
disclosuredata
could
beused
asareasthat
areseenas
servingminimal
loans.
In orderfortheregulatory
bodiesto
determine
thatthefinancial

institutionsarecooperatinginprovidingformeetingthec
intheseunderservedareas,the
Actmustmandatethattheregulator
require
financial
institutions
to develop
and implement
compre
hensive,
affirmative
marketing
programs,
and submitannualper
formancedata.

The CommunityReinvestment
Act correctly
assumes
thatthere
isademandformortgagecreditinevery
community.
Discouraging

thisdemand
hasbeen
aprimeactivityof
financialinstitutions
would
rather
invest
depositors'
andpublic
monies
inreal
estate
in
vestment
trusts,
or marketing
loanpackages
forsuburban
tract
developments.
Exploding
themythof lackof demandshould
be
anotherprimeconcern
ofthereinvestment
act.
Requiringaffirmative
marketing
isoneway,
butitis
critical
that
theCommunityReinvestment
Act prohibitdiscrimination
in the
quoting
or application
ofconditions
andterms,
or in thecaseof
real
property,theappraisal
duetogeographiclocationofthe
appli
cantor
thesubject
property.

Senators,
whatwe aretalking
aboutwhen we sayreinvestment
isnot
requiringfinancialinstitutionsto
purchase
homes,apartments,
orbusinessesormakebad
loans,buttomake
soundloansonequitable
terms,
toneighborhood
investors.
Oneofthemostinsidious
formsof

discouragingreinvestment
isthevariance
ofterms,
conditions
or
appraisalstandardsfromonearea
toanother.
Inarecentdiscussion
withanofficialofthe
U.S.LeagueofSavings

Associations,
wewerereminded
that,
andI quote:
"there
arethree
rulesinappraisal—
thefirstoneislocation;thesecondoneislo
andthe
third
oneislocation.”
Further,when
asked
whether
hedid
notacceptthat
appraisal
decisions
werehighlysubjective,
he re
sponded:“No;itisn'tsubjective.
Itisanhonestefforttoguesswhat
goingtohappen!”

Toallowthispracticeistoforce
privatecapitalsavings-outof

the veryneighborhoods
theCommunityReinvestment
Actis con
cernedabout.

Iwouldliketopointoutto
thecommittee
thatthe
industry,while

talking
lackofdemandoutofoneside
oftheir
mouth,
aretalking
aboutcoinsuranceoutoftheother
side.
They admittodemandwhen

thetopic
comesaroundtothe
Federal
Governmentsubsidizingthei
private
institutions,
buttheyscream
"there's
no demand”whenthe
topic
underdiscussion
islackof their
services
tothedepositors,
the

publicandthecommunity.
Asproofofdemand,
Icitethreeexamples.
In1975,the
Centerfor
UrbanAffairsof
NorthwesternUniversity
published
a report
thatincluded
a study
on theconventional
mort
gagedemandofone
Chicagoneighborhood,
LoganSquare.
Whatthe
report
showedwas thatlackofconventional
home mortgaging
does
not
reflect
a lackof demand.In fact,
conventional
lending
was re

placedby
federally
insuredmortgaging.

134

The ageof thestructures
wascomparable
to an adjacent
com
munitythatwas receiving
conventional
loans.
Ninety-three
percent

ofthebuyers
intheareamaderelatively
highdownpayments,yet

received
FHA mortgages,
while
90 percentof
thebuyers
inthe

adjacent
areamaderelatively
lowdownpayments,
and gotconven
tional
financing
The studyconcluded
thatracemay have beena factor.
Therewas

a higherpercentageofSpanish-speakingbuyersinthea
FHX lending.
Inaddition,
thestudyconclusions
suggest
thatthe
pattern
ofdiscrimination
reflectsthelenders'
refusal
toapproveap
plications
forconventional
loans
and/orthebuyers'
failureto
apply

forconventional
loansoutoffearthattheywouldnotqualify.
And
I'vegotcopiesofa
Sun Timesarticlequotingandlistingsomeo

buyers,one
who offered
to make an $8,000
downpayment
on a
$16,500
home.Anotheronewinningabidon
a$39,500property,t
financial
institutiontoldthem
theywouldneed$11,500down,wh
theyhad,
andthenafter
theywonthebid,theinstitutiontol
there
musthavebeena mistake
whentheysaid
theyweregoingto
givethemamortgage.

Again,
on thequestion
ofdemand,
theCalifornia
Department
of
Savingsand
Loandeveloped
a comprehensive
packageof
reinvest
mentregulations
thatwentintoeffect
August1976.
Duringthefirst
3 monthsof theprogram,
lending
inhistorically
underserved
areas
increased
ata greater
perloanand perdollar
amountratethanin
areaswhereredlininghasnotbeen
aproblem.

Thefourhistorically
underservedLos
Angelescommunities
of
EastLosAngeles,
AdamsPark,EagleRock,andPomonahad in
creases
of 198percent,
167percent,
126percent,and
70 percent,
re
spectively,inthenumberofloansmade.
Thedollaramountforthe
4areas
also
increased,by229
percent,
219percent,
144percent,and
126 percent,
respectively.
Thesecommunities'
home lending
pattern

contrasted
withdollaramount
increasesin
Beverly
Hillsof48per

centandPalosVerdesof17percent.
Itcontrastedinnumberofhome

loans
aswell.
Beverly
Hillsincreased
only15 percent,
while
Palos
Verdesactually
dropped
15 percent
during
thesame3 months.
As
I said,
the demand isthere.

Senators,
theamendments
I propose
arecritical
ifS.406istobe
a community reinvestment
bill.

I havealsobroughta
chartthatdealswiththedatafromthe
Home

Mortgage
Disclosure
Actof1975showing
Chicago,
Philadelphiaan
Hartford,Conn.,theshadedareaofthepieisthecity,t
thesuburbsandthewhitepieceisoutsidethe
SMSA.Thefirstcolum
ofthetableishomemortgages,
andthesecondcolumn
ishomemort

gagesandhomeimprovementloans.
Ifyousay,well,thesuburbs
newerbuildingsandthecitiesareolder,theyshouldbe
improvement
loans.
When youaddthetwofigurestogether,th
red
areaisthecity,
theblueisthesuburbs
and thewhiteis
outside
the
SMSA. And thethirdcolumnisfiveunitsormoreofnonowner
occu

piedloans
and thepicture
forPhiladelphia
and Hartford
iseven
worsethanforthe
Chicagoarea,and
Ithinkthatitshowstherea

wereallyneedtoaddtothis
Community
Reinvestment
Actbill,esp

135

ciallywithithavingthattitle
I'm
afraidwemightnotgetanythin
elsethrough
Congressifwedon'tadditonthisbill.
Thankyou.
The CHAIRMAN.
Thankyou,
Ms.Cincotta.
[Complete
presentation
follows:]
PREPAREDSTATEMENTOF GALE CINCOTTA,
NATIONALPEOPLESACTION

Goodmorning,
Senators.
Mynameis GaleCincotta,
andI am chairpersonof

NationalPeople'sAction.

I am heretotestify
ontheneedforandthecomponentsofanationalreinvest

mentact.I
addressmycommentsto
S.406,the
Community
Reinvestment
Actof
1977thatisnowbeforetheSenate Committee.

Iagreefullywith
theconceptthatallfinancialinstitutionshaveanaffirmati
obligation
to meetthecredit
needsof allour citizens
and theirneighborhoods.
However,in ordertoaccomplishthepurposeofcommunity
reinvestment,theAct
mustcontainprovisions
thatrequireall
financialinstitutions—
notjust
theinsti
tutionsthat
applyforsometypeofexpansionauthority
— butallinstitutionsand

theFederal
regulators
toundertakeaffirmative
programs
tomeetlocal
credit
needs.

I submitto theCommitteeanamendedbill
containing
suchprovisions.
I willcoverinmy testimony
somehighpointsof
theamendments.

TheCommunityReinvestment
Actof1977
begins
withthepremisethatmany
communities'mortgage creditneeds are not currentlybeingmet.Followingthat

logic,
Congressmust recognize
thatmany communities
have historically
been
underserved.
S.406shouldincludeprovisions
thataddress
theneedsof thehis
torically
underserved
areasas wellas assuring
adequate
credit
opportunity
for
allcommunities.The billshould thereforebe amended to includeunderserved

areasas specific
areaswherecredit
needsare more acuteand wherefinancial
institutions
shouldplacespecial
emphasisonmeetingthoseneeds.
For the purpose
ofadequatelyandfairly
serving
thecredit
needsofan entire
communityand particularly
the underserved
areas,
a financial
institution
must
necessarily
define
a service
areaand an affirmative
marketingplan.Primary
Serviceareas for savingsand loaninstitutions
should be definedin the Act as

that"geographic
territory
which includes
the areasin which the institution
originates
80% of itsloans and allotherareas which are as closeas or closer

totheassociation'sfacilityassuchareas.”
Similarly,
theterm primaryservice
areaforcommercial
banksshouldbe de
finedin the Act as those areas“from which the institution
receives
80 % of its
consumerdeposits
andallother areas which are as closeasorclosertotheinsti
99
tution'sofficesas suchareas.”

Inapplyingdefinitionsofloansandconsumerdeposits,
institutionsmustdefine
them for the entireinstitution,
not a branch by branch basis.

The underserved
areaswhichrequire
affirmative
marketing
programsshould
bedefinedin the Actas "censustracts,
or aggregateof censustractswithinthe

PSA, which are characterized
by minority
or racially
changingpopulations,
lowerincomehouseholds,
or anolderhousing
stock."
In orderfortheregulatory
bodies
to determine
thatthefinancial
institutions
arecooperating
in providing
formeetingthecredit
needsin theseunderserved
areas,the Act must mandate that the regulators
requirefinancial
institutions

todevelop
and implementcomprehensive,affirmative
marketing
programs,
and
submitannualperformancedata.
The Community Reinvestment
Actcorrectly
assumesthatthereisa demand

formortgage
credit
inevery
community.
Discouraging
this
demandhasbeena
primeactivity
offinancial
institutions
who wouldratherinvest
depositors'
and
public
moniesin realestate
investment
trusts,
or marketing
loanpackages
for

suburban
tract
developments.
Exploding
themythof“lack
ofdemand”should
beanotherprimeconcernofthereinvestmentact.
Requiringaffirmative
marketingis one way, but it is critical
that the Com

munity
Reinvestment
Act prohibit
discrimination
in the quoting
or application
ofconditionsand
terms,
or in thecaseofrealproperty,
theappraisal
due tothe
geographiclocationoftheapplicantor
thesubject
property.
Senators,
what we aretalkingabout when we say reinvestment
is not requir

ingfinancial
institutions
topurchasehomes,apartments,
orbusinessesormake
badloans,buttomakesoundloansonequitableterms,toneighborhoodi

136
One of the most insidious
forms of discouraging
reinvestment
isthe varianceof

terms,conditionsorappraisal
standardsfromoneareatoanother.
In a recent
discussion
withan official
of theU.S.Leagueof SavingsAssocia
tions,we were remindedthat,and I quote:" therearethreerulesin appraisal
19

thefirstoneislocation;
thesecondoneislocation;andthethirdone
islocation."
Further,when asked whether he did not acceptthat appraisaldecisions
were

highly
subjective,
herespondedthat:
“Itisanhonestefforttoguesswhat'sgoin
to happen!"

Toallowthispractice
is toforceprivatecapital
(savings)
outofthevery

neighborhoods
theCommunityReinvestment
Actisconcerned
about!

I would liketopointouttothecommitteethatthe industry,
whiletalkinglack

of demandout of onesideof their
mouth,aretalking
aboutcoinsurance
outof
theotherside.
They admitto demand whenthe topic
comesaroundtothe Fed
eralgovernment
subsidizing
theirprivate
institutions,
buttheyscream“there's
no demand” when the topicunderdiscussion
is lackof theirservices
to the

depositors,
thepublic,
and thecommunity.
As proof
of demand,
I citethree

examples.

In1975,the
Centerfor
UrbanAffairs
ofNorthwestern
University
published
a reportthatincluded
a studyon the conventional
mortgagedemand of one
Chicagoneighborhood,
Logan Square.
What thereport
showedwas thatlackof
conventional
homemortgagingdoesnot
reflecta
lackofdemand.
Infact,
conven

tionallendingwasreplacedbyfederally
insuredmortgaging.
The ageofthestructures
wascomparableto
an adjacentcommunitythat
was
receivingconventionalloans.
Ninety-threepercentofthebuyersinthearea
made
relativelyhighdownpayments,
yetreceived
FHA mortgages,
while90percent
of

thebuyers
intheadjacent
areamade relatively
low down payments,
and got

conventionalfinancing.

Thestudyconcluded
thatracemayhavebeenafactor.
Therewasahigherper
centgeof Spanish-speaking
buyersin the area of heavy FHA

lending.
In addi

tion,
thestudyconclusionssuggestthatthepattern
ofdiscriminationreflectst

lenders'refusaltoapproveapplications
forconventionalloansand/ortheb
failure
toapplyforconventional
loansoutoffearthattheywouldnotqualify.
Again,
thelackofdemand proves
to be a worthless
argumentgiventhe
exam
ple of 70 individuals
who recentlybid at Chicago HUD

“as is”salesfor HUD

ownedfamilyhomes.Each ofthese70bidders
forfeited
$500indepositsbecause
privatesectorconventional
lendersrefusedthem loans.

Againon the question
of demand,theCalifornia
Departmentof Savingsand
Loansdeveloped
a comprehensivepackageof
reinvestmentregulationsthat
went
intoeffect
August1976.Duringthefirst
threemonthsof the program,
lending
in historically
underserved
areasincreased
ata greaterper
loanand perdollar
amount ratethan in areas where redlining
has not been a problem.

The fourhistorically
underserved
Los Angeles
communities
of EastLos An
geles,Adams Park, Eagle Rock and Pomona had increasesof 198 percent,167
percent.
126 percent,
and 70 percent,
respe tively,
in the number of loans made.

The dollar
amountfor
thesefourareasalsoincreased,by
229percent,
219per

cent,
144percent,and126percent,
respectively.
Thesecommunities'homelending
pattern
contrasted
withdollar
amountincreases
in BeverlyHills
of 48 percent
and Palos Verdes of 17 percent.
It contrasted
in number of home loansas well,

BeverlyHillsincreased
only15 percent,
whilePalosVerdesactually
dropped

15percentduringthesamethreemonths.
As I said,thedemandisthere.
Senators,
theamendmentsI proposearecriticalif
S.406istobeacommunity
reinvestment bill.
[S. 406, 95th Cong.,1st sess.)
THE COMMUNITY

REINVESTMENT

ACT OF 1977: AMENDED

VERSION

(Proposed
by National
PeoplesAction)
A BILL,To require
financial
institutionsto
helpmeetthecredit
needsofthecommunities
in which they are chartered

Be itenactedbytheSenateand theHouseofRepresentativesofthe
United
Statesof Americain Congressassembled,
SHORT

TITLE

SECTION1. This Act may be citedas the“ CommunityReinvestment
Actof
1977".

137
FINDINGS

AND

PURPOSE

SEC.2.
(a) The Congressfindsthat,

(1)regulated
financial
institutions
arerequired
bylaw todemonstrate
that
their
deposit
facilities
servetheconvenienceand
needsof thecommunities
in
whichthey arecharteredto dobusiness;

(2)theconvenience
and needsofcommunities
includes
theneedforcredit
servicesaswell
asdepositservices;
and

(3)regulatedfinancialinstitutionshaveacontinuingandaffirmativeobli
tohelpmeet the credit
needsof thecommunities
whichtheyare chartered
to
serve
and the communities
whichfallwithintheirprimaryservice
areas,
but
whichareunderserved.

(b)Itisthepurposeofthis
Acttorequireeach
appropriate
Federal
financial
supervisory
agencytouseitsauthoritywhenchartering,examining,superv
andregulating
financial
institutions,
toencourage
suchinstitutions
toequitably
meetthe creditneeds of the communitiesin which they are charteredand the

historically
neglected
communities
withintheirprimaryservice
areasconsistent
withthe safe and sound operationof such institutions.
DEFINITIONS

Sec.3.Forthe PurposeofthisAct

(1) the term " appropriate
Federalfinancial
supervisory
agency”means
(A) theComptrollerofthe
Currencywith
respect
tonational
banks;
(B) the Board of Governorsof the FederalReserve System with respect
to State charteredbanks which are members of the Federal Reserve Sys
temand bankholdingcompanies;

(C) the FederalDepositInsuranceCorporation
with respect
to State
charteredbanks and savingsbanks which are not members of the Federal

ReserveSystemand thedeposits
of whichare insured
by theCorporation;
and

(D) theFederalHome Loan Bank Board withrespect
toinstitutions
the
deposits
of whichareinsuredby theFederalSavingsand Loan Insurance

Corporationand
tosavings
and loan
holdingcompanies;

(2) theterm “regulated
financial
institution"
means an insuredbank as de
fined
in section
3 of theFederalDeposit
Insurance
Act or an insuredinstitu
tionasdefinedin
section
401ofthe NationalHousing Act;

(3) the term“application
fora deposit
facility”
means an application
tothe

appropriate
Federalfinancialsupervisory
agencyotherwiserequired
underFed

erallaworregulationsthereunder
for
(A) a charter
fora national
bank or Federalsavings
and loanassocia
tion;

(B) deposit
insurance
in connection
witha newlychartered
Statebank,
savingsbank,savingsand loan association
or similarinstitution
;
(C) the establishment
of a branch or otherfacility
with ability
to accept

depositsofa
regulatedfinancial
institution
;
( D) the relocation
of the home office
or a branchoffice
of a regulated

financial
institution;

(E) themergerorconsolidation
with,
ortheacquisition
of theassets,

ortheassumption
of theliabilities
of a regulated
financial
institution
re
quiring
approval
undersection
18(c)of theFederalDeposit
Insurance
Act
orunderregulations
issuedundertheauthority
of title
IV of theNational
Housing
Act;or

(F)theacquisition
ofshares
in,ortheassets
of,a regulated
financial

institution
requiringapproval
undersection3ofthe
Bank Holding
Company
Actof1956orsection408(e)
oftheNational
HousingAct;
(4)theterm“primaryservicearea”
means:
(A) in the case of savings and loan associations,
that geographicter

ritory
whichincludes
theareasin whichtheinstitution
originates
80 % of
itsloansand allother areas which are as closeas or closerto the asso
ciation'sfacilitiesas
such areas.

(B) inthecaseofbanks,thatgeographicterritoryfrom
which
theinstitu

tionreceives80
% ofits“consumer
deposits”
andallotherareaswhichareas
close
as orclosertothebank'sfacilities
as such areas.

Inapplyingdefinitions
ofloans
andconsumerdeposits,
institutions
must

definethemfor
theentireinstitution,
notona branchbybranchbasis.
In no

138
caseshallthe
definitionof
theprimaryservicearea,
as applied
tothisAct,
be extended beyond the boundariesof the United States,itsterritories
or

properties.

(5) the term " consumer deposit”
means a time or savingsdepositor demand

depositowned
by oneormoreindividualsinanamountequal
toorless
thanthe
current
FederalDeposit
Insurance
Corporation
and FederalSavingsand Loan
InsuranceCorporation
insuredlimit.

(6)theterm“loan”
shallincludeallindividualloansformortgag
property

improvement,
landpurchase,
construction,
and business,
as wellas individual
consumerloans.
Itshallnotincludeautomaticextensionofcredit
fromrevolving
charge accounts.

(7) the term “ underserved
areas”shallbe applied
to allcensustracts,
or
aggregateofcensustractswithinprimary
serviceareas,
whicharecharacterize
by minority
or racially
changingpopulations,
lowerincomehouseholds,
or an
olderhousingstock.

(8)theterm“area”
asitappliestoprimaryserviceareas,underse
andareassubject
tolendingand
deposit
disclosure
requirements
of theAct
shallbecomprisedofoneormorecensustract.

(9) the term "censustract”
shallbe usedas defined
by the UnitedStates
Bureau of the Census.
COMMUNITY

REINVESTMENT

PROGRAMS

AND

PROCEDURES

SEC.4.Each appropriate
Federalfinancial
supervisory
agencyshalldevelop
programsandproceduresforcarryingoutthepurposeofthis
Act.Suchprograms
and proceduresshallinclude

(1) requiring
thatin connection
withan application
fora deposit
facility,
theapplicant
(A) delineate
theprimaryservice
areaforthedeposit
facility;
(B) analyzethedeposit
and credit
needsof suchareaand how the ap
plicantproposestomeetthoseneeds;

(C) indicate
theproportion
ofconsumer
deposits
obtainedfrom
individ
ualsresidingintheprimaryserviceareabytheinstitution;
(D) demonstratehowthe applicant
is meetingthe credit
needsof the
primaryservice
area in which it or itssubsidiaries
have alreadybeen
charteredtodobusiness;

(E) demonstrate
how applicant
ismeeting
thecredit
needsofthe under
servedareaswithin
theprimary
serviceareain
whichitanditssubsidiarie
havealreadybeencharteredandarealreadydoingbusiness;

(2)using,as factorsto
be considered
in approving
applications
for deposit
facilities,
the applicant's
recordinmeetingthe creditneedsof the primary
servicearea in which it or itssubsidiaries
have alreadybeen charteredto do

business,
and itsproposal
formeetingthecredit
needsof the primaryservice
areaassociatedwiththependingapplication;

(3) permitting
and soliciting
community,
consumer,
or similar
organizations

topresent
testimony
at hearings
on applicationsfor
deposit
facilities
on how
welltheapplicant
has met or isproposing
to meetthecredit
needsof the com
munities
servedby or tobe servedby theapplicantsoritssubsidiaries;
and
() requiring
annualpublic
reports
from regulated
financial
institutions
list
ing,by census tract,the number, dollaramount and type of depositsand the

number,dollaramount
and typeofloans,
bothinsideandoutsideoftheprimary
servicearea
andtheunderservedareas;
(5) requiring
foreachinstitution
an affirmativemarketingprogram
toensure
thatlowerincomepersons,
women and persons
from minoritygroups,
aswellas
allpersons
residing
in or owningproperty
in,or operating
a business
within
underserved
areasarethefocusofspecial
outreach
efforts
tomeet theircredit
needs;

(6) requiring
thateachaffirmative
marketingprogram
be onfile
withthe

appropriate
federal
financial
regulatory
agencyand on file
forpublicuseateach
facility,andthatsuchprogramsincludeasaminimum:
(a) market areas;
(b) media use;

(c)thefocusofadvertising,includingsampleadverti

(d) theuseofinformationalbrochuresposters;

139
(e) mortgageand otherloancounseling
programs,
ifany;

(f) working relationships
with realestatebrokersor otherbusinessand
professionalpersonslikelyto
servepersonsneedingcredit;
(g) delineation
ofbudget and staffassignedto the affirmative
marketing
program ;

(h) defining
specificpopulations
withintheunderserved
areasforspecial
outreach efforts;
and
(i) setting
annual goals;

(7) developing
standards
of service
defining
acceptable
and unacceptable
levelsof lending
to underserved
areas;and applying
thisstandard
to eachin
stitution
and requiring
thateachfacility
postan evaluation
in fullview,
make
copiesavailabletothepublicatthesimplecost
ofreproduction,
and mailcopies
oftheevaluationtoalldepositorsandborrowers;

(8) requiringallfacilitiestodevelopapamphletdescribingtheirun
standardsforalltypesof loansand requiring
thateachfacility
distributethis

pamphlet
toeachprospective
loanapplicant
prior
toinitiatingtheformal
loan
applicationprocess,
andfurtherrequiringthat
each
loandenialinclude
a writ

tenstatementofthereasons
forthedenial,
stating
theprecise
standards
in the
pamphletuponwhich
thedecisionwasmade;
(9) requiringthatpersonnelineachfacility
whenreceivingverbalorpersonal

inquiriesabout loansinform the inquirerof the requirementto make a written

application
and limiting
allotherinterchange
priorto takingthatformalap

plication
tothereadingof
a publicly
availablewritten
statement
ofa uniform
set of terms and conditions
for loans of the type which are the subjectof the
inquiry;

(10)requiring
no discrimination
inthequoting
orapplication
ofconditions
andterms,orin thecaseof realproperty,
theappraisal,
due tothegeographic
location
of the applicant
or thesubject
property,
and informing
allregulated
institutions
that whenever disclosure
data or otherrecordssubjectto examina

tionby the agentsof the financial
regulatory
agencies
indicate
variance
of
terms,conditionsorappraisalstandardsfromone area to another,theburden of

prooffalls
ontheofficers
oftheinstitution
todemonstratein
clear
aand compel

lingterms,andwithobjectiveevidence,thatinthatparticularcase,su
a varia
tionwas necessary
to avoidwhat can be demonstrated
to be an unsoundbusi

ness practice;

(11) developing
fromthedepositand
loandisclosuredata
an inventory
of un
derserved
areasand requiring
thatallapplicants
for relocations
or branch

facilities
applytoserveoneormoreoftheseareasorexplain
indetail,
intheir
applicationfor
another
area
why
they
could
not
locatea
facility
in
any
such
underservedareas;
(12)requiringofallapplicantshavingexistingfacilitiesa
Neighborhood
Im
pact Statement defininghow the new facility
beingappliedfor willaffectthe

areaspreviouslyserved;
(13) developing
a systemof annualreviewsof theperformance
of regulated
institutionsand,
forinstitutionsfoundto
haveunsatisfactory
standards
ofserv

ice,recommendingdisciplinaryaction
based
on theseverityof
theabuse;
with
suchaction
including,
butnotlimited
to,fines,
theissuingof
cease
anddesist
orders,
theimposition
ofanimplementation
process
fortheaffirmativemarket

ingprogram,the
restructuring
ofthe
compositionof
thegoverningboard,
and
theconsideration
of recommendations
to theinsuring
agencyto reconsider
the
granting
of insurance
and/ortherecommendation
thatthecharter
be revoked.
ANNUAL

REPORT

SEC.
5.Eachappropriate
Federal
financial
supervisory
agency
shall
include

initsannualreport
totheCongress
a section
outlining
theactions
ithastaken

tocarryoutitsresponsibilitiesunderthisAct.
EFFECTIVE

DATE

Sec.
6.Regulations
tocarryoutthepurposes
ofthisActshall
bepublished
by
eachappropriate
Federal
financial
supervisory
agency,
and shalltakeeffect
no
laterthan
onehundredand eighty
daysafterthedateofenactmentof
thisAct.

140
CONVENTIONAL
LOAN DISTRIBUTION
IN3 CITIES
An Ovevrviewof Attached
Graphsand Tables

In looking
atthedistribution
ofhomeloans
for3 cities,
we seea repeated
pattern
- highsuburbanlending,
low citylending,
and varying
loanlevels
for
housingoutsidethemetropolitanarea.

CHICAGO: The fourlargest
savingsandloansand two largest
banksjointly
made 75% of theirconventional
homeowner mortgageloansin the suburbs;

22% inthecity,
andnearly3%outsidethemetropolitanarea.
Thepatterndoes
notevenchangewhen home improvement
loansareaddedin.Chicago's
portion

increasessomewhat when largerunit buildings
(5 or more units)and loans to
investorsfor1-4unitbuildings
(non-owner-occupied)
areaddedin.

The pattern
forPHILADELPHIA's sixmajorlenders
issimilar
for14 unit
homeownerloansand home improvement
loans.
The figures
forlending
outside
the metropolitan
area—much higherthanChicago-probably
reflects
thediffer
encebetweenIllinois
unitbankingand Pennsylvania
branchbanking.
There is
no way, however,to determine
how much of the loansindicated
as “outside
metroarea"
areoutsidethestateofPennsylvania.
The mostdramatic
cityvs.suburbanlending
isreflected
in Hartford's
figures.
It shouldbe pointed
out thatcloser
analysis
of each of thesecities'
data
shows greatdisparity
in lending
withinthecity.
The blackened
portion
of the
“pies”
thatrepresentscity
loansdoesnotrepresent
equaldistribution
of loans

within
thecity
(or within
thesuburbs).
Particularly
withinthe
city,
andin

somesuburbs,
therearenumerous
underserved
neighborhoods
thatreceived
little
or no money.

Thefiguresandthechartson
whichtheyarebasedareonlyforhousingl
theonlykindoflending
datarequired
underthecurrent
Home Mortgage
Dis
closure Act.

Note.—Allloansare loansoriginated
by institutions.
None are secondaryor pur.
chased loans.

Also,figures
on attachedtablesare in thousandsof dollars
(000s omitted).

141
CHICAGO:

Loan Distribution

by 4 Largest Savings & Loans and 2 Largest Banks

HOME

MORTGAGES

(1-4

units)

HOME
HOME

OTHER

MORTGAGES
Plus
IMPROVEMENT
LOANS

LOANS

(Buildings over 5 units and

non-owner-occupied1-4 units)

KEY:

City

*doesnot includeFHA

88-032

0 - 77 - 10

Suburbs

Outside Metro Area

142
CHICAGO:LENDINGBY FOUR LARGESTSAVINGSAND LOANS AND TWO LARGESTBANKS 1975

Conventionalmortgages
Homeimprovementloans
Allloans(5plusunits)and
1 to4units
1 to4 units
nonoccupants1to4units
Per
centof Num

Num

Lender(assets)

ber

FirstFederal
Savings
& Loan
($1.82
billion).
2,888105,248 100
993
27,369 26.0
Chicago.
Suburbs.
1,894 77,852 73.9
Outside..

Talman
FederalSavings
& Loan
($1.29
billion).
Chicago.
Suburbs

3,758109,016 100

39.4

1,616 42,955

2,129 65,625 60.2
13

Outside..

436

Bell
FederalSavings
& Loan($1.14
2,065 82,438 100
billion)...
231
7,681 9.3
Chicago.
Suburbs
1,506 64,874 78.7
Outside
328
9,883 12.0
St. PaulFederal
Savings
& Loan
($0.76billion).
2,218 73,369
12.1
309
8,882
Chicago.
Suburbs
1,909 64,487 87.9
0

Outside..

Per
Per
centof Num
centof
ber Dollars dollars

Dollars
dollars ber Dollarsdollars

941
2

Suburbs
Outside.

755
86

669

0
327
FirstNational
Bank($2.58billion)..
126
Chicago.
200
Suburbs.
1
Outside..

Total...

Chicago.
Suburbs

Outside.

37,830 100
9.0
3,396
34,434 91.0
0

10,993
3,465
7,467
61

0
100

31.5
67.9
.6

12,011418,894 100
22.4
8,307314,739 75.1
343
10,407
2.5

3,361 93,748

418
231
187
0

1,014

199

469

508
506

100

346
30

.2
100

50.1
49.9
0

142

100
19.8
73.8
6.4

137 10,542
93
44
0

5,313
5,229
0

221 11,899
192 7,365
124 4,338
196
85
8

40
37

105
1

499
87
411
1

21
1

20
0

48
0
563
416
147
51

241
164
77

100
17.4
82.4
.2

297

231001,673
o
o
411
o
17 1,262
0

100
4.0
96.0

100
50.4

49.6
0
100

61.9
36.5
1.6

9,295 100
7,652
1,346
o

131
25

Continental
National
Bank
($20.77
billion).
Chicago.

4,156

452 1,663 40.0
487 2,487 59.8

o0
o
o
O

3.2
82.3

14.5
O
O
100
O
24.6
O
75.4
O0
O
O
O

0
100

67.8
23.9
8.3

1,951 6,802 100

466 33,409 100

2,769 40.7
1,018 3,945 58.0

299 13,386

917
37

1.3

225 18,481
42 1,542

40.1
55.3
4.6

Totalconv.plushome im
provement...
13,962425,645 100
Chicago.
Suburbs.
Outside.

4,278 96,517
9,325 318,684
380
10,495

22.6
74.9
2.5

NOTES

Chicagodatacompiled
andanalyzed
byNational
TrainingandInformation
Center
(NTIC).

Depositinformationisavailableby
geographicareaforonly1oftheselenders,First
National
Bank.
Ofalldeposits

.76pctcomefrom
Chicagoand24pct
fromthesuburbs.

143

PHILADELPHIA:

Loan Distribution

by 6 Major Lenders

HOME MORTGAGES*

(1-4 units)

HOME
HOME

OTHER

MORTGAGES
Plus
IMPROVEMENT
LOANS

LOANS

(Buildings over 5 units and
non-owner-occupied1-4 units)

KEY :

city

*does

not

include

FHA

Suburbs

Outside

Metro

Area

144
PHILADELPHIA:
LENDING
BYSIXMAJORLENDERSJAN.1,1975.THROUGH
JUNE30,1976

Conventionalmortgages
Homeimprovementloans
Allloans(5plusunits)an
1to4units
1to4units
nonoccupants
1 to4units
Per

Num
Lender(assets)
MetroFederalSavings& Loan
($0.29billion)..
Philadelphia.

Dollarsdollars

568

16,322 100
7,004 42.9
9,023 55.3
295
1.8

298
258
12

Suburbs...
Outside..

EastGirard
Savings
& Loan($0.24
billion)..
Philadelphia.
Suburbs.

380
200

166
14

Outside..

centof

ber

10,554
4,493
5,644
417

Philadelphia
Savings
FundSociety
3,428 87,345
(53.95billion)..
Philadelphia.

1,458 26,961
1,089 34,890
881
25,494
189
6,418
Western
SavingsBank($1.56billion)..
Suburbs
Outside.

Philadelphia.

Suburbs..
Outside.

34
57

2,243

3,362

813

Suburbs.
Outside

42.5
53.5
4.0
100
30.9
39.9
29.2
100
12.7
34.9
52.4

Girard
Bank
($3,64billion).
Philadelphia..
Suburbs

Outside..
Total.

Philadelphia.

Suburbs.

Outside.

2,014 66,801 100
173

511

1,330
178
95
80
3

3,027
4.5
17,455 26.1
46,319 69.3
4,883 100
1,636 33.5

3,124
124

95
67
28
0

277
189
88
0

100

Philadelphia
National
Bank($3.95
billion).
Philadelphia.

Per
Per
centof Num
centof
Num
ber Dollarsdollars ber Dollars dollars

64.0

2.5

1
0

0
0

100
68.2
31.8

331

232
78

0
100

100

100
20.2
9.6
70.2
100
16.3
33.6
50.1

2,008 6,558 100
577 1,500
22.9
1,422 4,974 75.8
29
84
1.3
3,532 8,110 100
1,469 2,801 34.5

5
1
14
90
18

27
45

19
9

66
310
51
104
155

1,980 5,083
83

226

62.7

2.8

6,756 192,323 100

5,74615,349 100

2,258 43,934 22.8
2,161 72,379 37.6
2,338 76,011 39.6

2,117 4,562

29.7

3,45810,258 66.8
171

531

4,438
4,382
46

3.5

5 12,435
0
0

0
0

5 12,435

7,764
0
2
1

6,720

1,044

61 24,968
47

4,614
6,854

7 13,500

100
70.1
23.6

6.3
100

98.7
1.3
0

100
0
0
100

100
0
86.6
13.4
100
18.5
27.5
54.0

Total
Conventional
plus
Home
100
Improvement...
12,503
207,675
Philadelphia..

Suburbs.
Outside.

4,375 48,496
5,619 82,637

23.4
39.8

2,509 76,542

36.8

NOTES

Philadelphiadatafrom"Where
OurDollars
Go" byNorthwestCommunity
HousingAssociation.
Threeof
theselenders
purchased
over$176millionin
FHA loans
madebyother
lenders.
Philadelphia
National
Bank

alonepurchased$151million.

145

Loan Distribution
by 5 Major Lenders

HARTFORD :

HOME

MORTGAGES*

(1-4 Units)

HOME

MORTGAGES

HOME

IMPROVEMENT

OTHER

Plus
LOANS

LOANS

(Buildingsover 5 units and
non-owner-occupied

KEY:

City

*does not

1-4 units)

include

FHA

Suburbs

Outside

Metro

Area

146
HARTFORD:
LENDING
BY FIVEMAJORLENDERS,
JAN.
1,1975
THROUGHDEC.31,
1975
Allloans
(5 plusunits)
Conventional
Mortgages
Homeimprovementloans
andnonoccupants
1 to
1 to4units
1to4units
4units
Per
Per
Per
centof
Num
centof
Num
Num
centof
ber Dollarsdollars ber Dollarsdollars ber Dollars dollars

Lender

Hartford
FederalSavingsand
Loan..- 936 29,098 100
84

1,771

Hartford.
Suburbs.

638 20,379 70.0

Outside.

214

SocietyforSavings
Hartford.
Suburbs.
Outside

6,948

23.9
621 20,061 100
0
0
0
621 20,061 100
0

Hartford
National
BankandTrust.
Hartford
Suburbs.
Outside

United
BankandTrust.
Hartford.
Suburbs.
Outside.

6.1

127

5,253

1
53
73

2,127

40.5
3,056 58.2

35
2
33

1,219

294

9,160 100

5.2

Hartford..

868

Suburbs.
Outside

261

8,292

9.5

Total...

2,01364,791

Hartford.

120

100

1,155 94.8
0

Connecticut
BankandTrust.

0
100
1.3

2,773

90.5
0
100
4.3

920 2,232 100
123

296

319
478

730
1,206
976

278
9
278
0

803
52
299
452
89
13
76
0

374

13.3
32. 7

54.0
100

976
0

100
0

2,536 100
180
869

7.1
34.3

565
107
458
0

Total
conventional
plushome
improvement.
4,477 72,265
Hartford.

380

3,536

42.4
57.6
0

100
0

100j
0 o
100o
o
47.o1
52.9
o

O
O
O
O

1,165 100
180

15.4

985

84.6

2,464 7,474 100
763

10.1

1,60652,014 80.3 1,294 4,018 53.9
930
2,693 36.0
287 10,004 15.4

Suburbs.
Outside

100

100
18.9
81.1

260

429
o
182
w
247
o
o0
o
24 30,055
0
o0
o
24 30,055
0
o
0
3
649
o
o
306
o
343
8
0

1,487 58.6

302
0

15
7

42 31,133 100
9

488

33 29,645

4.8
95.2

100

4.9

2,90056,032 77.5
1,217 12,697 17.6

Suburbs.
Outside.

NOTES

Hartforddatacollectedby
Education/Instruction,Inc.,Harftord,Conn.;analyzedbyNati

Center,Chicago.

AccordingtoresearchbyEducation/Instruction,thedepositsourceforthese5ins
thecityof
Hartford;
scomefromthesuburbs.

(From ChicagoSun-Times,
March 20.1977)
How

POOR LOSE OUT IN HUD

AUCTIONS

(By JerryDeMuth)

DozensofChicagofamilies
havelosthundredsofdollarseachbecauselender
have refusedto finance
homes theycontracted
to buy at U.S.Departmentof
Housingand Urban Developmentauctions.

“Peoplegodownthere
(toaHUDauction)expectingtogeta
bargain.Instead,

theygetcheated,"
saidone woman who, with her husband,wantedto buy a
three-bedroom
homeon 112thPl.for$
10,500.

Mr. and Mrs. Mahlon Mims made the winning bid on the home at one of the

auctions
heldby HUD to reduceitsvastinventory
of repossessed
homes and
advertisedas
"purchaseopportunities."

“We hadthegasturnedon
sothecity
inspectorcould
inspect
thefurnace,"
said Linda Mims. “ Then we had the electricity
turned on. Altogether,
we had
put about$600 intothehouse.”That wasabovethe$500thecouplewererequired
to depositwhen they bid on the house.

"Wedidn'tknowthenwewouldhaveso much troublegettingfinancing.
Banks
saidtheywouldgladly
finance
a new home or a home beingsoldby a private
individual,
butnot a home from HUD," she said.
The Mimses recoveredtheir$500 deposit,
but are bitter
because“HUD

is not

telling
peoplethey're
givingrefunds,"
Mrs.Mims said.
She saidsheonlyknew
bytalkingtoanother
HUDbuyer.

147
Many individuals
complainHUD has nottoldthemtherewerecircumstances
under whichtheycouldgetthedepositsback.
Otherssaidtheytried
and failed
torecoverthemoney.

Some 125of899sales
atHUD'sfirst
fourauctions
last
summerwerenever
closed,
and refundswere made in only37 of thosecases,
according
tofigures
from

HUD.

“ Thoseauctions
area hoax,"
complained
Mrs.CarolynMorris,
who soughtto
purchasea three-bedroom
home on S.Statefor
$16,500.
“ They'reanother
means
of exploiting
poorpeople.
They'renot
tohelpanybodybutHUD.”
She saidsheoffered
to makean $8,000downpaymentonthehouse.
“ Ifigured
thatifI made a reasonable
down payment,anyonewouldfinance
it,”
shesaid.

But she was unable
tofindanyinstitution
willing,
includingthoseon
a list

suppliedtoherby
HUD.
“ I calledHUD aboutgetting
themoney back,"
she said.
" A woman toldme,
'Youknew you couldn'tget
themoney back.'”
Mrs.Albert
Porterandherhusbandtransferred
theirsavingsfromaneighbor
hood bank to a major Loop bank when it promisedfinancing,
only to see that

bankchangeitsmind.The Porterseventually
losttheir$500deposit.
John Smylie,who made the winning bid for $39,500on a three-flat
on King

Drive,alsothoughthe had financinglined
up.“ They had askedfor$11,500
down,” saidSmylieof a SouthwestSidesavings
and loanassociation.
“ Then
afterI putin mybid,theysaidno.
They toldmethe man whohad promised
me
amortgagehad madea mistake.
Sowe endeduplosing$500.".
“Individuals
who tryto buy thesehomes don'thave a chance,"
saidLenore
Rodgers,
a leaderoftheMetropolitan
Area HousingAlliance
thatprovided
The
Sun-Timeswitha listit compiledof 46 personswho were not ableto close
auction sales.

“ Thesepeoplecan'tgetfinancing
becausebanksare redlining
theseareas,"
Mrs. Rodgers said.“HUD

knows thisso they shouldn't
taketheir$500deposits.”

JohnDavis,headofpropertydispositionforthe
Chicago
AreaHUD office,said
theagencyregularly
grants
extensions
of closingdates
and willrefunddeposits
"atthe decision
of the(HUD) Secretary
on a case-by-case
basis”
forsuch rea
sonsasinabilitytoobtain
financingor
vandalism
tothehome.“But wetellthem
it's
up to them to getfinancing,"
headded.

The CHAIRMAN. Mr. Holman.

STATEMENT OF CARL HOLMAN, PRESIDENT,NATIONAL URBAN
COALITION

Mr.HOLMAN.
Thankyou,
Mr.Chairman.
Chairman
Proxmireandmembersofthe
Senate
Banking
Commit
tee,Ihoped
tobeaccompanied
todayby
Mr.JohnKelly,presidentof

theMidwest
National
BankofIndianapolis,
abankwhichprovides
muchofitsservicesto
a predominantly
central
city
clientele.
Un
fortunately,
Mr.Kellyinformed
uslateyesterday
thaturgentbusi
nessrequires
hispresence
inIndianapolis
today.
I will
includesome
of hiscomments.

Itisalways
a pleasure
totestify
before
thiscommittee
whichhas
been
thebirthplaceinrecent
Congressesofsomeofthesoundestan
mostcreativelegislation
designed
to assist
ourailingurban
areas.

S.406,the
Community
Reinvestment
Actof1977,
isaimedat
com

plementingthefineworkbegun
byyourearliermortgagedisclo

legislation.
Thisnew acthighlightsthe
almost
neglected
butabso

lutelyessentialareaofmeetinglocalcommunity
creditneedswhich
isofter
overlookedincharteringnew
financial
institutions.
The con
cept
thatfinancial
institutionshave
an obligation
to analyze
and
respondtobasic
credit
needs
oftheservice
areas
inwhichthey
are
chartered
isonewe wholeheartedly
endorse
andapplaud.
We agree

148

thatapubliccharterconveys
numerouseconomicbenefitstoth
ap
plicant
who receives
a semiexclusive
franchise
to do business
in a

particulargeographicarea.
Itisonly
right,therefore,that
thissame
charter
shouldmandate
somedegree
ofinvestmentby
theapplicant
inthissamegeographicarea.
Whileweareincompleteagreementwiththegeneralcon
and
intent
ofthis
legislation,
I wouldlike
totakethisopportunity
to
raise
a series
of possible
consequences
of theactuallanguage
as

drafted
which,
ifnot
taken
intoaccount,may
resultin
further
dis
investment
in urbanareas.
I acknowledge
inadvancethat
I am
viewing
whatisintended
ascomprehensive
legislationfrom
a pre

dominantly
urbanpointof view.However,thepossible
cumulative

effectsofthe
actual
provisions
ofthis
bill
urgeme tosuggest
the
following
considerations:
First:
Thisactmay
actually
retard
early
entranceby
lending
in

stitutions
intoneighborhoods
whicharebeginning
toundergosig

nificant
revitalization.
It's
veryeasytogetbranchesinoncecert
otherpeople
who havebeentherehave
beenpushedout.
Athorough

analysisofthecreditneeds
ofanimproving
community,
withthe

attendant
lending
restrictions,
may convince
conservative
lenders
thatalater
entryinto
thecredit
marketis
notonlyeconomicall

justifiedbutnecessary.
Thatistosay,thebankmaynotenter
the

timeofconsiderableneed,
butratherwhen
revitalization
hasessen
tially
beenaccomplished.
Second:
Thereisthepossibilitythatshouldabankorbr
focus
entirelyonthecreditneedsofitslocalcommunity,esp
be

inan area
having
a relatively
small
deposit
basewith
creditneed

disproportionateto
itsdeposits,
thenthefeasibility
of pooling
re
sourcesthrough
allocations
fromotherbranches
may beimpaired.
Third:
Thislegislationmayprovidethenecessaryjust
suburban
banksandbranchestorestricttheirloanportfo
immediatelocal
areas.This
mightcause
suchbanksto
feel
littleor
no obligation
to provide
creditworthy
central
city
applicants
with
loansand mortgages.

I realize
thatnoneof thesepossibilities
needoccur,but
we have

talkedwithagreatnumberofbankersaswewereprepa
and I do think
these
areconsiderations
thatmightbetakeninto
account.

In JohnKelly's
absence,I
should
liketo
share
withyouthreeof

hisrecommendations
forbanking
incentives
in keeping
withthe
purposes
ofthislegislation.

Imightsay,in
Senator
Lugar'sabsence,that
Mr.Kellycamefrom
Citibank
andisoneofthese
minority
bankerswhohasattemptedto

establish
andtooperate
a bankinan areawhichisunderserved
by
existing
banks.
He suggests
thatregulatory
agencies
should
permit
banksto
maintain
areducedleveloffundskeptonreserveinsomepr
totheamountextended
incredit
tothelocal
community.
Second:
Thata new classification
shouldbeestablished
for Treas
urytaxand loanpaymentsforbanksthatmeetthenew credit
re

quirements
whichwould
allow
themtokeeptreasury
taxandloan

149

paymentsondepositforalongerperiodoftime.
Thiswouldalsobe
related
in someproportion
totheamountof
creditextended
inthe

localcommunity.
Finally:
A morefavorable
borrowingrate-perhaps
apercentage

point
orsobelowtheestablishedborrowingrateofthe
Federal
Re

serveorthe
Federal
Home LoanBankwouldbegrantedwhenabank

extending
local
credit
isrequired
toborrowforliquidity
purposes.

For example,thesecommunitycredits
couldbe considered
as col

lateral
fortheFederal
Reserve,
forthe
Treasurytax
andloanpay
ments,or forincreased
liquidity.

Lestyou thinkI'm masquerading
asabanker,
Mr. Kellyhas
beenkindenoughtosuggest
thathe willbe pleased
tosubmit
in
writing
to thecommittee
whateveryou
mayrequire
by way of
further
commentorclarificationon
hissuggestions.
I'dliketotakethis
opportunity
tosuggest
again
thatthis
com
mittee
mightconsider
perhaps
inseparatelegislation
thecreation
ofa Federal
development
bankwhichwouldprovide
hardandsoft
loans
forstrengtheningtheeconomic
lifeof
urbanareas.
Forsome
timenowthe coalition
hasbeenurging
thecreation
ofsuchan in
strumentality
whichwoulddrawonthebest
experiences
ofentities

like
theExport-Import
BankandWorldBankandwhichwould
strengthen
the opportunities
for more rational
development
in
managementof land,housing,
transportation,
and jobmarketre

sources
atregional
andlocallevels.I'mencouraged
that
thenew

administration
seemsready
tomoveinthis
direction,
andfeel
that
appropriatelegislativesupportfromyourcommittee
woulddomuch
tobring
suchfacilities
intobeing,
whichwouldparticularly
benefit
others.
ouroldernortheasternandnorth-centralcitiesaswellasm

Wespeakofchangingneighborhoodsincitieslikeouro
CapitolHill
ischanging,
as southwest
Washington
changed,
as
Adams-Morgan
ischanging,
andwe'reall
forconstructive
change,

butwealsobelievethatitshouldbepossibletostabilize,c

revitalize
urban
neighborhoods
withoutdispossessingor
dispersing
all
of theresidentsalready
inplace.
We arenow intheprocessof
conductingasurveyofneighborhoodrevitalizationan
in43citiesacrossthecountry.
Ourpreliminary
findings
revealthat
asmiddle
class
andmoreaffluent
whites
aremovingbackintosome
central
cityneighborhoods,
minorities
and whitelowincomeand
elderly
residents
arebeingpushed
out,often
intonewurbanor
fringe
suburban
ghettos.
We arefindinga
crucialneedto
havegov

ernment
provideinsured
rehabilitationloans,
asitalready
provides
insured
mortgages,so
thatthosewho
wishtoremain
inimproving
neighborhoods
may havetheoption
todoso.
I hopethat
thepro
posed
legislation
may takeusanother
steptoward
a better
lifeand
better
urbanneighborhoods
made available
notonlytothe con
ventional
preferred
loanrisks
andnewcomers,but
alsotothosewho

havealreadyinvestedinthoseimprovingneighborhood
part
of their
life,
their
resources,
andtheir
hopesforthefuture.

Thank you.

TheCHAIRMAN.
Thankyouverymuch,Mr.Holman.

The CHAIRMAN. Mr. Schechter.

150

STATEMENT OF HENRY SCHECHTER,DIRECTOR,DEPARTMENT OF
URBAN AFFAIRS,AFL-CIO

Mr.SCHECHTER.
Iappreciatetheopportunitytoappearbe
you
topresenttheviews
oftheAFL-CIOon S.406,theproposed
Com
munityReinvestment
Actof 1977.

The AFL-CIO supported
theenactment
ofmortgage
loandis

closurelegislation
tohelp
combatredlining
whichdenies
creditfor

homepurchasesindesignatedneighborhoods.
Thatconceptwouldbe
extendedbythe
proposed
CommunityReinvestment
Actof1977.
Much ofthebasic
Federal
legislation
applicable
tofinancial
in
stitutionshaditsgenesisinreactionstoeconomicins
setofforgreatlyaggravated
by unwise
operation
offinancial
in
stitutions.
The disruptionscaused
by thefinancial
panicof
1907led
to the establishmentof
the Federal
Reserve
Systemto providea

sourceofcredit
tothebanks
intimesof
liquidity
crises.Thegrea
numberofbankfailures
andcapital
impairments
ofthrift
institu
tions
in thelatetwenties
and earlythirties
contributed
greatly
to
themassive
economic
dislocations
of theGreatDepression.
Thisled

totheenactment
of legislation
between1933
and 1935whichin
cluded
theestablishment
oftheFederal
Home LoanBankSystem,
depositinsurance,interestrate
regulation
andvariousrestrictio

lending.
Thesemeasures
weredesigned
tomaintainthe
soundness
and continuing
operation
of theinstitutions,
and to assure
that

credit
servicesneeded
foreconomic
growth
andstability
wouldbe

provided
toresidents
and businesses
inlocal
communities.

The national
scope
oftheaforementioned
historic
economiccrise

representedthesumtotalofhundredsofcommunityc

thepolicies
andsubsequent
conditionsof
financialinstitution
were
ofstrategic
importance.
Theevents
oftheearly
thirties
establishe
beyondadoubtthatan unduecontraction
of various
credit
services
isharmfulto thecommunity.This hasbeendemonstrated
in modern

times
attheneighborhood
level.

As pointedout
inChairman
Proxmire'sstatement
accompanyin
theintroduction
ofthebill,
intheCongressional
Recordof
January
24,1977:

Those who obtainnew deposit
facilities
receive
a semi-exclusivefranchiset

do business
inaparticulargeographicarea.
Thegovernmentlimitsthe
entryof
otherpotentialcompetitorsintothatareaifsuch
entrywouldundulyjeopardi
existing
financial
institutions.

TheFederal
powersareexercised
notonlyto
protectstockhold
anddepositorswho
wouldbeinconvenienced
until
theyarerepaid
underFederalinsurance.
Suchprotection
againstcompetitiont
mightcausefailureofinstitutionsis
justifiable
inlargepartbecaus
thefinancial
institutionsare
expected
tocontinuetoprovideserv
thatwill
support
theeconomicviability
ofthecommunity,
Itisappropriate
andlogical,therefore,
that
theFederal
financial
supervisory
agenciesin
accordancewiththestatedpurposeof
S.406,

should
berequired
tousetheir
authoritywhen
chartering,
examin

ing,
supervising,
andregulating
financial
institutions
tohelpmeet
thecreditneedsofthelocal
community
inwhichtheyarecharter
consistentwiththesafeandsoundoperationofsuchins
The

151

nubofthematterprobablyliesintheconcludingcl

withthesafeandsoundoperationofsuchinstitutions”.
The usualexplanation
by a local
financial
institution
of a re

luctanceorrefusaltoextend
creditin
allorpartofalocalbusiness
orresidentialmarket
area
isthatriskoflossistoogreatin
lightof
theoutlookforeconomicviabilityofthatlocalarea.Ther
togo intoalengthydetailed
explanation
of how theadoption
of

policiesbased
onsuchprognostications
bylenders
ina market
or
submarketareaoftenbecomeself-fulfilling
prophecies.

Thequestionis
thebasis
onwhichtherisk
judgments
aremade.

Supervisory
agencyexaminersoffinancial
institutionsare
concerned

withthestatus
ofloans
thatweremade;theywerenotconcerned
withloansthatwerenotmade,and
why suchloanswerenotmade.

There is a need for a recordthatwould enablea Federalfinancial

supervisory
agencytojudgewhetherthe
individual
institutional
as

sessmentofriskisorisnotreasonable.
Sucharecordwouldreallybe
necessaryto
implementsubsection4(2)
ofS.406.
Thatsection
would

requirethesupervisory
agencyto
judgetherecord
ofan applicant,
fora deposit
facility
or deposit
insurance
or fora branchoffice,
in

meetingthecreditneedsoftheprimarysavingsserviceare

itoritssubsidiaries
havealreadybeencharteredto
dobusiness.

Ifthepurposeoftheproposedactistobeserved,therefor
isneedfora requirement
thateveryapplicant
who applies
for
credit,andwhoseapplicationisrefused,beprovidedwith
awritten
reasonforsuchdisapproval,andthatthefinancialinstit
tainafileofcopiesofsuchrefusalforexaminationbythes
agency.

Thepastrecord
oftheratio
ofaggregate
loans
madetodeposits
received
fora submarket
areacan be useful.
Comparative
ratios
for

different
institutions
ina given
local
areawouldprovide
an initial
indication
ofwhichonesmay
havebeenservingthe
credit
needsof
thecommunity
and whichwerenotmeetingsuch
needs.
Morede
tailed
reviewsof
theoperations
ofthose
withrelatively
lowratios

could
thenthrowlighton
themerits
ofpoliciesthatwere
pursued.
Presumably,theregulatoryagencieswouldobtain
such
datainorder
tofulfilltherequirementsofsubsection4
(1)(D).
On theotherhand,it
isquestionable
whetherthe
estimates
re
quired
offinancial
institution
applicantsunder
sub-section
4(1)
(C)

shouldbe included.
Itisdifficultto
seehow themanagers
of a pro

posedfinancial
institution
or branchfacility
couldmeaningfully
respondto
subsection
4(1)
(C) toindicate
theproportion
ofcon
sumerdeposits
obtained
fromindividuals
residingin
theprimary
savingsservice
areathatwill
bereinvestedby
thelender
inthatarea.

Thereisalmostno
wayofknowinghow
largeademand
forvarious
typesofcreditwillemanate
fromresidentsandbusinesspeopleof
localcommunity,andhowmuch
ofsucha volumeofcreditcouldbe
granted
consistent
withthesafeand soundoperation
of suchin

stitutions.

Thisgetsback
tothequestion
ofrisk,
andtheother
sideof
the
coin,the
rate
ofreturn
froma loanthat
iscommensurate
withthe
risk
involved.There
isnouniversal
standard
ofjudging
risk,
orin
establishing
differences
inrisk
thatwouldjustify
differencesin
in

152

terest
rates
required
onloans.
Eachinstitution
reallymakes
itsown

judgmentofrisks,riskdifferentials,and
returnstobeobtainedfrom
different
investments.
Thesefactorsweigh
heavily
inthedetermina
tionsbyprivate
financial
institutions
ofallocation
oftheir
resources

forcreditextensionintheirlocalcommunitiesandino
of
thecountryortheworld.
Whenitturns
outthatjudgmental
errors
havebeenmadeinas

sessing
risk,
there
arelikelyto
be movesforGovernment
bail-outs.

Thetensofbillionsofdollars
inloanstolessdevelopedcoun
thatweremade by commercial
bankswereundoubtedly
made in
anticipationof
relatively
highreturns
thatwouldjustify
therisks

involved.
Withhindsight,
itnowappears
that
someoftheseloan
wereof quite
highriskandrepayments
arenow doubtful.
The

boardchairman
of oneofthelargest
bankssuggesteda
weekago
thatinternational
financialinstitutionsshouldenlargee
creditlinesorguarantees.Increasedloansfrom
internationalins
tionssupportedbythe
U.S.andother.governments,mightal
debtor
nations
torepaytheir
privatebank
loans,while
thepublic
institutions
assumethehighriskburden.

The foreign
country
loanexperience
raises
aquestionwhich
may
seembeyondthescopeofthishearingandyetisrelated.S
pastperformance
alsobe considered
asdetrimental
totheprovision

of local
community
credit
needs
and therefore
actas anegative
consideration
in applications
foradditional
branches
and deposit

facilities?

In general,
shouldn't
therecord
of pastperformanceinclud
a
reviewnot
onlyoftheproportionofresourceswhichwered
meetlocal
credit
needsbut
also
a reviewofthe
types
ofcreditand
types
ofcreditors
who wereserved
by thedeployment
ofavailable

resourcesofthe
institution.
Howmuchofthecreditresourcescomin
fromlocal
deposits
wasusedto make loans
tolarge
corporations,
or
foreign
borrowers,
to finance
economic
activity
outside
of thelocal

community,andwasthereadearth
ofneededcreditlocallywhil
credit
extensions
were beingmade?

We wouldsuggest
consideration
of a requirementthatthe
Federal
supervisory
agencies,
inimplementingthepurposesof
S.406,should
takeintoaccount
thetypesof alternative
usesof fundseleswhere,

andtheextenttowhich
suchcreditextensionsaffectedthea
of fundsto meet localcreditneeds.

Withthequalifications
andchanges
thathavebeenrecommended,
theAFL-CIO supports
theenactment
ofS.406.
TheCHAIRMAN.Thankyouverymuch,
Mr.Schechter.
Senator
Towerhasan openingstatement.

OPENING STATEMENT OF SENATOR TOWER

Senator
Tower.
Thankyou,
Mr.Chairman.
I apologize
forhavingbeen
detained
andnotbeing
hereto
make

mystatementat
thebeginningofthetestimonywhich
I'mfollowin
withgreatinterest.

I havesomeserious
reservations
about
this
CommunityReinvest
ment Act.I don't
quarrel
withtheendsoftheproposaland
thatis

153

providingmortgagecredittocreditworthy
purchasersinthe
inner

cityareas.
Mymainconcernisinthemannerin
whichthisistobe
achieved.

Thisproposal
would,as
I readit,
provide
foraschemeofcredit
allocation
in ourfinancial
institutions.
I thinkthiscouldbe detri

mentalandthatitcould
disrupttheflowofmortgagecreditinthi
country.
Theoveralleffectcouldbetodeprivethepartsofthe

trythatareshortofmortgagecapitalfromreceivingsur
thatexistsin
other
parts
ofthecountry
andtowhatdegreewould
aninstitution
belimited
in purchasingmortgages
foritsportfolio

whicharenotoriginated
within
itsso-calledservicearea?
Towhat

degreewouldaninstitution
belimited
frominvesting
insecurities

inGNMA, FRDMC orFNMA? Suchaninvestment
would
notbe
aninvestment
inthecommunity
in whichthelender
islocatedbut

suchaninvestmentiscrucialintermsofprovidingmortg
for the Nationasa whole.

I thinka better
approach
to providing
mortgage
credit
to the
inner-city
istoencourage
institutions
tomake loans
in thatarea.
Unlessadequateservicesarethere,suchasgoodstreets,sch
sani
tation,police
protection,
fire
protection,
andso forth,a
lender
will
normally
assume
a higherrisk
inmakingaloanin
such
an area.
I

wouldencouragesuchlenderstomakesuchloansbyprovid

withtheassurancethatshouldanylossesoccurtheywouldsha
lossesand
notbe100percentresponsibleforthem.
I plantointroduce
legislationina
fewdayswhichwouldprovide
a programwhichwouldaccomplish
this.

S.406would
require
theFederalfinancial
institutionsregulato

agencies
to pressure
commercial
banks,
as wellas savings
and loan

associationsto
usetheir
consumer
deposits
forloanstoborrowers
physicallylocatedinthesamegeographicareasinwhichthe
deposit
accepting
institutions
arelocated.
Such impediments
to thefree

functions
of financial
markets
necessarily
hampertheeconomic

efficiency
withwhichthosemarketsallocatecredit.
Fromthestandpointofthewelfareofthe
Nationasawhole,eco
nomicefficiency
ismaximized
ifcredit
isgivento thoseproductive

borrowerswillingtopaythehighestinterestratesaft

risks.
Nowthisisbecausethoseborrowerswillusetheavailablecre

forthemostproductive
purposes.
Thisiswhatenablesthemto
pay
thehighestinterest
rates.
IfGovernmentsponsoredcreditallocati
isusedtochannel
credit
toother
borrowers,
itnecessarily
willuse
thecreditforlessproductivepurposesandeconomicwell-b
Nation as a wholewill suffer.

Thus,S.406raisesthebasicquestionofwhat
istheproperrolefor
financialinstitutions?
Shouldcommercialbanks,forexample,gath
depositslocally
forlendingtolocal
borrowersorshould
theygather
depositslocallyfor
lendingtothoseborrowers,regardlessofphy

location,abletousethefundsinwaysmostbeneficialt
oftheNationasawhole?

S.406wouldalso
imposeaconsiderable
paperwork
burdenon
financial
institutionsand
mightforcethem
todivulgecompetitively
important
information
andwheretheyderive
their
deposits
and
where
theymaketheir
loans.
Althoughthis
bill
isadministered
by

154

theComptroller
of theCurrency,
theFederal
Reserve
System's
BoardofGovernors,the
Federal
DepositInsurance
Corporation,and

theFederal
HomeLoanBankBoard,onlythelastagencyme
will
testify
atthehearings.
Now this
wouldappeartometo
leave
a serious
gap inthehearing
record.
It's
crucialthat
adequatemort
gagecreditbe
provided
toinner-city
residents.
Thereissound
ex

istinghousingstockthatshould
andmustbepreserved.
Itwouldbe
farcheapertorehabilitateandpreservethisstockthan

buildingnew
units.
Additionally,therearethousand
ofneighbor

hoodsthatarepresently
stable
thatcould
besubjecttodeclinean
decayunless
adequatemortgage
credit
ismade availablefor
the
purchase
of these
homesand wherenecessary
therehabilitation
of
them.

Ilookforwardtothebalanceofthesehearingsandhopewewi

abletofindsomerealistic
and workablesolutions
toproblems
of
lackofadequate
mortgage
creditto
ourNation's
inner-cities.
Thankyou,
Mr.Chairman,and
I askunanimousconsentthat
my
statementbeplaced
attheappropriate
place
intherecord
prior
to
thetestimony.

TheCHAIRMAN.
Thank
you,SenatorTower,andletmesa

in response
toyou,all
theregulatory
bodies
wereasked
togivea
statementor
totestify,as
theywill,and
we havestatementsfrom
eachofthem thatwillbepartoftherecord.

Senator
Tower.
Good.
I'mgladtoknowthattheywillbeinclu
The CHAIRMAN.I saidbeforeyou
camethatthiswasnota credit

allocation
bill
andI certainly
don't
seeitthatway.Whatever
we
candotopreventitfrombeingacreditallocationbill
Iwanttodo.
What thisbill
woulddo wouldbetotryto make thebanksmore

sensitive
thantheyhavebeeninthepastto
their
responsibilitie
provide
forlocalcommunity
needs.
Obviously,
aswasindicated
by
some of the witnesses,
thesanction
isa relatively
weak sanction.

You're
notgoingto
puta bankoutofbusiness
iftheydon'tloan
locally.
You'renotgoingtosay
youhavetomakecertainloans

Whatyou're
saying
iswhena bank-infact,
theeffective
way this
wouldwork-when
abankwantstobranch,oneoftheconsider
-one oftheconsiderations
inwhether
ornotapproval
begiven
to
thatishow welltheyhaveserved
their
local
communityinthepast,
whattheirtrack
record
isinthisparticular
respect;
and,ofcourse,

iftheycanshowthatthecommunity
wherethey
haven't
madethe
loansisnot
a community
inwhichtheycould
makesoundloans
I
thinkthatwouldbe a complete
and adequate
answer.
But if you

havecompeting
banks,onebankhasagoodrecordofmakinglo
theotherhasnot;in
thelocalcommunity,then
preferencewouldbe

givenunderthislegislation
to thebankthathasthebetter
record
or theonethatdoesn'thave
suchagood recordif
he hasto come

forward
withsomekindofaffirmative
planwhichtheycould
show
inthefuturethattheyintended
tomakecommunityloans.
Senator
Tower.Mr.Chairman,
letme sayagainthat
I certainly
don't
disagree
withtheobjectives.
My concern
istheapproach
and

Ithinkthat
inthatconnection
weshouldconsidervariousapproac

totheproblem
andIthink
theshared
riskapproachisone
that

meritssomeconsideration.
Ithinkweallhavethesameobjective

155

Ithinkthatmyrecordshowsinmy
16yearsofmembershiponthis

committeethatalthoughI'mgenerallyperceivedasar

ary,that
I havea fairly
liberal
record
on housing
andurbande
velopment.

TheCHAIRMAN.
Well,the
Senatorhasafinerecordinveryma
respects.

Senator
TOWER.Would
youputthatin
writing,
Mr.Chairman?
TheCHAIRMAN.
I'mjusthopingthatthe
Senatorwill
readthe
in

teresting
article
intheWallStreet
Journal
thismorning
which

pointed
outthattheRepublican
Partyisgoingtodotheirbesttosho
thattheyarenotsimplyinterestedintheFortune
FiveHundredand
thattheyarelooking—
asamatteroffact,theyaredying
foranop
portunity
toshowit.
I thinkthisbill
isa perfect
opportunity.
I'd

iketohearringingsupportfromtheminoritysidefort
Ithinkthatwouldbeanexcellentstep
inthedirection
ofshowing
that

Senator
TOWER.I thinkwe should
seeka better
way.

TheCHAIRMAN.
Verywell.Mr.Nader,you
putquiteabitof
em

phasison
revisingsection4(C)
ofthebill.
I think
it'son
page5of
thebill,thesectionthatsaid,online14:

Inconnection
withan application
fora deposit
facility,
theapplicant
shall,
amongotherthings,
indicatethe
proportion
of consumerdeposits
obtained
from
individuals
residing
in the primarysavingservice
areaby thedeposit
facility
thatwouldbereinvestedinthatarea.

Mr. NADER.I believe
itwas section
4(C).

The CHAIRMAN.
I meanttosay4(1)(C).Isthattheareayou're
referringto?

Mr.NADER.
Section
4(C)beginswith
“ Permittingand
encourag

ing."

The CHAIRMAN.
Well,thisison
page6,line5,then:

Permitting
andencouraging
community
consumerorconsumerorganizationsto
presenttestimonyathearingsonapplication
fordepositfacilities.

Mr. NADER.Yes,sir.

TheCHAIRMAN.
Wouldyougiveusa littlemore
detail
on that?

Iwasn'tabletofollow
yoursuggestionsandit
seemed

Mr.NADER.Thepremiseofthissectionisthatexcessivedeg

discretionisaccordedtothebankingagenciesand,asyouknow,t

aretwo
recommendations.
One,morespecificstandards
controlling
thatdiscretionwhichmaybedescribed
aslassitudeortotal
inaction

bythebankingagencies;andtwo,thatthereisn'tstandingonth

ofcommunitygroupsorinterestedindividualsinthec
Withouttheseprovisions,thebillmayineffectbeadm
nothingnessby
thebanking
agencies.You
needtheability
of com
munityorganizationsto
saytoabanking
agency,underthis
legis

lation,
youpermittedthe
particular
financialinstitution
unbridled
discretion
whichresulted
in the violation
of the purpose
of this

legislation
andthestandardswhichareinthestatuteorinthe
regu
lation
andwe're
goingtotaketheagency
orthebanktocourtto
require
adherence
tothestandards
sothepurpose
of thelegislation
canbe met.

The CHAIRMAN.What standing
do consumerorganizations
have

nowunderexisting
law?

156

Mr.NADER.
It'sunclear.
Imean,theycanappearatvarioush
ings,as
theyhave,
regulatory
hearings,
butIdon'tthink
it canbe
saidthattheyhavestandingtogotocourtatall,andth

administrativelyisfuzzybeforetheagencies.
Now youcanimaginewhatwouldhavehappened
ifthepubli

didn't
havestandingto
challenge
inadequate
environmental
impact
statements
in the envoronment
area,
and againcitizens
and en
vironmentalgroupshavechallengedtheenvironmenta
state
mentsand won incourt
wherethe
court
hasordered
aparticula
publicorcorporatefacilitytoreallyperforminacco
purpose
oftheEIA lawandnotjustputtogetheralotofnon
in400pages
withlarge
margins
andentitleit
"Environmental
Im
pactStatement.”

The CHAIRMAN.
Allright.
Mr.Schechter,
wouldyoulike
to com

mentonthat,onprovidingaclear-cut,specificst

organizationsto,ifnecessary,
gotocourtinordertoparticipa
Mr.SCHECHTER.
As a nonlawyer,
I agree
theyshould
havestand

ing.Iknowtherehavebeencaseswheresuchthirdpartyinter

hasbeenruledoutbecauseconsumer
organizationsdon'thave
stand
ing,andIthinkitwouldbedesirable.

Mr. NADER. There has to be a difference
betweena resolution

ofCongressand
alegislativeenactment,andifyoudon't
stand
ardsandyoudon't
havestanding,
a lawcanbeturnedinto
a Con
gressionalresolution
as farasFederal
banking
agencies
are con
cerned.Theyknowhowtodoit.
Yougivethemanopeningandth
willtake it.

Ithinktheanalogywiththeenvironmentalimpactsta
inthecourtis
veryapt.
Where a pipeline
companyorrefinery
or
theArmy Corpsof Engineers
didnotdo a specific
and adequate
environmental
impact
statement,
theseinstitutions
havebeentaken
intocourt
andtheyhavehadtorevisetheirperformance.

I'mconcerned
thattheverygoodpurposesofthislegislat
can

be nullified
because
oftheunbridled
discretion
whichthis
legislatio
givesto
theFederal
banking
agencies.

TheCHAIRMAN.
Well,that's
averyinterestingrecommendat
I
wanttothink
aboutit.Theanalogywiththe
environmentalimp
statement,ofcourse,isnotcleanandclear.
It'snotpreciselythe

isit?The environmental
impactstatement
youcan simplystopa

projectthatotherwisemightproceed,whetherit'sac
ectoragovernmentalproject.
Inthisparticular
case,yournotio
thatitmightstopanagencyfrom,forinstance,permit
branch
because
theyhavenot
complied
withthis
particular
section

Mr. Nader.Yes.
I thinkyou haveto takeitto thatconclusion

Otherwise,
there's
no teethwhatsoever
in the bill.

Supposeafinancial
institutionputsforth
astatementorarepo
that fulfills
the three or four criteria
in thisbilland it'sridiculous.

There'snothingthere.
It'sjusta
lotofwords.
Youhavetohavesome
sortofstandardwhichneighborhoodpeoplewhoareaff
financialinstitutioncaninvokebeforeanadministr
incourt.
The last
thingwe wantisa charade.

The ChairMAN.
Mr. Holman,you expressed
concern
thatthis
bill
mightsomehowencourage
banks
toputan evenlargershare

157

theirmoneyintothesuburbs.
Howwouldyousuggestwemodifythe
billto preventthat?

Mr. HOLMAN.I thinkI was sayingtwo
things.
One,thatthis
sectioninwhichthey'resupposedtodothisthoroughanalysis
wind upwiththeirmakingthekindofanalysiswhichsays,well
depositbase
incertain
areas
isrelativelyweakandfor
thatreason
we're goingto putlessof ourmoney and we havejustificationfor

puttinglessof
ourloansintothis
areajuston
thebasisofthefact

thatwe'remakingitperhapsasclearor"stringentas
it;that whensuchan analysis
hasbeenmade,even
ifthedeposit
base generally
forthose
areas
ispretty
weak,itisstill
contingent
uponthem tomakeloanstothepeoplewhoarealready
residentsof
that particular
area.

The CHAIRMAN.
Yousee,thereason
Iraisethatquestionisbecaus
the factsoflifeherearesostarkandclear.
Youhaveasituationhere
in the District
of Columbia,forinstance,
where the loansby banks

and savingsand
loaninstiutionsin
theDistrict
areverylight
and

they make big investments
outsidethe District
in the suburbsin

mortgages,and
wheretheydo invest
intheDistrict
it'sby
andlarge
in the northwest
section
andthewhitesection
and theydon't
invest

inthe inner-city.
Theydon't
investintheblackneighborhoods,wi
some exceptions
whereoneortwobankshave
doneit
anddoneex
tremelywell.
Hr. HOLMAN. Yes.I have seenthat.
The CHAIRMAN. So I don'tseehow thiscouldworsenthesituation.

It'sso
badnow,Idon'tseehowthiscoulddoanythingbutshifta
tention
totheneglect
oftheinner-city
neighborhoodsand
theolder
neighborhoods.
Mr. HOLMAN.I thinkthattheconcern
thatwe haveand someof

thebankersexpressedthe
feelingasthey
looked
atthelaw
- now,it
mightbetruethatyou
takesomeoftheareas
whichhaveshifted,

like
Capitol
Hill—itmayverywellbethatbecauseanumberof

peoplealready
residents
in there
arelow incomepeople
thatthe
amountoftheirdepositsasagainsttheamountofdepositsof
in neighborhoods
whicharemoreaffluent
wouldbe suchthatthe
bankers
wouldfeel,
evenunderthis
law,thattheyarejustifiedin

eitherputtinglessmoneyintothisareaormakingtheir
peoplewhoarenowtryingtocomein.
The CHAIRMAN. What we found was thatin caseaftercaseafter

case,an
S.& L. orabank wouldbelocated
ina downtownareaand

thedepositscomingfromthelocalneighborhood,eventhoug
hadmodestincomes,
werereasonably
substantial.
Theyloaned
that
moneyoutsideinthe
suburbsoverwhelmingly.
Mr.HOLMAN.Yes.Iagree,but
Idon'tknowifyourecallthatsome

monthsagotherewasanapplication
forabranchtogointo
Ithink
itwastheAdams-Morganareaandthiswasfoughtbythepeoplei
thearea.
People
said,
well,
I wonderwhy.Theywerefighting
it
becausetheywereprettysurethatthereason
forthisbranchcoming

innowasthat
itwastryingtoattractthenewpeoplewhowou

moresubstantialincomewhowouldbuyoutthefolkswhoareal

there
and those
folks
wouldthenbe unable
tofindadequate
or suit
able
housing
elsewhere.

88-032 0.77

158

Inotherwords,
Ithinktheactverywelltakescareofone
problem
, but we arealsoconcerned
aboutthis.

TheCHAIRMAN.
You'rerighttobeconcerned.
Itseemstomewha

you're
concerned
with,however,
we can't
really
handlevery well

underthisbillorthiskind
ofbíll.
You'reconcernedthat
neighbo
hoodsthatare
beingrevitalized,thepoor
people,theminoriti
elderlyareoften
pushed
out.
Mr.HOLMAN. Yes.

TheCHAIRMAN.And
I,ofcourse,sharethatconcernands

concern
verydeeply.
But isn't
thata problem
forhousing
policyto

setaside
somerestored
units
andbuildnewunits
intheneighbo

hoodforthepoorandfortheelderly?
My feelingisthatweca

reachthatproblemwiththisbill,
butwe havea lotof otherways.

Mr.Holman.Galehasshownan
interestingarticle
from
theChi

cagopaper
inwhichit'shardtotell
whetherwhatwe'redealingw
ishousing
policy
ora kindofconscious
or unconscious
collusion
be
tweenHUD and thefinancing
agencies.
I don't
know whethershe'
liketo comment on that.

Ms.CINCOTTA.
That'sthe
articlethat
I'mgoingtosupplyto
you,
also.
Thewayweputitintheamendments,weweretryingto

thekindsofproblemsthatCarlwastalkingabout,
ofprimaryservicearea,if
youcouldservice-takingapi

areas,
you can make judgments
on putting
loansin as far outin
suburbanareasorwherever.
That'swherewecameinwithourdefi

tionofprimaryservicearea.
Youshouldbeablethentodrawaf
circle
ofwhere80 percent
ofyourloans
areandservicethaten

area,
and the waywe saw theamendmenton thisbill
thatwould
addresstheproblemsofunderservedareassothattherewou
be an affirmative
program
.

I talked
tothevicepresident
ofFirst
National
Bank andI said,

"Howdoyougetsomanyloansoutsidethe
city?"
Andhesaid,“W
havesixfull-timementhatmeetwithvillagemana
andbuildersanddevelopers,
andtrytotell
themwehave money
available
and we'll
putloans
outthere
andgivecredit
tothem."
I
said,
“ How many do youhaveinthecity
ofChicago?”
Theyhad
none.

Sowe'retryingtosayiftheycanfindawaytoservice

areasthroughouramendments,theyshouldbeable

an affirmative
program
thataddresses
itself
totheinner-city
also,
thatthatwasaggressively
goingout
there
andfinding
loans
and
that's
withnobranches,
andyetthey
don't
servicethewholear
Theydon'thaveanybodyinthecity
ofChicagotrying
toputloans
inandsaytheyareavailable.
Wetriedtoaddress
thatproblem
with

thoseamendmentssayingthisisyourentireprimar

youhavetoputanaffirmativeprogram
inandifit's6
menoutside
thecity,
thenyou shouldhaveatleast
12 people
inside
thecityag

gressively
packaging
loans
andmakingthem
availableto
all
neigh

borhoods.

TheCHAIRMAN.
Isee.Ithinkthatisaninterestingreco
thatyouhavemade.
Mytimeisup.
Iwillyieldto
Senator
Heinzinaminute.
AsIunderstandit,yousuggestwegobeyondmerely
requiringth
thebanksservethecreditneedsoftheircharterareas
theyhave

159

aspecialobligation
toaffirmatively
servethe
credit
needs
of what
youcalledhistoricallyneglected
communitieswithinitsserviceare
Ms.CINCOTTA.
Withintheir
service
area,
right.

TheCHAIRMAN.
Liketheaffirmative
action
we havein thecivil
rightsprogram.
Ms.CINCOTTA.
Right,andinlaborrelations.
Itwasn'tgoodenough
tosaywewillhireminorities,youhadtoputaprogramtogeth
havedisclosuretoseehowyourprogramwas
working:
WeseetheHomeMortgageDisclosure
Actasamonitoringtool.
The CHAIRMAN. SenatorHeinz.

SenatorHeinz.Thankyou,
Mr.Chairman.
Iwouldliketo
compli

mentthedistinguishedpanelontheirveryhelpfultest

Before
Iproceedwithafewquestions,Idowanttomakeacoupl
ofbriefcommentsaboutthelegislation,which,itseemstom
a fartoomuch neglected
area,
whichisthatof revitalizing,
pre
serving,andrehabilitatingourexistingneighborhoods.I
many
ofthepeopleatthewitnesstablehavebeenveryactiveinthat.
Icome

fromtheState
of Pennsylvania,
whichhastwoverylargecities,
Pittsburgh
and Philadelphia,
butmany othermedium-sized
and
smaller
towns,and
I wouldliketo
emphasize
thattheproblem
of

neighborhoodsis
notuniquelyabigcityproblem.
Itcan
strikejust

ashard in ruralareas,or
insmall-ormedium -sized
cities.

And I thinkthechairman'sobjective
withthislegislation
isquite
consistent
withrecognizing
thatneed.
I thinkS.406provides
us
withan excellent
opportunity
infacttoaddress,much
morecom
prehensivelythan
wehavedone
ineitherthe
Houseorthe
Senatein
theyears
Ihavebeen
intheCongress,thequestionofneighborhoo

revitalization.

Therefore,
I think
thepurpose
ofthelegislation
isindeed
excel
lent,although
I am surewewill
havesomewranglesoversome
spe
cificsin
thelegislation.

Two questionswould
appearto
meto bequiteimportant,though,

asweaddressourselvestothis
question.
Thelegislation
really
only
addresses
thequestion
of theroleof financialinstitutions
in how

theycanbemademoresensitivetotherequirementsoflendin
toresidential
andsmall
business
entitiesin
general
in areaswhich
arethought
tobeneglected
atthepresent
time.

Now thatiswelland
good.
ButI am concerned
thatthere
isno
linkingmechanismhereto
tryandsensitizeorattracttheinteres
local
government
officials.
Theadequacy
of police
and firepro
tection
isimportanttoaneighborhood.
Thesensitivitywithwhichthe

otherneedsoftheneighborhoodareserviced,garba

exampleisimportant.
I am wondering
if you wouldcareto make any comments,
per
hapsMs. Cincottawould
caretoaddress
thisquestion
of how,ifat

all,we
should
attempt
to linkthislegislation
withgetting
local

officialsmoreinterestedinpayingattentiontosomeo

hoodsthatareeitherdeterioratingorcould
doso.

Ms.CINCOTTA.You
also
aregoingtobedealing
witha billcalled
theNeighborhood
Preservation
Act,thatdealswith
Community
De
velopment
Actmoney.Weintend
totestify
on that.
We seethatunderthat
legislation
citiesthrough
thatactshould

beservicing
existing
older
neighborhoods,
incapital
improvements,

160

rehabilitation
loans
andservices.
Todaywe areonlydealing
with

thisonebill.
Butweseethatneed
toearmarkaportionofthe
CD
funds,
undersomething
we call
double
dollars,
thatthecitywould
puta portion
oftheirfundsfor
existing
older
neighborhoods
and

theFederal
Governmentwouldmatchthatdollar
fordollar.
The financial
institutions
wouldreturn
investments,
conventional

loans,
through
saythis
bill
or other
legislation,
anditwouldstart
tohavethekindofimpactthatyouaretalkingabout.
Whatwehavefound,likein
Chicagothereisaprojectcalle
bornPark.Therewasa conscious
decision
to revitalize
thearea,in

fact,buildanareaonthesouthsideofthecity.
When thelenders
anddevelopers
started
to putthepackageto

gether,
andassoonasthemoney
wasinplaceand
thedevelopi

piecedtogether,thenthecity,becausethelendershad
alreadymade
thecommitment,the
city's
BoardofEducation,whosaystheydo
haveenoughmoney
forourneighborhood,
saidyes,
we willbuild

newschoolsforthatarea,theywillbe
inplace,yes,the
ParkDistrict

saidyes,therewillbeaparkwithinthatarea.
And probablynobodyis
evergoingto know thatthatisa city

park,andshouldbeusedbyeverybodythewaythepla
Butassoonasthelenderscameinandweregoingtod

area,
allof a suddenthecity
services
arecomingin.

And whatishappening
inourneighborhoodsisthatthelen
haveevacuatedthemintheformofloans,thenwefindthe
serv
ices,the
BoardofEducationand
thegarbageand
allofthathave
anaftereffect.
So ifyoucouldtie
thisbill
withthecommunity
de
velopmentbillthenyouwouldfindthereturntothecity
lenderswouldbewiththepeoplesayingwehavemadeanin
here,back
itupwithcityservices.
Senator
HEINZ.
I thinkyou
areaddressingthepointexactl
I am tryingto
getathere.

I amremindedthatin one of ourcities,
thecityof Pittsburgh,

someofthecommunity
developmentmoney
wassetaside
by the

mayorofthecity
fora lowinterest
homeimprovement
program,

whichwas madeavailable
consistentwith
someofthe constraints

somewhichweprobably
oughttochangeintheCommunityDe
velopment
Act,forlowand moderate
incomehome improvement.

And theprogramutilizes
existing
financial
institutions.
By all
accounts,
ithasworked
quitewell.
I amnottryingtosellyou
thatparticularprogram
. Butthepoint

isthatthecitychosetoinvolvethesamepeoplethis
legislation
aims
at,
thefinancial
institutions,
intheir
policyfor
neighborhoods,
and
there
wasa necessary
close
relationship
between
whatthecityap
provedintheway
ofsubsidy
paymentsforlow
interestloans,wh
wereobviously
veryhelpfulto
someofthepeoplein
theneighbor
hoodsinvolved,
and certainly
gottheattention
of thebankingcom
munity.

Ms.CINCOTTA.
Youhavetheneighborhoodhousingservice
also.
Wehavefouroftheminthe
Chicagoarea.Andourexperie
hasbeenthatwhen thefinancial
institutions
make a commitmentto
theseneighborhoods,city
servicesfollow,thecityputsin
Community

Development
Actmoney,they
puttheloangrantsprograminth

161

areas,they
putthe
homesteading
program
inthese
areas,
anditis
started.

But thecatalystisthefinancial
institutions.
SenatorHEINZ.
Thereason
I pressthe
pointisthere
isachicken
and egg question.
Whileitmay betrueinChicago
thatoncethe
financial
institutions
havemadetheinvestment
thecity
services
fol

low,I wouldn't
wanttorelyonitinevery
instance.
Ms. CINCOTTA.Tie theCD doubledollarswith
it.
Senator HEINZ.Mr. Schecter.

Mr. SCHECTER.
Senator,
Ibelieveinmany
areasthebeginningof

an erosion
of a neighborhood
isa judgment
by lenders
thatitis
a

highrisk,
anditiseasy
forthemtomakethat
judgment,because

thereisusuallyasuburbancommunitydevelopmentwhichobvio
is a much sounder
judgmental
risk.

But inmanycasesthejudgmentontheneighborhood
ispremature.

Thechairmanmentionedinhisopeningstatementthe
Philadelphia

banksthatgottogetherandstartedmakingloansincertainne
hoods.They changed
theirpolicy.
Thosebanks
startedlooking
at
theindividualsquareblock,insteadoftheentireneighborh
They
wereabletofindsomeblocksthatweregood.
Andtheystarted
look

ingat thetotal
income
ofthefamily,instead
ofdiscounting
the
secondaryworkers.

Now theydidthat,
andasa resultI
believe
a large
partofthat
neighborhood
isconserved,and
theydon'tget
intothe
self-fulfilling
prophesybusinessofhavingthe
neighborhood
godown.
So I thinkthatiswhatwe havetosensitizethe
lenders
to,and

perhapseducatethem,inwhateverwaywecan,sothatbeforet
apullbackoncityservices,andthe
cumulativeeffectcomesintopla
thatwe cansaveneighborhoods.

Senator
HEINZ.
Idon't
think
there
ismuchdisagreement
onthat.
point.

I wouldliketoaskafurtherquestion.
Now,Mr.Holman,onbehalf
ofMr.Kelly,madesomesuggestionthattherebesomeincenti
thebanks.
IthinkMr.Nader,
perhaps
Ms.Cincotta,
said
thatthey
didn't
favorincentives.
But you,Mr. Schecter,indicated
in your
statement
towardstheendthatperhapsthereshouldbesomefor
risk-sharing,
whichimplies
to me incentives.

You likened
thesituation
toheinternational
monetary
situation,
thatprivateinvestmentandpublicco-insurance.
Iwas wonderingifyou
wouldcaretocomment
onthethree
sug
gestions
of Mr.Kellyput
forwardbyMr.Holman,
namely,
regu

latory
agencies
shouldbe
permitted
tomaintain
areduced
levelof

fundsonreserve,anewclassificationshouldbeestablishe
Treas
urytaxandloanpayments,and,finally,amorefavorableborro
rateat the Fed.

Mr.SCHECTER.
Allofthesewould,ofcourse,resultinmargina

ditional
financial
benefits
totheinstitutions
whichwouldgetthese

privileges.
Lowerreserves
meansmoremoneycanbeloaned
out,
or
moretaxandloanaccounts
meansmoremoneycanbeloaned
out,
alsoat no extracost.

Idon'tthinkweshouldbe,ineffect,bribinginstitutions
theyshould
bedoing
undertheirpresentcharters,andthewayth

162

aregivenchartersunder
Federallaw,whichsaysthattheyar
sup
posedtoservethecreditneedsoftheircommunities.

So I don't
think
we should
begiving
themadditional
privilege
also.

Mr.HOLMAN.Ican't
speakfor
Mr.Kelly,
andasI said,
Iwould

likehimtohavethebenefitofthequestionswhich
havebeenrais

Mr.Kelly
isoneofaverysmallnumberofminoritybanke
haveattemptedtoestablishbanksinneighborhoodswhi
itisallverywelltotalkaboutwhattheotherbanksshou
Buttheysimplyarenotdoingit.

Inmany cases
we aredealing
withareas
inwhichbranch
banks
haveleftthecommunity.Andmanyofthesebankswillkee
theycover
thekeeping
ofthebranch
in whattheyconsider
"bad
neighborhoods”by
akindofpooling,
inwhichtheyareabletosa
thetotal,basically
allof thebanksaredoingwellbysharing
what

mightlooklikethesortofbadpicturefromabanker'spo

badpictureofthisbanklocatedinthepoorneighbo
otherbrancheswhichareinneighborhoodswhichar
affluen
It may beindeedtruethat
itwillbe
possibletogetbanks
todo

whatthisbill
wantsthemto do without
anyincentives
at allif
thelawismadestrong
enough.
Butwe spent,with
three
of our
affiliates,threedaysin
Pittsburghlookingatthe
Pittsburghhousi

servicesprogrammany
yearsago,
andIwould
suggestitwould

useful
foryoutolook
atthatandseehowdifferentthatisfr
program
whichtheFederal
Government
isnowsupposedly
copying

in other areas.

Itisverytruethatthecounty
cooperated
intermsofcode
en

forcement.
Itisverytruethatthecitygovernment
provided
service

inwhathadbeenanareawhichwasgoingtootherwisebead
area.

Itisalsoverytruethatthecommunityplanners,thec

services,
hadnever
paidanyattentionto
this
neighborhood.
They
asked
forcommunityplanners,
andthosecommunity
planners
went
outintothecommunitytoseewhatwas happening.

Nowwehavegotthecommunityblockgrantprogram,

aftercity
weareseeingthatthosecommunityblockgrantf

notgoingintotheseneighborhoods,butaregoingin
neighbor

hoodswhichhavethegreater
political
clout.
Anditisinterwoven
becauseon
thevery
daywewentuptovisitoneofthebankersi
program,andhepointedoutthattheyhaddiscoveredpeo
neighborhoodswhoqualifiedforbankloans,
justasanyoneelsedi
therewereothers
who wouldhavetogeta certain
amountof assist
ance.
Andhecomplimentedhimselfandtheothersonthat.

Aswewalkedoutintothebank,asweweregoingout,thi
manfromthePittsburghhousingserviceswas
therewitha
couple,a
ratherelderly
couple,lookingdisconsolate.
I said"Whatiswrong?”
andhesaid"Wehavejustbeenturneddown.”
Asyouknow,theyhavethelowestdefault
record
Ithinkofalmost

any neighborhood
there.
Whathadhappened?
Therewasa new bankloanofficial
there,
andhe knew nothing
abouttheplan,andallheknew
wasthatregionally,geograph
herewas
theareathese
people
werecomingfrom,and
hedidwhat
wastheautomatic
thing.

163

I thinkthatthehousingpoliciesandtherequirementsthat
on how thecommunity
block
grants,
whicharenowwideopento
beusedinanyway anyone
chooses,
I think
allofthese
thingsdo
relate
one to the other.

I am verydisturbed
whenI seemayors
andbusinessmen
getting
together
andsayingwe need to developeconomic
development
programsforthecities,andtheytake$100,000ormoreofcom
blockgrantfundsand
setupan organization,
asthey
havedonein
twocities
already,
and no people
fromtheneighborhoods
arein
volved at allin this.

So thethings
do interrelate.
Weare just
trying
todealwiththe
things
whichare
basically
inthisbill
now.
SenatorHEINZ.
Mr.Holman,
I thankyou.
Igotanotesayingmy
timehasexpired.
Idon'twishtocutoff
debate
TheCHAIRMAN.
Go right
ahead.
I thinkthis
isveryuseful
ques
tioning.Mr.
NaderandMs.Cincottawouldliketocomment.
Mr.NADER.
I wouldjustliketocommentontheironyofthisdis
cussion,
because
theoriginal
concept
ofthesavings
andloans
and
themutualswasthattheyweretobecontrolled
bythedepositers,in
fact,
notjust
inlaw.Andtheywere
toberesponsive
tothelocal
community,
because
of thatlocal
control.

Due to a wholeseries
of evasive
and technical
maneuvers
by

S.&L.'sandmutuals,includingtheassignmentofthepr
when

youfill
outyourdeposit
card,that
essential
cooperative
structure,
whichifitwasoperatingwouldmakethislegislationunnece
beendestroyed.

Perhapsthecommitteemay
wishtopayattention
totheoriginal
design
of theS.& L.'sandthe mutualsonsome later
date,
to seo

whethertheactualcontrolofthedepositors
whoputtheirmoneyin
thebankcan be reasserted
as thebasis
forreviving
the neighbor
hoods.

I am broughtto thisobservation
atthispointbecause
I can see

howifwedon'tpay
attentionto
thisbasic
problem,
whichwasthe
originaldesignofthe
S.& L.'sandmutualsmanyyearsago,wewill
getinto
proliferation
of programs
thataresupposed
tosomehow
intermeshandinterlock,butwhichescapethebasicprincip
munityorneighborhood
power.
Thatisreally
thebasic
issue.
When youcombine
thefactthat
itisthe
neighborhoods'moneythat
makestheexistence
ofthis
de
positoryinstitution
possible
withtheneed
toputrealteethintothe
mutualand
S.& L.concept,
youmightendup witha muchmuch
betterbasic
situation.

Ms.CINCOTTA.
Itreally
frightensme
withtheseco-insurancebills
thatarefloating
aroundtheHouse,andI heardSenator
Towertalk

aboutoneintheSenate,theconceptofthatcameoutafte
Mortgage
DisclosureActwaswonandpeoplehadtherightto
whereloans
were given.

Whatitbasicallysaysisthat,withoutanyproofofany

areas
should
havelines
drawn aroundthem,theyarespecial
areas,

badareas,
thatthepeople
should
payhigher
interest,they
should
payinsurance
premiums,
atleast
a minimumof 15 percent
down
payment,withnoperceptionofrisk,ratherthantheinstitu

164

havingtogiveloans
inthose
areaslike
Mr. Nadersaidthatthey
are
charteredto do.

When youtalktothetradeassociations
fortheS.& L.'swho are

promotingthis,they
saywell,theyarejustnotgoingt

unlessthey
areinsured.I
sayallthey
willdo
isinflatethe
prices20
percent
and theywillbe
100percentinsured,
instead
of80,andwe
haveanother
FHA program
. Ifa person
goestoaconventiona
lenderandtheyhaveacreditcheckandthehomeischecke
theonlydifference,you
know,theonly
reasontheycan't
geta con
ventionalloanistheyhavealowerdownpaymentthanreq
theyshould
automatically
begiven
an FHA loan.
Theprogramis
already
there.
Thelenders
arecomingup withthese
incredibl
schemeswithnobasisinfact.
Idon'tthinkinanyoneofourhear
hasanyS.& L. or bankbeenshowntohavegone
under,
beenin
troubleby
givingloansinthose
neighborhoods.Yet
we readabout
$15 billion,
one-sixth
of allthelendingis
goingtoIronCurtain
countries.
What collateral?
Who inspected
what?Itiseasier
toget

aloaninAlbaniathanonthe
WestSideofChicago.
Itisincredib
wegetintothesearguments.
Itisbeyondmethat
theCongressdoes
sayyouarechartered
togive
loans,
youhavetogive
loans,
or you
loseyour
charter.

Thatiswhat
theyaresupposedtodowiththepeoples'mon
We
aregoing
toprobably
haveadebate
on co-insurance,whichdo
make sense.

Mr.NADER.
Imightaddthatapproposthat
New YorkTimesserie
a few weeksagoon theNew YorkCitybanksgoing
through
the
Bahamastomaketheirloans,sothey
canescapeNew
YorkCityand

Statetaxes,wearegoingtoseeanaddeddimensiona
theseloanfunds.
Theyhavebeenfleeingfrom
thecentral
citytothe

suburbs,theyhavebeenfleeingfrom
Buffalocentralcityto
Beverly
Hills,viaanacquisitionbyoneofthe
Buffalobanks.
Now we aregoing
toseean increasing
sophistication
of inter
national
flight.
Thatiswhythecharteringmechanism
hasgottobe

veryveryseriously
consideredin
termsofwhataretheconditionsfor

grantingcharters.
As yougetmoremultinational
banks,
asyouget
morelinksbetweenmultinationalbanksanddomestical
finan

cial
institutions,
facilitated
bythewhole
computer
revolution,y
aregoingtoseean excessivefacility
flight,
whichisgoingto chal

lengeto
thecorethe
subject
jurisdiction
thatthiscommitteehas
SenatorHeinz.
Thankyouall
verymuch.
I knowmy 10minutes

havedoublyexpired.

Thankyou,Mr.Chairman,
foryourindulgence.
The CHAIRMAN.I wanttothankyou verymuch,Senator
Heinz,

I think
yourquestioning
hassuggested
somelinesalong
which
we

canimprove
this
bill.

I amtoldthatthecities
thathavemosteffectively
usedCD Bloc

grantshaveleveraged
theirprivateloanswiththeirCDfu
And this
bill,of
course,
wouldencourage
that.
In fact,
wemight
specifically
provide
language
thatwouldindicatethat
asoneofthe
elementsto look for.

I also
think
we might
addasection
possibly
recognizingele

offiicials,
asyousay,along
withcommunitygroups.

165

Idon't
wanttolessen
inanyway,however,thestanding
and en

couragement
thatwe shouldgivefor
consumer
groups
and com

munity
groups
inthis
legislation.
Iwanttothankallofyou.
IthankMr.Naderforemphasizingthe
importance
of putting
someteeth
in thisbill
by providingfor
standing,
sothatsuitcan
bebrought.
Thatisaveryinterestingsuggestion.Wecertainlywantt

veryminimumprovidemorestandingforcommunitygroup

ministrativeproceedings.
Thank youverymuch.

Our nextfourwitnesses
aretheHonorable
CarolGreenwald,

Commissionerofthe
Massachusetts
StateBanking
Department;the
Honorable
LawrenceConnell,
Commissioner
of the Connecticut

State
Banking
Department;
Dr.JohnMarlin,
CouncilonMunicipal
Performance;andMr.Conrad
Weiller,QueensVillage,
Philadelphia,
Alliance
forNeighborhood
Government.

Weareanxioustohearyourtestimony.
Wearedelightedtohave

you beforeus.
Pleaseproceed.

STATEMENT OF CAROL GREENWALD, COMMISSIONER,
MASSACHU.
SETTS STATE BANKING DEPARTMENT

Ms.GREENWALD.
Westrongly
supportthe
legislation
beforethe

committee,the
CommunityReinvestment
Actof1977.
Thecriteriato

beused
bybankregulatoryagencies
ingrantingbank
chartersand
branches
should
beclarified
by legislation
sothatthepublic's
per

ception
of convenienceand
needs,andnotthe bankingindustry's
becomesthebasisofdecisionmaking.

Thereisnosubstitutefor
thistype
ofpositive
action.Loan
dis
closureandanalysiswillinformcitizens,legislatorsand
officials
asto wherebankshavenotbeenmakingloans,
wherebank

disinvestment
hasalready
occurred.
Whiledisclosure
will
indicate

after
thefactwherereinvestment
remedies
may be necessary,
it
isnot
preventiveaction.

Thereareatleasttwowaysin whichredlining
practices
can
beaddressed
without
havingspecific
congressional
action
toredress
thegrievances
ofdepositorsinurban
communities
nationwide.
One
istomakebankmanagement
moreresponsive
tothecommunities
which
theyarechartered
toserve.
Amongthelarge
Boston
savings
banks,
forexample,thereareremarkablyfewtrusteeswhoare
Boston

residents.
Ifevena fewofthetrusteesofeachbanklivedinthesecity

neighborhoods,
itisdoubtful
that
these
institutions
would
continue

toreinvestonlypenniesforeverysavingsdollardeposite
A secondextremely
effectivemeansof
insuring
thata financial
institution
has and willcontinue
to meetthe credit
needsof the

communitywhich
ithasbeencharteredto
serve
isthroughperiodic

review
on thepartof Federal
regulators,
as proposed
inthislegis
lation.

In Massachusetts,
we haveadministratively
instituted
many of
theprovisions
of thisbill;
wehave donesoin keeping
withour

legislativemandatetoregulate
inthepublicinterest.

166

Thedepartment
hasheldpublic
hearingson
every
branch
offic

petition.
Traditionally,
regulators
havenotified
onlyother
financia
institutionsin
this
manner,
sothattheinfrequenthearings
which
havebeenheldhavefocused
on theconcerns
ofbanksfearing
new
competition,ratherthanonthe
needsofthepublic.
Communitygrounsthatexpressaninterestinbankbra

getonourmailinglisttoreceivenoticesofhearin
theirtestimony
iswelcomed
andoften
helpful.
We havebeencon

cernedthatevenourpresent
notification
procedures
areinadequate
foreliciting
relevant
public
comment.

Thatispartly
because
we don't
believe
thatindividuals
actuall
readthelegal
noticeswhenthebankadvertisesthereisgo
hearing
on its
branch
petition.
We aretherefore
nowin theprocess
ofdraftinga
new directiv
onadvertisingnoticesto
begiventothepublic.
Ratherthanputti
thead inthelegalnotices,
we will
berequiringbanks
toputanad
wherethebanknormally
places
an adin thenewspaper
forits
normaladvertising.
Thebank mustgivethesame information
it
putsinthelegal
notice,
namely,
wherethehearingis
goingto be,
wherethey
wanttobranch
to,andwhattimethehearingwillb

The ad shouldalsohavethebank's
logoon itand beinlargeprint.
Andinaddition,thebankmustplaceinitslobbyalargepost

thissamekindofinformation.Theposterwillbesimil
banksputinthewindowexplaining
thedifferent
interest
ratesthe

bankpayson deposits.

Second:
The Department
hasrequiredletters
reaffirming
banks
commitment
toserving
thecredit
needs
oftheareas
inwhichthey
werechartered,
beforeapproving
suburban
branch
petitions.

Massachusetts
changed
itsbranching
law abouta yearago.Be
forethat,Bostonbankscoud
notbranchoutside
oftheir
home office

county,
whichisbasicallythe
city
ofBoston.
In thelast
yearthey
can branchwithin15 milesof thecity,
whichtakesthem to the
suburbs.

The firsttime
thatthedepartment
required
suchaletter
of a

Bostonbank,the Charlestown
SavingsBank,the president's
re

sponse
wasthateventhough
hisbankwascommitted
tothecityof
Boston,in
principlehe
objectedtothiskind
ofrequirement,that
shouldhavetoput
inwritingthathehad
acommitment
tothecity
in which he was chartered.

However,since
we stucktoourguns,wehavereceivedthat
and we have received
similar
letters
from allof the banksthathave

appliedfor
a branch
application,
whichI think
isnow seven
banks

inthe lastyear.

Inadditiontothegeneral
commitmentthat
thebankswillcontinu

toserve
thecredit
needs
ofthecity
in whichtheywerechartered
wehaveasked
forcertain
positiveactionstobetaken,depen
what we were familiar
within thatbank.

In onecasewe gota commitment
thatthebankwouldnowmake
mortgage
loanapplicationsavailable
atall
itsbranch
locations.
An
otherwasasked
tomakeacommitmenttoworkwithcommunity

resentativesin
theolder
neighborhoodsthatittradition
served

and toseeklocal
areamembersforitsBoardof Trustees.

167

Most interestingly,
anotherbank
wasgranted
permissionto
estab
lisha suburban
branch
onlyafter
itrenewed
itscommitment
toa

branchin an underbankedneighborhood
byrelocating
ittobetter

quarters,extendingbankinghoursthere,andofferingtheban
range of servicesat
thebranch.
Thisbranch
thebankhadearlier
soughttoclose;arequestwhichhadbeendenied.
These are the kindsof actions
that can be taken at the review

process,
at a branchhearingby
theregulatoryagency.

Third:The Department
hasreminded
institutions
chartered
in
urbanareasthat,iftheyareinterestedinpetitioningthe
Department
for suburbanbranches,
theymust be prepared
todocumenttheir

recordofserving
credit
needs
inthecommunities
wheretheyare
presently
located.

Notwithstanding
this
statement,
recently
halfofthecooperative
banksin thecityofBoston—thecooperative
banksareour
state

chartered
savingsand
loanassociations—
declined
anoffertojointhe

BostonBanksMortgage
ReviewBoard.

This was a boardcreated
a little
morethana yearago,madeup

ofthree
savingsbankers,representingthesavingsbanks

and3 communityleaders.
Theboardmeets
every
otherweekandthey
reviewdeniedmortgageapplicationsthathavebeenforwarde
board.
Thedepartmentpubliclyrespondedbystatingthatwewo
haveto scrutinize
verycarefullyany
futureapplications
fora
branchbybankswhichrefused
toallow
thereview
board
toreview
theirmortgageapplicationsforpossibleredlining.
The12savingsbankscurrentlyparticipatingintheboardp
thisstatementand
askedthedepartmentto
retractiton
thegrounds

-Iamgoingtoquoteextensively
fromthepress
releasetheyissued

that

thistype
ofadministrative
action,
evenifwithin
thelegal
powers
oftheCom
missioner,
isapoorwaytogoaboutsecuringcooperation.
Suchactivitiesappear
to representthe
Commissioner's
pricefor
anactionshefavors.
Thisapproachis
alltoo similarto those which characterized
some of the behaviorof the Nixon

administration
as disclosed
inthepost-Watergate
period.
As Government
func
tionaries,
theytoousedquasi-legalpowers
topressure
people
intocooperating.
They tookeptlists
of"enemies”,
ofthosewhodisagreedwiththem.Such uni
lateral
actions,
ifcontinued,
canonlyresult
in thewithdrawal
of many,ifnot

all,
ofthevoluntaryparticipantsin
this
worthwhileefforttoencouragegreater
investmentinhousingintheCityofBoston.

Thisstatementmeanttomethateventhosebanksvoluntaril
par

ticipating
inthemortgagereviewboard
sawtheir
commitments
as
voluntary
and didnotseethatservingthe
credit
needsoftheir
com

munitywasalegalobligation
entailedintheircharter,andthe
insistingonsuchresponsivenesstotheircommunity
wasalegitimate
action
by thechartering
authority.

Iwouldhopethattheproposedlegislation
wouldmakethismuch

clearer,
bothtothebanksandtoregulatory
agencies.

Finally:
Weareconcerned
thatour
interest
inmeetingthecredit
needs
ofcommunities
be institutionalized,
and we arebeginning
to
require
additional
information
from urbanbanksin theirbranch

applications
asaregularmatter.
Suchinformationwill
cover
suchmatters
as,One:Thebank's
description
of socio-economic
trends
intheurbanneighborhood
it

168

serves,thecreditneedsimpliedbysuchtrends,andact
plannedbythebankinordertorespondto
thoseneeds.

Two: The description
ofthepolicies
and practicesthatmayaffec

creditgrantingprocesses,suchas
themethodofdealingwithver
inquiries
aboutmortgages,flexibilityinhandlinghomei
loanneeds,
andthechoice
betweenconventional
orgovernment
in
suredmortgages.

Finally:Any
present
variation
inservices
available
atdifferent
branches.

Thedepartmenthasfoundthemortgage
anddepositinformati
thatwe havecompiled
underthedisclosure
directives
issued
byour

officein
1975andagainin
1976havebeenextremelyuseful.
Unlike
theFederal
Home LoanBankBoard'sobjectionstoarequest

committeetocompilesimilarinformation,wehavef
infor

mationtohavehighbenefits,andtobecapableofbeingp

withveryminimalcosts.

Iassureyou,
Senator,wehaveveryminimalresourcesfor

The onlymanner
in whicharegulator
canascertainhow
the

credit
needs
ofa community
arebeing
served
istoknow how well

depository
institutionsare
collectively
serving
that
area.Mortgag

disclosure
canprovide
a Federal
regulatoryagency
withessentia

information
thatcouldneverbe obtained
fromanindividual
bank

submittingabranchapplication.

Forexample,inapreliminaryanalysisofthemort
disclosedbytheBostonareabanksunderthe
Statedirectivelast
year,

thedepartment
beganinvestigating
thereasons
fortherelativel
lownumberofresidential
loans
granted
by somebanksin urban
neighborhoods
overtheone-year
period.

Atfirst
we tookthebanks'argumentthat
therewaslow
demand,
thatthesewere neighborhoods
wheretherewas low volumehome

sales,either
becausethey
arestable
older
neighborhoods,
orthere

wasn't
a demandformortgages
inthearea.
Butwefoundtherewerea
substantialnumberofhomesales;
there

justwasn't
a substantial
numberofbankmortgagesbeingmade
in
the area.

Table1 showsthatin a substantial
numberofBostonneighbor
hoods,bankmortgagesare
lessthan
50 percentofthehomesalestha

takeplace
inthatneighborhood.
Thatisveryinteresting,
because
bankfinancing
isclearly
theeasiest
and least
expensive
way of

purchasing
ahome.Usinga private
mortgage
company
withits
shorter
maturity
loans,
and usually
higherinterest
rates
ismuch
moreexpensive.

Thequestion
thencomeswhy areindividualschoosing
togo to
privatemortgagecompaniesratherthangoingtoban
From ourdataon mortgagedisclosure,
we havereceived
infor

mation
aboutapplicationsreceived
atbanks.
Intable2,youseetha
inmany Boston
neighborhoods
mortgage
applicationsare
less
than
halfofthehome sales
takingplaceinthoseneighborhoods.

Sotheneighborhoodpeoplehavecometotherealizatio
isnopointingoingtothebank,youarenotgoingtogetam
there,so
theydon't
apply.

169

Or— andthisiswhatwearenotsureof-theyarenotgi

applicationwhentheydowalkin.
Thatisaquestionwe
willhaveon
the branchapplications,
about
how do youhandle
verbal
inquiries
onhomemortgageapplicationsorloans.
Our department'sdirector
of research,
who iswithme todayin

caseyouhavequestionsaboutourspecificstudy,wascontactedea

thisyearby
Mr.Gillespie,the
DeputyDirectorofthe
Federal
Home
Loan Bank Board,
who inquired
aboutouranalysis
of mortgage
loan disclosure
information.
In a letterdated
February
1,1977,she
explainedto
Mr.Gillespiewhatmeasureswefoundtobemostusef
and how easily
an analysis
could
be performed,
evenwithlimited
resources.

Consideringtheimportanceofanalyzingthisdatatot

ournation'scitiesandtheeasewithwhichthepertinentinfo
canbeobtainedandanalyzed,thelackofinitiativeonthepar
FederalHome LoanBank Boardand other
Federal
agencies
is
appalling.
Someof theconclusions
of ourdepartment'sanalysis
were summarized
in testimony
presented
insupport
of an anti
redliningbillnow
beforethe
Massachusettslegislature.
And Iwould
behappytoprovidethecommitteewitha
copyofthattestimony.

If youhave
anyquestionsaboutthatanalysis,
Ihavethedirector

of researchherewith me.

In conclusion,
I believe
thatdepository
institutions
do havean
obligationtoservetheircommunitiesinanaffirmativeand
way.Thisappliesmostemphaticallytomutualthriftinstit

thevery
nature
oftheir
charters
andtocommercialbanks
aswell,

eventhoughtheyhaveobligations
tostockholders,
because
ofthe
factthat
theirchartersarevaluable
publicfranchises.
Ifdepository
institutions
are not fullyresponsive
to theircommunities'
needs,

application
review
process
isanappropriate
way forregulators
to
find
thatoutandtoseekaquidproquoforthepublic.
We have

triedto represent
the publicinterest
in thisway in Massachusetts
and otherStatebankreguators
havetakensimilar
actions,
most
notably,
Connecticut.
The Community Reinvestment
Act would
demonstrate
to Federal
agencies
thatCongress
expects
them to do
likewise.

[ Thecomplete
statement
ofMs.Greenwald
follows:]
PREPAREDSTATEMENTOF CAROL S. GREENWALD,MASSACHUSETTSCOMMISSIONER
OF BANKS

We strongly
support
theconcepts
embodiedin theproposed
Community Rein

vestment
Actof1977,
an acttoencouragefinancial
institutionsto
helpmeetthe

credit
needsof thecommunities
in whichtheyarechartered.
The criteria
to be
usedby bankregulatoryagenciesin
grantingbank
chartersand
branches
should
be clarified
by legislators
so thatthe public's
perception
of “ convenience
ard
needs”andnotthebankingindustry's,becomesthebasisofdecision-making.
Thereis no substitute
for thistypeof positive
action.
Loan disclosure
and

analysis
will
inform
citizens,legislators
and other
public
officials
astowhere
bankshavenot
beenmakingloans,
wherebanksdisinvestment
hasalreadyoc
curred.While disclosure
willindicate
afterthefactwherereinvestmentremedies

maybenecessary,itisnotpreventiveaction.

Thereareatleast
two waysin whichredlining
practices
canbe addressed
without
having
specific
Congressional
action
to redress
thegrievances
ofde
positors
in urbancomunitiesnationwide.
Oneistomake bankmanagementmore

170
responsiveto the communities which they are charteredto serve.Among

the

largeBostonsavingsbanks,
forexample,
thereareremarkably
fewtrusteeswho
are Bostonresidents.
If evena few of thetrustees
of eachbanklivedin these
cityneighborhoods,
it is doubtfulthat theseinstitutions
would continue to re

investonlypenniesforeverysavingsdollardeposited.

A second
extremely
effective
meansofinsuring
thata financial
institutio

has and willcontinue
to meetthecredit
needsof thecommunitywhich ithas
beenchartered
to serveisthroughperiodic
reviewon thepartoffederalregu
lators,
as proposed
in thislegislation.
In Massachusetts,
we have administra
tively
instituted
many of theprovisions
ofthisbill;
we havedoneso in keeping
withourlegislativemandatetoregulateinthepublicinterest.

(1) TheDepartmenthas
heldpublichearings
on everybranch
office
petition
Traditionally,
regulators
have notified
onlyotherfinancial
institutions
in this
mannersothat theinfreqeunt
hearingswhich havebeen heldhavefocusedonthe

concerns
of banksfearingnew competition
ratherthan on the needs of the
public.
Communitygroupsthatexpress
an interest
in bank branchingmay get
on themailinglist
toreceive
notices
ofhearingsfree
ofcharge;
theirtestimony

iswelcomed
andoften
helpful.
We havebeenconcerned
thatevenour present

notification
procedures
areinadequate
foreliciting
relevant
public
comment.In
trested
persons
can easily
misstherequired
legaladvertisements
and may not
knowaboutour mailing
list.
Therefore,
we are now changingour notification
procedures.
We willrequire
thatnotices
of branchproposals
be carried
in local
newspapers
in a mannersimilar
to regular
bank advertising,
withlargerprint,

thebank'slogoandallthepertinentinformationaboutthehearin

beinglostin thesmallprint
oftheclassified
adspage.Also,wewill
requireap
plicantbankstopostasimilarnoticeinaprominentpositioninallofthe
(2) The Department
has required
letters
reaffirming
their
commitment(from
urbanbanks)to serving
thecredit
needsof theareasin whichtheywerechar

tered,
before
approving
suburban
branch
petitions.
The first
timethat
theDe

partmentrequired
such a letter
of a Bostonbank,the Charlestown
Savings
Bank, the Presidentrepliedthat,while his bank was committed to serving

Boston,he thoughtthattheDepartment'srequest
in principle,
wasentirely
inappropriate.
Eventually,
thisbank and four otherBoston inst tions for
which we have approvedsuburbanbrancheshave submitted
such letters.
In
addition
to general
commitments
to maintaining
services
ininnercity
neighbor
hoods,the banks'letters
have in some casescontained
an additional
positive
ingredient.
For example,
one bank assured
us thatitwouldmake itpossiblefor

mortgage
loanapplications
tobefiled
atallitsbranch
locations
andanother
made a commitmenttopromoting
mortgage
loansand workingwithcommunity
representatives
in the olderneighborhoods
it has traditionally
servedand to
seek more localarea members for its Board of Trustees.Another bank was

grantedpermission
to establish
a suburbanbranchonlyafteritrenewedits
commitmentto a branchin an underbanked
neighborhood
by relocating
itto
betterquarters,
extendingbankinghoursthereand
offeringthebank'sfull
range
of servicesat the branch- a branch 'thatthe bank had earlier
sought to close.

Theseareallexamples
ofaffirmative
action
topromotecommunityreinvestment
as partoftheprocess
of reviewingapplications.
(3) The Department
has remindedinstitutions
chartered
in urbanareasthat,
iftheyareinterested
in petitioning
theDepartment
forsuburban
branches,
they
must be prepared
to documenttheirrecordof serving
credit
needsin the com
munities
wheretheyarepresently
located.
Notwithstanding
oftenrepeated
statements
abouttheserequirements,
a few
weeksago,9 outof18 cooperativebanks
in Boston(ourstate-chartered
savings
and loans)refused
an invitation
to jointhe BostonBanks MortgageReview
Board. The Board, voluntarily
formed under the auspicesof the Department

witha votingmembership
of threesavings
bankersand threecommunityrepre
sentatives,
meetseveryotherweek to reviewappeals
from Bostonhomebuyers

whosemortgage
applications
toparticipating
bankshavebeendenied.
The De
partment
publicly
responded
by stating
that.
without
regular
review
by the
Board of the banks'mortgageactivities,
the Departmentwouldhaveto "scru

tinizevery
carefully
anyfutureapplicationsfora
branchby
bankswhich
refuse
to allowthe Review Board to reviewtheirmortgageapplications
forpossible

redlining.”
The 12 savings
bankscurrently
participating
in theReviewBoard

171
protested
thisstatementand
askedtheDepartmenttoretract
iton thegrounds

that“thistypeofadministrative
action,
evenifwithin
thelegalpowers
ofthe

Commissioner,
isa poorway to go aboutsecuring
cooperation.
Such activities
appear to represent
the Commissioner's
"price"
foranactionshe favors.
This
approach is alltoo similarto thosewhich characterized
some of the behaviorof

theNixonadministration
asdisclosed
inthepost-Watergateperiod.
As Govern
ment functionaries,
they,toousedquasi-legalpowers
to pressure
people
into
cooperating.
They,too,keptlists
of "enemies"-ofthosewho disagreed
with
them. Such unilateral
actions,
if continued,can only resultin the withdrawal

of many, if not all,
of the voluntary
participants
in thisworthwhile
effort
to
encourage greaterinvestmentin housingin the City of Boston."

Thisstatementclearlyindicatesthateventhosebankswhowerepartici
in the MortgageReviewBoard saw theircommitmentsas a voluntary
action;
they did notseethatserving
thecredit
needsof their
communities
was a legal
obligation
entailed
in theircharters
and that,therefore,
insisting
on suchre
sponsiveness
was a legitimate
action
by thechartering
authority.
Theproposed
legislation
wouldmake thismuchclearerboth
tothebanksandtotheregulatory
agencies.

Needlesstosay,theDepartmentrefused
toretract
thestatement
aboutbranch
applications.
We do notseeissues
of credit
needs,
likeredlining
in the commu
nities
thesebanksare chartered
to serve,
as concerns
whichmanagementcan
refuseto address,
particularly
iftheyare petitioning
toservethe convenience
andneeds ofthepublic
elsewhere.
We remain concerned
thatattention
to credit
needsand banks'pastperform
ance be furtherinstitutionalized.
To thatend, we are beginningto requireaddi

tional
information
fromurbanbanksintheir
branch
applications
asa regular

matter.
Suchinformation
willcoversuchmatters
as:(a) thebank's
description
of socio-economictrendsin the urban neighborhoodsit serves,the creditneeds

impliedby such trendsand actions
takenor plannedby thebank in orderto
respondtothoseneeds;
(b) description
ofpolicies
and practices
thatmayaffect
thecredit-granting
process,
e.g.methodofdealingwithverbal
inquiries,
flexi

bility
in handlinghome
improvement
loanneeds,
orthechoicebetween
conven
tional
or government-insured
mortgages;
(c) any present
variation
in services
availableatdifferentbranches.

The Departmenthas foundthe mortgageand deposit
information
compiled
under disclosuredirectives
issuedfrom our office
in 1975 and, again,in 1976,

extremely
useful.
UnliketheFederalHome Loan Bank Board,whichwas asked
by this Committeeto analyzethe federalhome mortgagedisclosure
datain

thirty
metropolitan
areas,
theMassachusetts
Banking
Departmenthas
found

thatsuchan analysisforthe
BostonSMSAcanbe made withminimalcostsand
tremendousbenefits.
The onlymanner in whicha regulator
can ascertain
how
thecredit
needsofa communityarebeingserved
istoknowhow welldepository
institutions
are collectively
serving
thatarea.Mortgagedisclosure
can provide
a federal
regulatory
agencywithessential
information
thatcouldneverbeob
tained
from an individual
banksubmitting
a branchapplication.

Forexample,inapreliminaryanalysisof
themortgageinformation
disclosed
by BostonareabanksundertheStatedirective
lastyear,
theDepartment
inves
tigated
thereasons
fortherelatively
low number of residential
loansgranted

by banksin some urbanneighborhoods
overa one yearperiod.
Initially
we
thoughtthatthismightbeexplainedbythelowvolumeofhomesales,that
theseneighborhoods
wereverystablewith
littleturnover
or thattherewereno
homebuyers
interested
in purchasing
homes in theseneighborhoods.
What we
foundwasthattherewasa substantial
numberofhomesalesintheseareasbut

thatmany
buyerswerepurchasingtheirhomeswithoutbank
financing.
Insome
Bostonneighborhoodslike
JamaicaPlain,
NorthandSouthDorchester.
Roxbury,
SouthBoston,
and theSouthEnd,five
or moreoutofevery10 homebuyers
pur

chasedtheirpropertywithouta
bankmortgage
(SeeTable
1).

172

TABLE 1.-Bankfinanced
homesales,
percent
oftotal
residential
sales
(July1975toJune1976)(table
5A)
Bank mortgages
asapercent

Geographicarea:

oftotal
homesales

CityofBoston:
Roxbury-

20
33
50
52
52
52
56
61
63
63
64
66
72
79
89

North DorchesterSouth End..
Jamaica Plain.
South Boston
West End.
South Dorchester.
Charlestown .

East Boston.
Roslindale
.

Back Bay
Hyde Park,
North End.

West Roxbury-

Allston-Brighton.

Oldercities
and urban towns outsideBoston 1
Inner suburbs ?
Middle suburbs3
Outersuburbs

83
83
78

11stquartile-remainingareas.
2dquartile.
83dquartile.

•4thquartileThosesuburbsareservedsomewhatlessthanothersuburbsbyBo

arealsoservedbybanksoutsidetheBostonarea.

The Departmentthen
questioned
whyhomebuyersin theseneighborhoods
con
sistently
obtained
financing,
at oftengreater
expense,
from othersourceslike
private
mortgagecompanies.
Did thesehomebuyersinitially
applyfora bank
mortgageand pursuethesealternatives
onlyaftertheirbank mortgageapplica

tions
had beendenied?
Itappears
thathomebuyers
in these
areasaresimply
notencouragedtoapply.(SeeTable2).
TABLE2.--MORTGAGE
APPLICATIONS
COMPARED
WITHRESIDENTIALSALES
(JULY1975-JUNE
1976)
Numberofmort.

gageapplications
comparedwith
residentialsales

Geographicarea
Cityof
Boston:
Roxbury.
NorthDorchester.
JamaicaPlain..
EastBoston..
South Boston..

Roslindale
SouthDorchester.
West End..

HydePark.
WestRoxbury
Charlestown.

Allston-Brighton.
NorthEnd.
South End

Cityof
Lynn:
LynnCenter.
LynnEast
Lynn West.

(percent)
32
39
41
44
48
60
63
66
67
69
72
81
84
118
55
58
75
92

Mortgage
Residentialsales
applications
(number)
(number)

86
257

106
121
120
175

432
89

201
200
111
293
79
223
134
170
201

266
663
258
275

250
292
686
134
300
292
154

362
94
189
245
293
267

Oldercities
and urbantownsoutside
Boston.

2,391

Inner suburbs.
Middle suburbs.

7,427
8,451

Outersuburbs.

98
86
68

6,167

76
2,536
7,604
9,833
9,069

Total.

27,599

34,499

LynnShore.

173
Our Department's
Director
of Researchwas contacted
earlier
thisyearby
Joseph W. Gillespie,
DeputyDirector
of the FederalHome Loan Bank Board,
who

inquired about our experiencewith analysisof mortgage loan disclosure

information.By letter
datedFebruary1,1977,she explained
to Mr. Gillespie

what measures
we foundtobe mostuseful
and how easily
an analysis
could
be performed,even withlimited
resources.
Considering
theimportance
of this
problem to the vitality
of our nation's
cities
and the ease with which pertinent
information can be obtainedand analyzed,the lack of initiative
on the part of

the FederalHome Loan Bank Board and otherfederal
agencies
is appalling.

Some oftheconclusionsofour
Department'sanalysis
todateand
lessonsfrom
our relatedexperienceweresummarizedrecently
intestimonypresented
insup
port of an anti-redlining
bill
now before
theMassachusetts
legislature.
I would

be happytoprovidethe
Committeewtihacopyofthattestimonyfortherecord
CONCLUSION

I believe
thatdepository
institutions
do havean obligation
toservetheir
com

munitiesinanaffirmative
andresponsive
way.Thisapplies
mostemphatically

to mutual thrift
institutions
by the verynatureof theircharters
and to com

mercialbanks as well,even thoughthey haveobligations
tostockholders,
because

of the factthattheircharters
are valuable
public
franchises.
If depository
in
stitutionsarenotfullyresponsivetotheircommunities'
needs,application-review

processis
an appropriatewayforregulators
tofind
thatoutand
toseekaquid
pro quo forthepublic.
Wehavetriedtorepresentthepublicinterestin
thisway
in Massachusettsandotherstatebankregulatorshavetakensimilaractions.
The
Community Reinvestment
Act would demonstrate
to federal
agencies
thatthe
Congressexpectsthemtodolikewise.

The CHAIRMAN.
Thankyouverymuch,Ms.Greenwald.
Mr. Connell,
I seeyou havea concisestatement.
I callyour

attention
tothefactthatitisafter
12 o'clock
butI presumeyou

cangiveusthatin
alittleover
5 minutes.
Go right
ahead.
STATEMENT OF LAWRENCE CONNELL,
COMMISSIONER,
CONNECTI
CUT STATE BANKING DEPARTMENT

Mr. CONNELL.
Yes, Senator.
Thank you for inviting
me to
testify
beforethecommitteeon S. 406.

[The statement
readby Mr. Connell,
and the attachments
for
the recordfollow:]
PREPAREDSTATEMENTOF LAWRENCE CONNELL,JR.
My name is Lawrence Connell.I am Bank Commissionerin the Stateof Con

necticut.
Thank you forinviting
me to testify
before
theCommitteeon S.406,
the Community ReinvestmentAct. We endorsethe Committee'sinterest
in ad

dressing
the urgentnational
problemof comunityreinvestment
by financial
institutions.

Brieflystated,
S.406wouldrequirethefederalbankingagencies
tospecifically

considerboth
thedeposit
andcredit
needs
oftheparticular
communitytobe

servedwithrespecttonewcharters,
branches
and otherlike
applications.
While
we believethat thesecriteria
are usuallyconsideredin applications
acted upon

by federal
agencies,
wemust acknowledge
thatwiththeexception
of theBank
MergerAct,
federallaw'doesnotspecify
marketcriteriato
be employedby the
federalagencies.
Federal
agencieshavepublished
proceduralregulationsthatat

leastrefertothegeneralconvenienceandneedsofthecommunitytobes
The Comptroller
oftheCurrencyhas published
policy
statements
on bank char
ters,
branches,
conversions
and othercorporate
activities.
That policy
statement
includes
bankingfactors
and marketfactors
among itsothercomponents.
The
thrust
of the policy
statement
is directed
towardsthe potential
of successful
112 U.S.C.26,27,30,35 and 36,12 U.S.C.1816,12 U.S.C.321 and 323
212 CFR 42, 208 and 303

88-032 0.77

- 12

174

operation
of the particular
bankingfacility
from a profitability
standpoint.
Section
II of thepolicy
statements
states
withrespect
to branchapplications:
“...The Office
oftheComptroller
of theCurrency
(OCC) encourages
a bank
ingstructure
capable
offulfilling
local,regional
and national
needsforbanking
services.
In theinterests
ofincreased
competition,
service
to thepublic
and ef
ficiency,
theOCC considers
branchinga
desirable
meansofbankexpansion
..."
Nevertheless,
thereis
aneed forbetterunderstandingofthecriteriaemploy
by both stateand federalregulatoryagencieswhen rulingon bank structure

applications.
In thisregard,
Connecticut
statutes
are no better
than federal
law.Wehaveattemptedtoremedy
thissituationby
issuingstatementsfromtime
totimeonpolicyissuesthatwebelievetobeimportant.

In Connecticut,
a principal
concern
hasbeenservices
tocity
residents
and,
in particular,
convenientbanking hours and food stamp sales.Some two years
ago,it had come to our attention
that bankinghours might have been more lim
itedin the citythan in the suburbs.Moreover,food stamps,which are only sold

throughfinancial
institutions
in Connecticut,
were notbeingmade available
on
a convenient
basis.
Exhibit
I isa statement
by the BankingDepartmentthat
expresses
ourconcern
aboutthismatter.
Itannounced
a suspensionofaction
on
branches
whileastudywas made oftheseissues.
Exhibit
II revealed
theresults
ofthestudy.
Itconfirmedourconcernthatbankingserviceswerenotasavaila
in thecities
as the suburbs.The surveyalsonotedan improvement in food stamp
services.
Since then,Saturday and extended banking hours have also become

more available
in thecities.
Thisisan ongoingprocess
in Connecticut.
Exhibit
IIIisareleasedescribingarecentfollowupsurvey.
Additional
services
we feelareimportant
includestudentloans
and participa

tioninstatelow
andmoderate
incomehousing
finance
programs.
ExhibitsIV
and V describeouractionsin
thisarea.
Thelatter
exhibit
specificallystates:

"... Banksandsavingsandloanassociationsenjoy
protectionfrom
competi

tionfoundin few otherareasof business.
Establishment
of branches
andnew
institutions
iscarefully
controlled.
. . . In returnforthisprotection,
itis ex
pectedthatthe financial
institutions
willservetheneedsof thepublic.
Along
with convenient bar ing hours,
deposit
and othertraditional
bankingservices,

participation
inthenewergovernment
sponsoredprograms
isincluded
indeter
miningan applicant's
potential
formeetingthemodernconvenience
and needs
test.

Therefore,
withrespect
to S.406,we believe
thatconvenience
and needscri.
teria
shouldbe specifically
included
in allstatutory
provisions
relating
tostruc
turedecisions
by primaryregulators,
i.e.
withrespect
to national
banks,
federal
savingsand loan associations
and federalcreditunions.On the otherhand it is

theobligation
of thestateagencyas the primaryregulator
forstatechartered
financial
institutions
to addresstheseissueswithinitssphereof influence.
It is

somewhatmore difficult
forsecondary
regulators
to effect
thepolicy
objectives
of S.406 because
theyonlyhavea vetopowerafterthestateagencyhas made
itsdecision.
If the stateagency is doingitsjob,thereshouldbe no need forthe

FederalDeposit
Insurance
Corporationor
theBoardofGovernorsofthe
Federal
ReserveSystem torepeatthesameprocedure.

S. 406 is legislation
thatprincipally
refines
administrative
procedures
with
respectto structure
decisions.
It does addressa need to moreclearlyinform the

publicwhy and on what termsbankinglicenses
willbe granted.
Thereis an
additional
toolthat has been providedin Maineto ensurethata financial
insti.

tution
serves
itscommunity.
Section
255oftheMaineCode:permitstwerty-five
or more citizens
to requirethe bank regulatorto conducta hearingon whether

a particular
institution
is serving
itscommunity.
I believe
a similar
statute
should be consideredin federallaw with remedial provisions
for institutions

thatarefoundto beinadequately
serving
their
community.

Insummary,
whenwespeakofrestoring
ourgreat
cities
we arespeakingof
thequalityoflifethere.
Quality
ofbankingservices
includesnotjustgrossloans

ordepositsbut
particular
types
ofloans,
convenientbanking
hours
andneeded

services.
Allthesemustbeinthequotientthatcomprisesconvenienceandneed
In addition,
theindustry
and publicmust
be clearly
informedofthecriteriathe

regulatory
agencyemploys
in arriving
atitsdecision.
Suchismerely
proper

government administration.
Lastly,there must be a betterremedialmechanism

whenan institution
isfoundtohavenotserved
itscommunity.
Because
entry
39-B

MRSA

255

175
bynewcompetitors
byreasonof
laworcapital
requirementsisnot
often
sufi
cientortimely
todealwithservice
needs,
we must bepreparedto
domore.
Exhibit I

AUGUST22,1975.
DECISION

On April
15,1975,the NorwichSavingsand Loan Association,
Norwich,Con
necticut
made application
to the Bank Commissioner to establish
a branch of
ficeat
thejunctionof StateRoutes 12 and 138,Jewett City.

Protestsagainst
saidapplication
werefiled
by theJewettCityTrustCompany

andtheJewett
CitySavings
Bank.Atthe
request
oftheprotestants
a hearing
was heldon the protests
and application
on June 27,1975,at whichtimethe
applicant
and protestants
were represented.
Evidencewas submitted
and testi
mony taken at said hearing.A field
investigation
was conductedby an examiner
on April30, 1975,and the findingsof the fieldexaminer were made available
toallparties.

Afterdue consideration
of evidence
and datasubmitted
in the application,
gatheredon the fieldinvestigation
and submitted at the hearing,I find the

application
tobe inthepublic
interest
andhereby
approve
saidapplicationon

thefollowing
conditions:
(1) Thatthebranchwillbeestablishedby
July1,1976.
(2) That the overall
expenditure
to establish
theoffice
willnotexceed
$160,000.
(3) That NorwichSavingsand Loan Association
offer
foodstamp sales
at said office.

(4) That NorwichSavingsand
Loan Associationmaintain
Saturdaybank
inghoursasproposedinitsapplication.
BASIS

FOR

DECISION

NorwichSavingsand Loan Association,
Norwich,Connecticut,
made appli
cation
to establish
a branchoffice
in JewettCity,Connecticut,
a boroughof

Griswold,
Connecticut,
thelatter
having
a population
of approximately
8,000
persons.
Locatedat thejunction
of Routes12 and 138 the proposed
branchis
considered
to alsoserveto a greater
or lessor
extentthe towns of Lisbon,

Sprague,
Canterbury,
Plainfieldand
Preston.
Competition
is provided
by a number offinancial
institutions
butprincipally
fromthetwo protesting
institutions,
the JewettCityTrustCompany and the

Jewett
CitySavings
Bank.The Jewett
CityTrustCompany,
founded
in1921
hadtotal
assets
of$10,367,987
on June30,1975.
Itisacommercial
bank.
The
Jewett
CitySavings
Bank was established
in 1873and had total
assets
of
$32,497,907as
of June30,1975.Underthebranching
lawsof theStateof Con

necticut,
Sections
36–59and36–129
oftheConnecticut
General
Statutes,
Gris
woldisa
closed
townand no other
commercial
orsavings
bankmay establish
abranch
office
in Griswold
exceptby mergerwithone of therespective
banks.
Therefore,
insofar
as branchoffices
are concerned,
both protestants
have en

joyedamonopoly
formany years.
Theentry
oftheNorwich
Savings
andLoan
Association
intoGriswoldwould
provide
thefirst
new bankingfacility
in over
50years.

Inpassinguponabranchapplication
theBankCommissioner
hasbroad
dis
cretion.
Factors
considered
bytheCommissioner
includethe
generaleconomic
conditionsin
themarketarea,thedegreeofcompetition,prospects
forprofitable
operations,
adequacy
ofthecapital
structureof
theapplicant,
adequacy
of
theapplicant'smanagement,andthe
effect
ofthe
application
onthesoundness
ofthebankinginstitutions
inthearea.Whenmeasuringthedegree
ofcompe

titionon
theproposedmarketareaconsideration
isgiventothenumberand
typesofservicesoffered
by competing
financial
institutions,
therelative
prices

ofsuch
services,
thenumberand
location
ofbankingoffices
andtheirhours
ofoperation.
Withrespect
totheproposed
application
consideration
wasgiventothefact
ciation.
Furthermore,
withrespecttocompetitive
services
theapplicant
pro
posesto
offerSaturdaybankinghours,foodstamp
sales
andinseveralcases

that
Griswold
was closedtobranch
entry
exceptby
a savings
andloanasso

loansatalowerrateand
onmoregeneroustermsthantheprotestan

176

daybankinghourswerenotavailablein
Griswoldatthetimeoftheapplicat
Itisinterestingtonotethat
theprotestant
JewettCity
Trust
Companynotified
thisoffice
on August15,1975,
thatitwouldoffer
Saturday
banking
hours
effective
September13,1975.

Withrespect
toanyeffect
on soundness
ofthetwoprotestingcompetitor
in

stitutions
consideration
was givento thefactthatbothexperienced
growthin
deposits
overthe pastfew yearsdespite
theexistence
of severedisintermedi
ationin Connecticut
and throughout
the nation.
For the pasttwo yearsthe

Jewett
CitySavings
Bank hasexperienced
thesecond
largest
depositgrowth
recordof allConnecticut
savingsbanks.Itsdeposit
growthforthefirstsix
monthsof 1975exceeded
$2,800,000.
The JewettCityTrustCompany is a full
service
commercial
bank.In addition
to services
thatmay be offered
by the

applicant,
Jewett
CityTrustCompanyoffers
trust
services,
commercial
loans,
demand deposits
to corporations
and municipalities,
and payroll
services
to
businesses
and municipalities.
Althoughitsgrowthhas beenlessthan Jewett

CitySavings
Bank,theTrustCompanyhasbeensuccessful
eventhough,
by
choice,
itlimited
itsbanking
office
to Jewett
City.
The TrustCompany has
thefinancial
resources
to developbranchoffices
in othertowns.The factthat
ithas notelected
to do so doesnot necessarily
inferthatitshouldenjoy in
sulation
beyondstatutory
protection
from competition
in the town in which
itmaintainsitsoffice.

A significant
portion
of bankingbusiness
of the residents
of Griswoldis

conducted
outside
of thetown.The marketarea
proposed
by theapplicant
includes
a potential
penetration
throughout
Lisbon,
thirty
percent
of Sprague,
twenty percentof Canterburyand ten percentof Plainfield
and Preston.Gris

woldand theproposed
marketareaarepresently
changing
fromruralfarm
landtoresidential
communities
drawingpeople
who work as faraway as New
London.Contraryto national
and statetrends,
new housingpermits
have con
tinually
increased
in theareaoverthe pastfew yearsranging
from a low of
$756,300
forGriswold
in 1972and increasing
to$2,108,300
in 1974.

Accordinglyconsideringalltherelevant
factorsand
inparticularthe
offering
of Saturdaybankinghoursand saleof foodstamps,theapplication
appeared
tobeinthepublicinterestandwasapproved.
POLICY

STATEMENT

The Banking
Department
hasbeenconcerned
aboutseveral
patternsin
bank

services
thathaverecently
developed.
Firsthas beenthelackofinterest
among

the financial
institutions
in offering
the sale of food stamps. As of July 1975,

of the 176 financial
institutions
in Connecticut,
only36 offered
food stamp

salesincludingonly
onethriftinstitution,
Peoples
Savings
BankofBridgeport.
Norwich Savings and Loan Associationwould be the firstsavingsand loan

association
in Connecticut
to offerthisessential
publicservice.
Beyond the
factthatonlya minority
of thestate's
financial
institutions
offer
foodstamp
salesit
hascome toourattention
thatsuchservice
isfurtherdiluted
by limited
bankinghoursforsuchsalesparticularlyinthecorecities.
Therefore,
theBankingDepartment
isconducting
a surveyof bankinghours
by thefinancial
institutions
underitssupervision
witha viewtowardsdeter
mining whether pattern
of economicdiscrimination
mightexistwithrespect
to banking hours in the core citiesvis-a-vis
the suburbs.Until that survey

iscompleted
a moratoriumwillbe in effect
with respect
to the approvalof
applications
forbranchoffices
by statechartered
financial
institutions.
Exhibit II

Seeptember
29,1975.
FOR

IMMEDIATE

RELEASE

The BankingDepartmenthasju concluded
itssurveyofbankinghourspro
videdby state-chartered
financial
institutions
in eightConnecticut
cities
and
theirsurrounding
suburbanareaswhichshows an overall
pattern
of evening

andSaturday
services
beinggenerally
available
totheresidents
ofthesuburbs
but not availableto the same extentto the residents
of the core cities.
Cities

covered
in thesurveywereBridgeport,
Hartford,
New Haven,Stamford,
Water
bury,New London,Danbury,and Meriden—their
selection
was to providea
statewide
picture.

177
Theconcern
oftheBankingDepartmenthasbeenthatofprovidingequalized
services
to customersin both urban and suburban settings;
and as a resultof

themoratorium
placed
onbranch
applications
by Commissioner
Lawrence
Con
nellon
August22,therehasbeennoteda responseon
thepartofbanksallover
thestate
toreassess
theirpriorities
in termsofthesespecial
services.
To date,
eighteensavings
banks andsix commercialbanks have indicatedtheirintention

tomakesubstantivechanges
intheirhoursof
operation.

Overall
statistics
reveal
thaton an aggregate
basis
of150core
city
banksor
branches,
only41 or 27% wereopen forbankingbusiness
on Saturdays
in the
corecities
and47 or31% wereopenafter6onatleast
oneevening
inthecities.
Insuburbanareas,
88 branchesweresurveyed
showing54% of suchbranches
openatleastoneeveningper
week.Saturdayhoursvariedfrom
citytocity
with
someareasbereftofany serviceatall.

In theCityof Hartford,
of 35 bankingfacilities
in thecorecity,
none was
foundto be openon Saturday,
and onlyeightwereopenafter
sixp.m.on any
oneevening.
Of 58 suburbanfacilities,
however,
sevenwere openon Saturday
and41 openaftersixp.m.,
or 70% ofthe total.
Underthesecircumstances,
it
wouldbeverydifficultforpersonsresidingin
thecorecity
toconduct
theirbank
ingbusiness
on Saturdayor findan urbanbranchin theevening.
Suburbanites,
ontheotherhand,
although
restrictedasto
Saturdaybanking,
wouldhavefacili
tiesopenduringeveningsthroughoutthe
week.
Othercities
revealsomewhatdifferent
patterns
but noneprovidecomprehen
sive
bankingservices
foreither
Saturdays
or evenings.
Of the bankssurveyed
inNew Havenand New London,neither
urbanorsuburban
branches
wereavail
able
forSaturdaybusiness.
Eveninghoursin sixbankswere notavailable
in
theCityof New Londonand often suburbanbranches
in thatarea,onlytwo

providingeveningbankinghours.
NewHavenisjustslightly
betterinproviding
eveninghours
inthecity;
threeoutof22
branchesare
openoneevening,
whereas
45% ofthe33suburbanbranches
surveyed
wereoffering
evening
hours.
Stamford
hasanequalpercentage
of bankingoffices
openon Saturdayofthe

numbersurveyed
—71%—butverylimitedeveninghoursin
bothurbanand
sub
urban
settings.
Waterburyseemstobe providing
moreservices
in thecorecity

bothon
Saturday
andduringeveninghoursof
thebanks
surveyed—
28% avail
ablein
thecityon Saturdayand 76% available
duringevening
hours,
compared
with
7% and 53 % in thesuburbs.
Bridgeport
residents
of bothurbanand sub
urbanareashavealargerpercentageoftheirbanks
andbranches
openon Satur
daysand evenings
thanany othercitysurveyed52 % and 70% respectively
on
Saturday,and33
% and57% duringevenings.
The moratorium
on branchapplicationsaddressed
itself,
also,
to theproblem
oflimited
number of financial
institutions
providing
services
to the public
in

the
sale
offoodstamps.
Commercial
bankshavebeenproviding
suchservices
sincethe
inceptionof
theprogramin1968,buttheincreased
numbersofpersons

receiving
suchassistancetogether
withthelimited
hoursofbankservices
had
madeitverydifficult
forboththerecipient
and thebanksthemselves.
In some
instances,
the restrictions
on hourswhen foodstampswere available
for pur

chaseorthelimitednumberofpersonnelassignedtothe
function
further
exacer
bated
theproblem.
As ofJune1,32 commercial
banks,
onesavings
bank,
and
threecreditunionswereselling
foodstamps.
Inquiries
and requests
forapplica
tions
tosell
havebeenreportedby
theDirectorof
theFood Stamp Programfor

theWelfare
Department
by17savings
banks,
fourcommercial
banks,
nine

savings
and loanassociations,
and onecredit
union,
mostof whom havere
questedapplicationsforinclusionin
theprogram.
Thefundingforsuchservices
isshared
onanequalbasisbythestateandfederalgovernments;
financialinsti
tutionsarepaid4942centspertransaction,acostwhichputs
Connecticutonthe
lowsideinterms ofsupport.

Thestartlingincreasein
numberofhouseholds
receivingfood
stampsoverthe

pastyearhasbeenamongtheelderly,
thedisabledandblind,
theworkingpoor,
andtheunemployed
orunderemployed.
Households
of these
typesreceiving
assistance
in June,
1974were16,173—
inJune,
1975;30,589
or an increase
of

89%inone
year.
During
thesameperiod,publicassistance
households"welfare
families”
wentfrom28,808to
30,213foranincreaseofonly
4.9%.
Thetrendis

continuing
tomove inthat direction.
Duringthe pastthreemonths,the per

centage
ofincrease
in nonpublic
assistancehouseholds,
adjusted
toa yearly
figure,
theincrease
is58%,whereas“welfare”
households
haveincreased
only

1.8%.
Thesteadily
deteriorating
economic
situation
hasaddedpersons
whose

178

needforsuchassistance
hasincreased
dramatically
andtheresponse
ofthose
eligible
has been overwhelming.Part of thischange is alsodue to the effortsof

theadministrationtoinformthepublicandtomakeitsimplertoap
forsuch
assistance.

Thosefactors
promptedCommissioner
Connell
to imposethe moratoriumto
pointup the issueand the response
from the financial
communityhas been
gratifying.
The moratoriumhas beenlifted
and branchapplications
are being

processed
asrapidly
as possible.
Sixapplications
havebeenapprovedthisweek
and eightmoreare in process
of evaluation.
Bankinghoursand variety
and
qualityof servicewillbe among the criteria
to be considered
in branch
applications.
Exhibit III

For ReleaseFriday,25, 1977.
CONNECTICUT

BANKING

DEPARTMENT

The State
Banking
Departmentandthe
DepartmentoftheTreasury
arecon.

ducting
a followup
studytodeterminethe
availability
offoodstampservices
to
the residents
of thestate.
Fieldinspections
willbe conducted
in New Haven,
Waterbury,
Bridgeport
and Hartfordbeginning
March 1st.At leastone field
studywillalsobe made ofa ruralareaofthestate.
A moratorium on branch banking was imposed in the fallof 1975 in order to

encourage
additional
banksto beginto provide
such services
and to provide
extended
hoursofservices
toallcustomers
particularly
forthoseinurbanareas
where eveninghours and Saturday hoursfor banking were minimal.As a result

of thateffort,
23 savings
banks,sevencommercial
banksand one credit
union
have beenaddedto theavailable
outlets
forfoodstamp services
bringing
the
total
in thestateto91.The addition
of thesefinancial
institutions
has notre
sulted
in distributing
theservices
moreevenly
sincetheadditionaloutlets
repre
sent only 10% of the transactions.
Therefore,some banks still
carry a heavier
volume than might be considered
desirable
from both the banks and clientspoint

of view.The purposeof the new studyis to attemptto equalize
theservices
among the institutions
and to determine

there
areareas
notpresently
being

servedadequately.
Partof theproblemstemsfromthehesitancy
ofsome financial
institutionsto
cashpublicassistancechecksbecauseofpastexperienceswithfraud.
Legislation

hasbeenintroduced
intheGeneral
Assembly
whichattempts
todealwiththis

issue.

According
tofigures
provided
by theDepartmentof Social
Servicesas
of Jan
uary,1977,29,012
households
with95,632
individuals
on public
assistance
were
participating
in the program.Thisfigure
represents
over97 % of thosewho
applied.
Otherswho were utilizing
foodstamp services,
including
unemployed
persons,
thoseon social
security,
and families
whose incomespermitted
par
ticipation,
numbered31,600
householdsand83,961individuals.
Thesefigureshave
heldrathersteadyforthe pasttwo yearswiththosenoton public
assistance

dropping
veryslightly,
possibly
asaresult
oftheslightly
improving
economic
climate.

The food stamp program which has been under attackin many areas of the
country has been handled exceptionally
wellin Connecticutdue to the concern

of theadministration
forthisimportant
programof assistance
to our citizens.
Therehas beenan extremely
smallpercentageof
lossor misuseand theefforts

ofthestate
agencies
involved
andthefine
cooperation
ofthebanking
industry
hasbeenlargely
responsibleforthisgoodrecord.
Exhibit IV
STATEMENT:

NEW

HAVEN

SAVINGS

AND

LOAN

ASSOCIATION

DISAPPROVAL

OF BRANCH

AT BOSTONPOST ROAD AND LINDY STREET,ORANGE

On May 18,1976theNew Haven Savings
and Loan Association
filed
an appli
cationto establish
a branch office
at the southwestcornerof the Boston Post

Road and Lindy Street,
Orange.This community of 14,700population
and
areaof17.6square
milesis
currently
servedby threeofficesofcommercialbank
and fiveexisting
or approvedoffices
of thrift
institutions.
The percapita
ratio

179

perbanking
office
inthetownofOrangeis
1837asopposed
toa stateaverage

of 2661.

The New Haven Savingsand Loan Association,
established
in 1890,has its
Main Office
at 124TempleStreet,
New Haven.Thisoffice
isin thecentral
busi

nessdistrictwith
limitedon-street
parkingand
nofeasible
wayto provide
on
premisesparkingordrive-in
facilities.
The Association
currently
hastwo branch
offices,
North Haven openedJune 19,1964and Guilford
established
April13,
1974.Due to thetrendofthepopulation
to move tothesuburbancommunities,
a portionof thegrowthof thisinstitution
hascome fromitsbranchoperations.
The Association
has savings
and mortgagecustomers
in thefourtown areaof

Orange,
Milford,
WestHaven,
andWoodbridgeand
theproposed
branchwould

servetheseexistingcustomersandhopefullygeneratenewaccounts.
The New Haven SavingsBank made application
fora branchoffice
on Old
Tavern Road,Orange,April29,
1976.
Thisapplication
receivedapproval
May 19,
1976.The savingsbank siteisone-half
milefrom theproposed
location
of the

New Haven Savings
andLoanAssociation.
A totalofeight
banking
offices,
ex
istingor approved,
arelocated
within134 milesof theproposed
site,
fourof
thesewithin 12 mile.

The New HavenSavingsand
LoanAssociation
hasnotprovidedvarious
con
sumer servicesthat are expectedin today'smarket. In itsapplication
for a

branchoffice
in Guilford,
itisstated
thattheAssociation
was addingeduca
tionalloans to itsservices,
but thishas not been the case.The Association
does

not participate
in thestudent
loanprogram.
The Association
doesnot partici
patein the foodstamp programeventhoughitsmain office
adjoins
an areaof
low income residents
of theCityof New Haven.Whileitwas stated
thatcon
sideration
would be givento extendedhoursat the Orangeoffice
itis noted
thatthe main office
and existing
branchesare open9:00 A.M. to 3:00P.M.

withtheexceptionof
Thursday
whenofficesare
opento6:00P.M.Thedrive-in

teller
at Guilford
is open to 4:00P.M. daily.
The Association
doesnot offer

Saturday
bankinghours.
The presentmix of financial
institutions
in Orangeincludes
threecommer
cialbanks and fivethrift
institutions.
The applicant
doesnotproposeto pro
videany services
notcurrently
available
in thecommunityand insome areas,

lessthanisprovided
by thecompetition.
Projected
deposits
of$7,000,000
and
profitable
operation
at the end of the thirdyear would appearto be overly

optimistic
inthis
highly
competitive
area.
Since
theNew HavenSavings
Bank
was recently
approvedfora branchoffice
in Orange,
itwouldbe premature
to
inject
still
anotherbranchoffice
in themarketareaat thistime.
Accordingly,
afterdue consideration
of evidence
and data submitted
with

theapplicationandthefieldinvestigation
report,
theapplicationisdisapproved.
Exhibit V
STATEMENT

: NEW

HAVEN

SAVINGS

AND

LOAN

ASSOCIATION

APPLICATION

FOR BRANCH

AT BOSTON POST ROAD AND LINDY STREET, ORANGE, CONNECTICUT

On July7,
1976,
an applicationby
theNew HavenSavingsand
Loan Associa
tionto establish
a branch office
at Boston Post Road and Lindy Street,
Orange,

Connecticut,
was deniedby thisoffice.
In a statement
of reasons
and findings
on
theapplication,
it was notedthatthe proposed
service
areaalreadyhad ade
qautebankingfacilities.
The applicant
did not proposeany significant
new
services.

On August5,
1976,
theapplicantpetitionedfora
reconsiderationoftheappli
cation
and submitted
additional
evidence
withrespect
to the proposed
branch.
The application
forreconsideration
was published
in Connecticut
BankingDe
partment
Bulletin
#676datedAugust13,
1976.

Initsapplication
forreconsideration,New
HavenSavingsand
LoanAssocia

tiondisclosed
thatithad some 1,745
customers
with$4,778,000
in deposits
and

$5,101,000
in mortgage
loans
in theproposed
branchmarketareaof Orange,
Milford,
West Havenand Woodbridge.
The applicant
considers
theproposed
branchasa regional
office
to servetheabovementioned
four-town
area.New
Haven Savings
and Loan Association
alsoreported
thelossof some 1,200cus
tomersin thelastfiveyearsfrom the four-town
areawhichisattributed
to a
lackofa convenient
branchfacility
toservethatarea.

180
New Haven Savings
and Loan Association
had $37million
indepositsand$37
million
in mortgageloansas of December31,1975.Competing
financial
institu

tionsinOrange
arerepresentedbyfourmutual
savingsbanks,onefederal
ings and loan association
and three commercial banks of which allbut one,

OrangeNational
Bank,have deposits
in excessof $100million.
The applicant
states
thattheproposed
branchoffice
isneededfortheAssociation
tocontinue
asa viable
competitorin
the New Haven area.

Itisalsonoted
thattheapplicant'smanagementhasbeen
authorizedand
in

ctedby itsBoardofDirectors
totakesuchstepsas necessary
to participate
in theConnecticut
StudentLoan Program,theConnecticut
HousingFinanceAu
thority,
andthefoodstamp program.
A checkwiththoseagencies
revealed
that
the applicant
has followedup and begun negotiations
to participate
in the
st

programs.

The BankingDepartmentregardsparticipationinthestudentloan,foo
and housing
finance
authority
programsas important
and significant
indicia
of
convenienceandneeds.
The Connecticut
General
Assemblyenactedlawstoestab

lish
these
programs
andhasauthorized
appropriationsand
financingfacili
to implementthem.Theseagencies
of the Executive
Branchare staffed
with
personstoadministertheprograms.
Over the pastseveral
years,
increases
in educational
expenses
havefarout
strippedgrowth
in realincome,
especially
thatofthemiddleincomefamily.
The
middleincomefamilyisnotusually
eligible
forscholarship
aid.Therefore,
the
Connecticut
StudentLoan Foundation
is an important
sourceof assistance
to

meetthese
educationalneeds.
Studentloansaregovernmentinsured,ei

centby thefederal
government
andtwentypercent
by theStateof Connecticut.
Theseriskfreeloansprovide
a reasonable,subsidized
returnto thelender.
In
viewofthesefactorsandthecurrentcomfortableliquidityconditiono
Connecti.
cutfinancial
institutions,
itisexpected
thatthese
institutions
willprovideloans
to allqualified
students
regardless
of whetherthestudent
or hisor herfamily
hasa bankingrelationship
withtheparticularinstitution.

The Connecticut
Housing
FinanceAuthority
purchases
mortgagesfrom
origi
natingbanks and savingsand loan associations.
These mortgage loansmust be
to persons of low and moderate income. Current criteria
make this program

available
to persons
ofincomesup to$24,750
and mortgages
up to$49,500,
well
withinthemiddleincomelevel.
The down paymentrequired
islowerthancon
ventional
loans.
Therefore,
the Connecticut
HousingFinanceAuthority
is an
important
vehicle
forfinancial
institutions
to provide
lowercostmortgages
to
middle income families.

The importance
ofthefoodstamp programin thisstatewas thoroughly
dis
cussed
inan earlierstatementon
August22,1975,
withrespecttoa
branchappli
cation
in JewettCity.Giventhe present
unemployment
rateof 9.5percent
in
Connecticut,
as wellas retired
persons
on fixedincomesand the workingpoor
whoseincomescannot
stretch
to meetpresent
inflation,
theneedforfoodstamps

tosustainminimalnutritionallevelcontinues
tobeapressingneedformanyo
our citizens.

Banks and savingsand loanassociations
enjoyprotection
from competition
found in few otherareasof business.
Establishmentof branchesand new insti.

tutions
iscarefully
controlled.
Indeedour branching
law whichgenerally
pro
hibitsa financial
institution
from establishing
a branch in a town where a like

financialinstitutionhasitsheadofficeisconsideredoneofth
tivelaws in the nation.
In returnforthisprotection,
itisexpected
thatthe
financial
institution
willservethe needsof the public.
Alongwithconvenient
banking hours,depositand other traditional
banking services,
participation
in

thenewergovernment
sponsored
programsisincluded
in determining
anappli
cant'spotentialformeetingthe
modernconvenienceand
needstest.
Accordingly,
uponexamination
oftheevidence
submitted
by theapplicant
in
itspetition
forreconsideration,
theapplication
isapprovedonthebasis
thatthe
proposedbranch is necessaryfor the New Haven Savingsand Loan Association

to maintainitsposition
as a viable
competitor
in the New Haven area.Com
peting
institutionsare
ofsufficient
sizeand strength
to withstand
theadditional
competition.
Moreover,
theapplicant's
efforts
to participate
in thestudentloan,

foodstampand Connecticut
HousingFinanceAuthority,
programs
is duly
recognized.

181

Mr.CONNELL.
S.406really
requires
theAgencyto waituntil

thebank
makesan application.
Therefore,
I think
that
there
are
probably
three
amendments
Iwouldsuggest
toS.406.
One:Anamendmentofsection4(1)
(b) and(d),bytheaddition

ofotherbankingservicestothecreditcriteria.
Second:
I thinkthat
publicofficialselectedand
appointed
should
beabletoactinthe
areaofthedecision
oftheFederal
agency.
Infact,ifwehadthatpower,
Iwouldgiveupthe
StateMcFadden
Actprovisionsof
thebranchbankinglaws.
TheCHAIRMAN.
Wheredidyou haveinmindthatthatwould
go?Isthatthesection
to whichMr. Naderreferred?

Mr.CONNELL.
Yes;wherehe
spokeofthe
citizen
participation.
I think
publicofficialsshouldbespecifically
included
there.

The CHAIRMAN. SenatorHeinz made the same point.
Mr. CONNELL.That iscorrect.
I would endorsethatstatement.
If

wehadthat,
I don't
think
a State
branching
lawshould
haveany
moreapplication
to
the
activities
of
a
national
bank
and
Federal
S.& L.
Third:
I thinktheprovisions
for25personsto petition
the

particularbankingagencyforahearing,iftheyfe
isnotservingthecommunity,
isa particularlyimportant
addition.

Licensesneedn'tbegrantedinperpetuity.
Thankyou.
The CHAIRMAN.
How aboutthesuggestion
thatMr.Nadermade

aboutstandingincourtorsomekind
ofspecial
standing
forcon

sumergroups?
Mr.CONNELL.I wouldendorse
that.
Thereisa considerable
ques

tionontheextentthatconsumergroupshavestanding.
Ibelievethe
onlystandingthatthe
Stateagencywouldhavewould
bewithregard
totheMcFaddenAct,andtheStatebranchinglawprovisions
in
my mindareforthemostpartanticonsumerandnotinthepu
interesttoday.
They restrictcompetition
and entry.

TheCHAIRMAN.
Thankyouvery
much.

Dr.Marlin,
youhavea summaryofyourstatement,
I believe.
Theentirestatement
will
be putintherecord.
STATEMENT
OF JOHN TEPPERMARLIN,COUNCILON MUNICIPAL
PERFORMANCE

Dr.Marlin.
MynameisJohnTepper
Marlin.
Between
1964and

1969
I wasan economist
withtheFederal
Reserve
Boardandthe
Federal
Deposit
Insurance
Corporation,
whereI usedtolookat
applicationsofthe
kindyouaretalkingabout.
Since
1969Ihave beenengagedin research
and teaching
on
banking
and urbaneconomics,and
since
1973I haveheaded
the
Council
on Munipical
Performance,
a nonprofit
Research
groupin

NewYork
City,whichdevelopedmeasurestocomparethe
effective
nessofdelivery
ofessential
urbanservices.

Mostrecently,underagrantfromthe
FordFoundation,
wehave

been
gathering
comparativeinformation
on urban
reinvestment
programs
around
thecountry.
My testimony
this
morning
isabout

182

thisresearch.
Twosurveysofreinvestmentprogramsa
have been submitted to thiscommittee.Their relevanceto the com
mittee'shearing
isthat
theyshow
a rangeof65actual
and25 pro
posed
responses
to urbandisinvestment,
and provide
a basis
for
evaluating
some of them.

To summarize
these
tworeview
papers,
we havedivided
there
investmentprogramsand
proposals
into
10categoriesas
follows:

First:
Useofpublic
deposits
toencourage
lending
intheinner

city.

Second:
Requiring
information
fromlenders
on wherethemort

gageshavebeenmade.

Thatsecondpointhasalreadybeenimplementedbyt

Third:Requiring
lending
institutions
tomeet mortgage
needs
throughout
theareafromwhichtheir
deposits
aredrawn.This
is
thepresentthrustof
S.406.
Fourth:
Requiringlending
institutions
tousenondiscriminato
lending
procedures,including
meeting
mortgage
needs
throughout
their
lending
area.
Thismeetsthe
objections
of Mr. Holman earlier
and issimilar
in

thrust
toS.406,buthastheslight
difference
in thedefinition
of
theprimary
service
area.

Fifth:
Providing
formortgage
review
panels
to process
com
plaints
ofdiscrimination
on geographical
orothergrounds.
Sixth:
Providingsupport
forthemortgagemarket,
through
risk
poolingprograms.
Seventh:Making
direct
housing
loans
orsubsidies
of thetradi

tionalkind.

Eighth:
Regulation
of investments
of life
insurance
companies
andpensionfunds
toencourage
ahigher
proportionofhomemort
gagesin their
portfolios.

Ninth:
Development
ofcommunity
banksto
serve
aslocal
agents
of government
programsor as alternative
banks.
Finally:
Changinglawsor regulations
covering
citytax assess

ment policies
and delivery
ofservices,
as already
discussed
by
Senator Heinz.

What I concludefrom the information
we have collected,
in the

contextofthesehearings,isthatthereisa
growingtendencytovie
thecommunityresponsibilityoflendinginstitutionsa
theconvenience
and needsofdepositors
only.

However,
there
aremany waysin whichthisresponsibility
to
lenders
can manifest
itself,
and I wouldrecommendthatseveral

options
forlenders
to contributetoreinvestment
solutions
be pro
vided
forintheproposedbill,withtheeffectivenessoft
beingevaluated
from yearto year.

Intheinterest
ofconserving
time,
I will
endmy remarks
here.
Iwillbeglad
toprovidemorespecificsinanswertoquesti
Thank you.

[Materialreceivedfortherecordfrom
Mr.Marlinfollows:]

183

comp
84FifthAvenue

NewYork,NewYork10011

REINVESTMENT

ACTIONS

AND

PROPOSALS

Summaryof Representative
Reinvest
ment Programs Prepared for the Com
mittee on Banking, Housing and Urban

Affairs,U.S. Senate,March 23, 1977.

by John TepperMarlin
Executive

Director

Councilon MunicipalPerformance

184

REINVESTMENT:

RECENT

ACTIONS

While there is widespreadagreementregardingthe existenceof a dis
investmentproblemcontributingto housingdeterioration
in inner city neighbor
hoods,there is considerabledisagreement
over the cause of the problemand there
fore the most desirable solutions.

To help focus attentionon the specificreinvestment
solutionsthat have

5 beenadopted
by citiesandstatesas wellas theFederal
government,
COMPhas
compileda representative
list and descriptionof reinvestment
actions
legislative,
administrative
or judicial

private,

around the country,with some preliminary

analysisof the programs.
The actionsare consideredunder ten headings: use of publicdeposits

forreinvestment
purposes,
extension
of mortgage
disclosure
requirements,
monitor
ing of financialinstitutions'
chartersto ensure that they are servingthe credit

needsof theirdepositors,
fairlending
requirements,
mortgage
review,
mortgage
support
suchas pooling
or purchase
programs,
directaid to finance
housing,
regulation
of pension
fundandinsurance
companies'
policywriting
and investment
practices,
creation
of community
banksandreformof cityservice
and tax policies.
1.

Public Deposits. Most reinvestment programs require state or Federal action.

Publicdepositprogramshave the advantagethat they can be used by citiesas
well as higher levels of governments.
In California, the Los

AngelesCountyBoard of Supervisorspasseda

resolutionthat the CountyTreasurershouldallocatedepositsbasedon the mortgage

lending
records
of thecommercial
banks,usingthedisclosure
dataderived
in late

185

1976fromimplementationof the 1975 Home MortgageDisclosureAct. However,

the

County
Treasurerhas not yet carriedout the resolution,on the groundsthat the

office
hasno staffto develop
a monitoring
systemforthedata.
Colorado's
formerTreasurer,
Sam Brown,invited
competitive
bidsfrom
banks
and savingsand loan associationsfor the depositof state funds,but then

(starting
in 1975)adjusted
thesebidsto takeintoaccount
theinstitutions'
"activity
ratios"
in certain
socially
desirable
areas,including
low-cost
and
olderhousingloans.

Illinois
requires
a pledge
froma bankbidding
forstatefundsto theeffect
that
itwillnot"reject
arbitrarily
mortgage
loansforresidential
properties
with

inanyspecific
partofthecommunity
served
bythebankbecause
of thelocation
of
theproperty,"and
will"makeloansavailable
on lowand moderate
income
residential
property
throughout
thecommunity
withinthe limitsof itslegalrestrictions
and
prudent
financial
practices."
However,
thereare no enforcement
procedures
in this
law.

In 1974 the ChicagoCity Council passedan ordinancerequiringthat no city

funds
bedeposited
in any bankwhichdid notmakea pledgenotto redline,
and did
notprovide
information
on thesources
of deposits
and location
of mortgaged
prop
ertiesby censustract. About half of the eligibleChicagobanks have complied.
In New YorkCity, Mayor AbrahamBeame in March

1977

(followingCOMP'S

Newsletter
onthissubject)
announced
thathewasdirecting
hisFinance
Administra
tion
toallocate
courtand trustfundsamongcity-based
savings
bankson the basis,
inpart,
of theirmortgage
lending
records.Since

these funds must, under state

law,be
placed
inpassbookaccounts
subject
toFederal
Reserve
Regulation
Q interest
ceilings,
neither
thecity
ortheaccount
beneficiaries
lose
anyinterest
from
the
program.

Utah's
Treasurer,
DavidDuncan,
offered
$5 million
in statefundsto banks

agreeing
tomake
loans
in"highrisk"
neighborhoods,
butnobanks
took
uptheoffer.

186

Mortgage Disclosure.

At the Federal level,the 1975 Home MortgageDisclosure

Act requiresall insuredcommercialbanksand thriftinstitutionsto reportthe
location,by ZIP code, of propertieson which they made a mortgageloan duringthe
previoustwelvemonths. TheActis beingimplemented
by theFederal
Reserve
Board
throughits RegulationC. Severalstateshave their own disclosureregulations
and

havearguedforexemption
fromRegulation
C on the grounds
thatstateregulations
were more comprehensive.
Illinois,for example,originallyintendedto apply its regulationsnot

onlyto state-regulated
institutions
butto Federally
chartered
institutions
in
the

state .

Regulation
C is nowa minimum
forall institutions,
stateandFederal,

and removesFederallycharteredbanks from the obligationto complywith state dis
closureregulations.The add-on featureof state regulationsleads to a com
petitiveimbalancebetweenstate and Federalinstitutions.
Illinoisregulationsare much strongerthan RegulationC in that they

require
thetotalmortgage
portfolio
of stateinstitutions
as wellas changes
at

six-month

intervals.

The IllinoisSavingsand Loan League,along with several

individual
S&L's,has
suedthestateto challenge
thelegality
of statelaws
applyingto Federallycharteredinstitutions.The Leagueis also challengingthe
legalityof requiringdisclosureretroactively,
to loans made in prior years.

Two

Illinoiscities,Chicagoand Rockford,have gone beyondthe state regulationsand
requireinformationon the amount of time and demanddepositsby census tract of

depositors'
residence,
and theinterest
paid.
The Massachusetts
State BankingDepartmenthas respondedto complaints
of redliningby Bostoncommunitygroups by issuinga directiveon August1, 1975-and again a year later

requiringall state-chartered
institutionsin the Boston

metropolitan
areawith$20million
or morein assetsto filemortgage
and deposit
information
by censustractforthecitiesof Bostonand Lynnand by ZIP codefor

187

the rest of the area.

The Departmenthas seen its responsibility
as collecting

andanalyzing
the data, in contrastwith the Federalagenciesadministering
theHomeMortgageDisclosureAct. A preliminary
reportwas providedto the
Senate
Committeeon Banking,Housingand UrbanAffairsin November1976 by
Harriet
Tee Taggart,the Department'sDirectorof Research.

She

has

told

COMP

that

a final
reporthasbeenputoff untilthe Department
finishes
analyzing
application
filesof mortgagecompanyand FederalHousingAdministration
(FHA) loans,i.e.
until mid-1977.

New Jersey'sbankingauthoritycollectsmortgageinformationfrom the
banksbut does not reveal it to the public.

In New YorkState,
thestateinstitutions
wereexempted
fromRegulation
C
This
only
iftheyreportmortgage
originations
separately
frommortgage
purchases.

hasnecessitated
complex
changes
in theNewYorkStatereporting
requirements,
to
thepoint
whereone computer
consultant
involved
in assisting
bankswiththeir
compliance
hasconcluded
that"dualcompliance
wouldbe betterthana jerry
built
statereporting
system."WilliamWoodwardIII, DeputyNew York State
Superintendent
of Banks,responds
thattheconsultant
is exaggerating
thedifficulties,
perhaps
motivatedby an interestin "doublinghis business." He says that his office

will
provide
a report
totheAssembly
Banks
Committee
byApril
30,covering
overall
NewYorkStatedata,plusin-depth
analysis
of Brooklyn
andRochester.
3. Credit Needs.

The requirementthat banks serve the "convenience
and needs"

ofthecommunities
theyoperate
inhaslongbeena partofFederal
andstate
bank
charters
andregulations,
buthasseldombeenusedexplicitly
to require-

for
example,
whenbranching
requests
areconsidered--that
financial
institutions
servethe creditneeds of their depositors.

188

Federal Reserve Board Chairman Arthur Burns has written to member insti.

tutionsadvisingbanks to interprettheir chartersso as to providespecialcredit

accessto neighborhoods
in whichthebulkof theirdepositors
live. But

the

Federal

agencies
haven'tover
theyearsgivensignificant
attention
to thisresponsibility
in makingdecisionson branchesor mergers.

Connecticut's
BankCommissioner
hastakena steptowarda mortgage
credit
needs test by usinga bank's participation
in the ConnecticutHousingFinance

Authority
asan"important
andsignificant"
index
ofthebank's
serving
itscommunity
convenienceand needs,when it appliesto open a branchor changeits location.
In Illinois,the MetropolitanArea HousingAlliancein Chicagohas sued
severalbankson behalfof severalindividualswho complainedthat they were victim
ized by a specifickind of violationof communitycredit needs: "fast foreclosure"

(foreclosing
on a homeimmediately
whenone payment
is missed).The casewas
settledfavorablyout of court.
In general,states have preferredto deal with reinvestmentthroughfair

lending
provisions
discussed
belowratherthanby reference
to thecreditneeds
of a community. Threekindsof arguments
are usedagainst
a creditneedsapproach.
First,

it has beenbranded
as "credit
allocation"
basedon a presumption
(which

somebankers
argue
isunwarranted)
thatif there
isa "low"
ratio,
however
defined,
of mortgages
to deposits,
localmortgage
creditneedsaren'tbeingmet.

Second,

it doesn'thelp neighborhoods
with large creditneeds but few deposits. Finally,

itseffectiveness
depends
on strongregulatory
enforcement,
butregulatory
agencies
are slow to change their modes of behaviorand, in the long term, weak in dealing
with the regulated industry.

189

The advantages
of a creditneedsapproach
are thatit makesa verysmall
step from existing
principles
governing
regulatory
actions,
andis relatively
easy
to implementusingmortgage/depositratiosas rules of thumb for evaluating
bank performance.
4.

Fair Lending In contrastto the creditneeds approach,which relies

on a quota in the form of some conceptof a minimalratio of mortgagesto deposits,
the fair lendingconceptis procedurally
oriented. Its originsare in anti
discriminationprovisionsappliedto individuals.Only recentlyhas the conceptof
discriminationon a neighborhood-wide
basis been raised.
The Federal governmenthas a varietyof anti-discrimination
provisions.
The Federal ReserveBoard'sRegulationB, as revisedin 1976 to reflectamendments

in that yearto theEqualCreditOpportunity
Act(ECOA),becameeffective
in
March 1977, enforcing the prohibition
againstdiscrimination
in financingof housing

andforthefirst
timerequiring
record-keeping
onloanapplications.
The ECOA is somewhatduplicativeof the Fair HousingAct, Title VIII of

theCivilRightsActof 1968,whichmandates
fairhousing
policies
andspecifically
prohibitsdiscrimination
in housingfinance. This Act is administeredby the
Secretaryof the Departmentof Housingand Urban Development
(HUD).

In a turf

protectiveletter to the FederalReserveBoard,James Blair,formerAssistant
Secretaryof HUD for Fair Housingand Equal Opportunity,suggestedthat a preamble
to RegulationB state the commoncoverageof home financingby the ECOA and Title
VIII.

He also urged that it indicatethat a single set of substantiverules would

be agreeduponjaintly
by theFederal
Reserve
and HUD.
TheCaliforniaregulations,which
coverstate-chartered
S&L'sonly,are

a model
forthisapproach.
Theyasktwoquestions:
(1)Havemortgage
loanap

88-0320.77 • 13

190

plications
beenprocessed
equitably?
and(2) Hasthebankengaged
in sufficient
"affirmativemarketing"throughoutits lendingarea (as definedby the pattern
of bank lendingbut prohibitingbank gerrymandering
so as to excludepoor
areas)to ensurethat applications
for loans fairlyreflectloan demandthrough
out

the

area?

The Californiaregulationswere initiatedby, and are enforcedby,

the Businessand Transportation
Agency'sSavingsand Loan Departmentwhich
supervisesstate-chartered
savingsand loans.
The Districtof Columbiagovernmentwas the first city to prohibitred
lining

Title 34 of the 1973 D.C. Human RightsAct prohibitsdiscrimination

in lendingbased on race, nationaloriginor sex.

The

D.C.

Office

of Human

The
Rightsinvestigates
anyalleged
violation
andattempts
to conciliate.

D.C.

Human RightsCommissionis chargedwith holdinghearingsand renderingdecisions
on cases where conciliationhas failed and a "probablecause"of a violationof
law

is found

to exist.

However, during the first three years of the Act the

Human RightsCommissionhad not heard any decisionsor renderedany decisions
relatingto redlining.
In the IllinoisFairnessin LendingAct, redliningis made illegal,

butit is leftup to individual
complainants
to suethe alleged
discriminating
institution in the civil courts.

No such suitshave yet been initiated.

Minnesota passed a law in 1974 which prohibits discrimination against
geographic areas as well as individuals.

However,allegedlybecauseof a restric

tive usury law, local financialinstitutionshave been making very few in-state
mortgages,so that the form of non-discrimination
they have apparentlybeen practic
ing is lendingequallylittleto all individualsapplyingfor mortgages.
Massachusetts'
Fair Lendinglaws prohibitdiscrimination
accordingto
race and sex, but do not specifygeographical
area. Wisconsinin 1974 prohibited
geographical
lendingdiscrimination.

191

Mortgage

Review.

Mortgage review panels are outlets for those who feel

thattheyhavebeenunfairly
denieda mortgage
loan. They are adjudicative
bodiescreatedeither by government(as in California)or by groupsof banks
in a particularcity or state.

California's
Department
of Savings
and Loanhascreated
two Boards
of
Inquirywhich serve as mortgagereview panels. Both of these boards have three
members.

They are locatedin San Franciscoand Los Angeles,servingthe northern

andsouthern
halfof thestaterespectively.
Bothboardshavemetonlytwice,
and their record is criticizedby Californiaanti-redlining
groups.

The District
of Columbia's
resolution
creating
a Commission
on Residential
MortgageInvestment(CMRI) also providedfor a complaintReviewCommittee(CRC)

composed
of threeof the CMRICommissioners
and theDeputyDirector
of theD.C.
Office of Consumer Affairs.

The function was to serve as a mediator for

applicants
whohad brought
a complaint
against
a D.C.lending
institution.
Duringthe first seven monthsafter its creationin 1975, the CRC averaged

abouttwo meetings
permonthand lessthanone complaint
permeeting.Of

the

first twelve complaints,four subsequently
obtainedloans,two were assuredof

getting
them,threeare reapplying
andonlythreeweretoldby theCRCthat
theirapplications
didnotmeritfurther
review.The CMRI Reportconcludes
thatthe process
revealed
"a significant
communications
gap"between
thelend
ing institutions
and the applicants.

192

In Massachusetts,
theStateBanking
Department
has"setup"(in the
words of its ResearchDirector)an informalMortgageReview Board for the Boston
area

Thevoluntary
boardis composed
of threebankers,
threecommunity
representa.

tivesand two non-voting
representatives
fromtheDepartment
and theMayor's
office.
It meets every other week to reviewappeals. By November1976, 24 caseshad been
reviewed.

Of them,11 wereconsidered
bankable,
and 7 werenot. The

other

cases were withdrawnbeforea decisionwas made or were still pendingwhen the count
was

made.

Of the11 bankable
applications,
8 weresentbackto theoriginal
bank

(commonlyfor reappraisal),
and 3 were sent to other participating
banks.

The

Board uses two rules of thumb in decidingon creditworthiness:
(1) No more than

25%of theborrower's
gross
income
should
berequired
forpayment
of principal,
interest,
realestatetaxesand property
insurance;
and(2) Whencombined
with
other installmentdebts,these paymentsshouldnot exceed 33% of gross.income.

In Michigan,
theDetroit
bankshavedeveloped
an UrbanReinvestment
Re
view Committeemodeledon the PhiladelphiaPlan. It has been endorsedby the

city'sbiggest
bank,theNational
Bankof Detroit,
buthasnotbeenactivated
yetbecause
of efforts
by somesavings
and loaninstitutions
to modifysomeof the
provisions. The Committeecan eitherrefer a rejectedapplicationback to the

original
bank,or to another
bank,or to theCityof Detroit's
high-risk
loan
fund financed with Federal money.

The commercialand sayingsbanksof New York Statehave set up a
$40 millionfund to be used by their MortgageReviewPanel in the event that

thebanksto whichtheapplicant
originally
wentrefuseto makea mortgage
loan
even after the Panel requestsreconsideration.As of mid-March,
no applications

hadbeenprocessed,
in partbecause
ofa delay
in government
authorization
for
the program.

193

In Pennsylvania,
the Philadelphia
MortgagePlan (abbreviatedas

the Philadelphia
Planor PMP)wasstarted
by threebankswhichweremembers
of theGreater
Philadelphia
Partnership
andhad beenworking
together
on the
local Neighborhood
HousingServices(NHS) program. Starting in 1975, the
lendinginstitutions
workedtogetheron common lendingstandardswhich would
open up the credit windowa littlewider than inthe past. Within a year
the consortiumhad goown to 13 institutions
and had involveda numberof
communityorganizations
as well.
In contrastwith the other mortgagereviewsystemswhich react

passively
to consumer
complaints,
thePhiladelphia
Plan'smonitoring
group,
reviewing
developments
bi-monthly,
soughtaggressively
to reviewandredefine
lendingcriteria. The key elementsof the new standardsare: Using smaller

geographic
areasforappraisals
(theblockratherthantheneighborhood);
placinghigh value on the existenceof a strong localorganizationdedicated
to preservingthe neighborhood;
and includingnon-wagepaymentssuch as welfare

andchildsupport
in grossincome.Experience
withthePhiladelphia
Plan
hasbeengood. Delinquencyrates so far are low, even thoughreportedlyabout

four
outof fiveapplications
underthe Plan were acceptedand $13 million
has been

loaned

out.

Among some anti-redlining
activists,the BostonMortgageReview

Board
isregarded
as a public
relations
gesture
by thelocalfinancial
community. Its slow processing
record does not suggestthat its direct

contribution
to reinvestmentwill be major,but as a bankerexplainedto

COMP,
"having
a panellikethatreviewing
loansmakesyoumorecareful
inhanding
outa rejection."
The PhiladelphiaPlan has receivedmore
praisefrom reinvestment advocates.

Its contribution may be inadequate

byitself,but it is significant.The Detroit and New York State programs

194

are

too

new

to comment

on .

MortgageSupport. Mortgagereview panelsrepresenta specialform of

supportof privatemortgagemarketsof which coinsuranceand poolingare
other varieties.

Federalsupportof bankinginstitutionsvia short-termloansand de
posit insurancerepresentsupportof the mortgagemarket. Regulation Q

is an attempt
at providing
suchsupport
by providing
fundsto lending
institu
tions at a cost which is below market.
mean loans will be made.

However,providingthe funds doesn't

These indirectand roundaboutmethodsof support,;

somesay,aren'tdoingthejob.
A relativelynew Federal programwith a very successfultrack record
is the Neighborhood
HousingServices(NHS) programoperatingin over 30 cities.

Started
in Pittsburgh
in 1968by a groupof neighborhood
residents
whoapproached
local banks for lendingcommitments,the programworked so well that it was
adoptedby the FederalHome Loan Bank Board(FHLBB)and in 1974 the FHLBB
andHUDjointlycreatedthe Urban Reinvestment
Task Force with the mission
spreadingthe idea to other cities.
The Task Force servesas a developmental
agency,settingup local
NHS programsin each city and sometimesmakinga contributionto a local
high-riskloan fund. Each NHS programis a local partnershipbetweenfinancal
institutions,
the city governmentand neighborhoodleaders. The

financial

institutions
agree to make all bankablemortgageloans, provideadministrative
staff

support
forthe program,
and participate
in the localNHSgoverning
board.

The cityagreesto useflexible
codeenforcement
procedures,
to makeneeded
capital
improvements
in thearea,and to contribute,sometimes
with Community

195

Development
BlockGrant(CDBG)funds,to a high-risk
loanfundcontrolled
by the
NHSboardfor makingnon-bankable
loans.
Californiahas a HousingFinanceAgency which offerscoinsuranceas part

ofitsNeighborhood
Preservation
Program.
Floridaenactedits House Bill 2010 offeringmortgagemarketsupport,
butit requireda constitutional
amendmentwhich failedwhen presentedto the
electorate.

InIndiana,
TheGreater
Indianapolis
Housing
Development
Corporation
hasbeenguaranteeing
about 75% of the value of rehabilitation
loans(average,
$3,000)
made at three commercialbanks. The maturities range up to five years.

Theguarantees
are financed
by about$ million
CDBGfunds.
Minnesotais widelyacceptedas the leaderin its tax-exemptrevenuebonds
to purchase
FHA-insured(under Title I of the NationalHousingAct) housing
rehabilitationloans.

In 1975theMinnesota
Housing
Finance
Agency
(MHFA)

sold
$9 million
of thesebonds,usingthemoneyto buytheloans,whichcarry
a 7 % or so interestrate. The originatinglendersget their principalback,

plus
a $75origination
feeanda regular
servicing
fee. The

loans must be

on homesat least 15 years old and must be to lowo or moderate-income
families.
Within
two yearsof its first bond issue in 1973, the MHFA had raised$129
1

million
and loanedout nearlytwo-thirdsof it. The programhas been copied in
NewJerseyand in a growingnumberof other states.

TheNew YorkStateMortgage
Agencywascreated
in 1970aftera 25%
decline
between1968 and 1969 in state mortgageinvestmentsby banks in the
state,
and a seriousdrop in residentialconstruction.Theagency's
concept
wasto

purchase
mortgages
fromthe bankson condition
thattheyusethe moneyto originate
new,in-state residential mortgages.
usedabout$470million.

Within four years the agency had raised and

However,New York State'sdebt problemsended its access

196

to the market and little more has been done since 1974.

Theconcept
has beencopiedby at least23 otherstates,
withat least
ten fundedand in operation(the othershave run into voterrejectionof bondissues
or issuingauthority,or other snags). In addition to the Minnesota and New
York programsalreadydiscussed,the eight other stateswhich have createdand
implementedsimilaragenciesare: Alaska,Connecticut,
Kentucky,Maine,South
Dakota,Tennessee,Virginiaand Wisconsin.
New York has also initiateda Rehabilitation
MortgageInsuranceCorporation

(REMIC)in 1973,to operate
solelyin designated
preservation
areasin NewYork
City:

It got off to a slow start. The CommunityPreservationCorporation,
a

privatemortgagepoolinggroup financedby New York City banks,makes loans in
two neighborhoods
and is the chief user of the REMIC program. As

the end of

February1977, there were 27 insurancecases with 1,764 dwellingunits involving
mortgagedebt of $9.7 millionof which $4.6 millionis insured.
7.

DirectPrograms.

Therewasa majorFederal
effortin the1960'sto provide

directsupportto housing. Many of the programswhich proliferated
are not

regarded
as successful,
especially
thelarge-scale
urbanrenewal
and public
housing projects.

The Housing
andCommunity
Development
Actof 1974essentially

reflecteda beliefin Congressthat there was a need for greaterlocal control
and turnedCDBG funds over to the localitiesto spend. One categoricalprogram
which survivedwas HUD's Section312 loan program,createdunder the 1964 Housing
Act to providefinancingfor rehabilitation
to bring housingup to local codes.
The corresponding
grant program,Section115, was discontinued.

197

The CaliforniaHousingFinanceAgency,a unit of the state'sBusiness
andTransportation
Agency,makes low-interest
housingloans for non-profit
and localgovernmententitiesand also operatesthe Neighborhood
Preservation

Program
whichmakesrehabilitation
loansin designated
preservation
areas.
Coloradoin 1972 provided$250,000to the Divisionof Housingfor a
State Demonstration

Grant .

Additionalgrantsthrough1976 broughtthe total

to $5 million,funding90 local housing(mostlyrehabilitation)
projectsalong

with
$13million
in leveraged
private
andFederal
investments.
In Massachusetts,
Boston's
HomeImprovements
Program
makesgrantsto
property-owners
of one-fifthof its estimateof the cost of proposedrehabilitation,
up to $1,000for a single-family
home and $3,000 for a six-unitbuilding. The
Program
spends$4 milliona year of CDBG money.
To the south of Boston,Fall River is makingrehabilitation
loans with an
interest
rate which dependson the borrower'sincomerelativeto the medianof
other families of the same size.
4%.

A familyearning
halfthemedianincomewouldpay

A familyearningnearlydouble the medianor more would pay the marketrate.

Theprogram
costs$ million
a yearin CDBGfunds.
Finally,
theold Holyoke
Development
Corporation
makesrehabilitation
grants
to homeownersbased on a percentageof the cost. The percentage varies

with
thetaxable
incomeof the borrower,
ranging
from30%forthoseearning
less
than$8,000to 15% for those earningclose to $20,000. Applicantsearningsover
$20,000
are not eligible.

InMinnesota,
theMinneapolis
Housing
andRedevelopment
Authority
(MHRA)
isapproved
as a lenderundertheMHFAprogram
discussed
above.The neighboring
authority
in St. Paul is, too. The MHRA ties the interest rate on its rehabili
tation
loansto the borrower'sincome,adjustedfor familysize. A borrower

198

witha familyof fourandearning
below$10,300
(or up to $17,450
butwith
housingexpensesover one-fourthhis or her income)would pay 4%.
he or she would pay 6%.

Up to $17,450

Over $17,450,the interestrate rises to 8%. The MHRA's

money comes from CDBG allocations,city bonds,local bank loans and fundingfrom
MHFA programs.

Hoboken,New Jersey,has been subsidizingrehabilitation
loans since 1972.
It lends up to $6,000 with a maturityof up to nine years,with the purposeof
bringinghouses up to code. The loansand subsidiescost $ milliona year in
CDBG money.

New Yorkhas pioneered
in housing
finance
withitsUrbanDevelopment
Corporation,which floats bonds,when the marketwill absorb them, and uses the
money to financehousingdevelopments
The state's

as RooseveltIslandin New York City.

Mitchell-Lama
projects
forlowand middleincomeresidents
were

built througha combinationof state tax abatements,federalinterestrate
subsidies and other programs.

New York City's Housingand Development

Administration
provided
directhousing
loansthrough
itsmunicipal
loanprogram,
butthiswassuspended
because
of scandals
and wasended,soon
afterit recontinued,
becauseof the city'sfinancialproblems.
Ohio has a $2 millionfund for makingdirectseed money grantsto local
groupswishingto rehabilitateneighborhood
housing.

Oregon's
Portland
Development
Commission
usesa deferred
payment
loan
to providefinancingto correctserioushousingcode violations. Over $
million of such loans have been made from a fund established with CDBG funds.

In RhodeIsland,
theHomeImprovements
forProvidence
program
makesrehabili.
tationloansat 3% interestand subsidizeshousingcosts for lower incomefamilies
when repairsare neededto remedy code violations. The programgets $2 million
a year from CDBG allocations.

199

Madison,Wisconsinhas a HousingRehabilitation
ServicesProgramwhich

makes
deferred
payment
loansin casesof special
hardship.It also provides
regular
6 % loansand Section312 HUD loans for rehabilitation.
8.

Insurance and Pension Regulation.

Some commercial banks which have in

thepastoriginatedmany mortgageswhich were then sold to insurancecompanies

note
thatthelifeinsurance
industry's
investments
in cityhousing
havedropped
drasticallyWithout
a repurchase
outlet,
commercial
banksare unwilling
to
originate
as many new mortgages.
Federalreinvestmenteffortsrelativeto the life insurancecompanies

were
focused
undertleJohnson
Administration
on a $2 billion
loanprogram
for
innercities.

However,the industrywas disinvesting
at a much fasterrate than

itwasreinvesting,
fora largenetlossto thecities.John

G. Heimann , now

NewYorkState's
Housing
andRenewal
Commissioner,
was the person
whonegotiated
thearrangement
forthePresident.
In an interviewwith COMP, he sunnedup develop
mentsin the insuranceindustryas follows: " I was had."
Pensionfundsare subjectto the same kinds of criticismas life insurance

companies,
namelythata declining
proportion
of theirinvestments
(3% of private
funds)
are in residentialmortgages. No direct action has yet been taken to

encourage
pension
fundsto investmorein mortgages,
butthenewEmployee
Retirement
Income
Security
Act(ERISA)
has brought
private
fundsunderFederal
regulation.

Illinoishas
responded
to theproblem
by including
lifeinsurance
companies
inits1975fair lendinglaws.

Massachusettshas
movedto regulate
thecasualty
and insurance
companies,

whichwere
seenascontributing
toneighborhood
deterioration
bynotmaking

tenant
orhomeowner
insurance
policies
available
toresidents
ofinner
city
com
munities.

TheStateInsurance
Superintendent
created
an assigned
riskpoolfor high

200

risk insurancepolicies,but state officialssay that the companieshave been
loadingthe pool with poorlywrittenpoliciesand are now using their heavy
loss rate on the pool to demanda 50% increasein premiums.
Texas has long requiredinsurancecompaniesto keep a fixedproportionof
their assets invested within the state.

'9. Community

Banks.

The only state that runs a fully fledgedbank is

North Dakota,which startednearlysix decadesago with an investmentof $2
million.

It has been earningabout eight times that much annually,and now has

assets of nearly$400 million. About three-fourths
of the bank'sdepositscome
from the state, but it has 4,000 other accounts. The largestsinglecategoryof
loans is for housing(35 million),with farms and studentsfollowingbehindin
that

order .

Some of the loans to lenderor directhousingloan progeansinvolve

financingauthoritiesthat have been comparedto the Bank of North Dakota,but
they do not offer bankingservicesand usuallymake only one kind of loan.
10 .

City taxes and services.

A major requirementfor reinvestmentis adequate

city servicesand equitablepropertytax systemsin deteriorating
neighborhoods.
COMP's City HousingReport#2 (pp. 11-13)describeshow slow propertytax
reassessments
contributeto accelerationof neighborhood
decline. By failing
to adjustassessmentsto reflectchangesin propertyvalues,propertytax
rates declinein upwardlytransitional
neighborhoods
and rise in deteriorating
neighborhoods.Thislinkbetween
citytax policies
andneighborhood
deterioration
has been establishedin citiessuch as Baltimoreand Philadelphia.
In Alabama, a successfulsuit againstthe City of Mobile by the National

Association
fortheAdvancement
of Colored
People
(NAACP)
charged
thatat-large
election
of citycouncil
members
deniedblackneighborhoods
representation,
resultedin inequitableservicedeliveryand was unconstitutional.COMP segre.
gationdata were cited in this case.

201

A similar case in Louisiana,againstthe City of Shreveport(the most

segregated city of 109rankedin COMP'sNewsletter
II:1)alsoresulted
in a
Federal court orderto provide
for neighborhood
election
of council
members
to
ensure better representation
and moreequitable
service
delivery.
Although a 1971 suit againstthe State of Massachusettsby some older com

mercial firms objecting
to "121A"taxabatements
to newfirmsfailed,
thesuithad
the effect of changing
administrative
regulations
to eliminate
theseabatements,
and provide for 100% valuationfor all propertyowners. However, it is alleged
by Massachusetts
abatements
response

are
to

officials
in otherdepartments
that"pencil"
(unofficial)

given.

The unexpectedside effectof the suit and the state's

it is that residentialpropertyownersare payingmore than they used

to, since they had beenfavoredpriorto 1971as against
commercial
institutions.
In Mississippi,the mayor of Jacksonproposeda new form of government
which would replace at-largeelectionof its commissioners
with districtelections,
but the proposal was rejectedin a referendumin February1977. The Lawyers
Committee for Civil Rights under Law is now suing the city, and similarsuits
are under way in other Mississippitowns.
New YorkCity has providedtax abatementsto encouragerehabilitation
of
older housing, under the J-51 program,and new construction,
under the 421
program.

SeveralTexascities,
including
thetwolargest,
Dallasand Houston,
have
been sued to institutedistrictelectionof councilmemberson the same principles
as the Mobile and Shreveportcases. COMP providedexpert testimonyin the Houston
case, which

is still in Federal court.

202

l
a
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1. Public

I
P
P
I
S
S
I
S
S
I
M

ACTIONS i
h
A
T
H
T
O Y
K
R E
O
A S
D
N R
W
E K
J
N R
W
O
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k
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t
r
e
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C

p
l
e
d
a
l
i
h
NP

O
G
E
R
O

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E
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D
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L
H
S
IR

A
T
H
O
T
K
U
O
A
S
D

E
E
S
S
E
N
N
E
T S
A
X
E
T

s
a
l
l
a
D

n
o
t
s
u
o
H H
A
T
U

A
I
N
I
G
R
I
V

N
I
S
N
O
C
S
I
W

S
L
A
T
O
T

deposits
2. Mortgage

disclosure
3. Credit

needs

4. Fair

lending
5. Mortgage
review

6. Mortgage
support
7. Direct
programs

8. Pension&
Insur.Reg.

9. Community

1banks

10. City taxes
Service

equity
TOTALS

6 1 1 4 2 2 2

1 5 1

;365

203

REINVESTMENT:PROPOSALS
Some
Theproposals
described
belowarein various
stagesof development.

are ideaswhichare beingconsidered
by individual
legislators
or administrators.
of
Othershavebeenintroduced
in thelegislatures
and havea highprobablilit

becoming
law.
1.

PublicDeposits.Theconcept
of usingpubliclocalfundsfor publicpurposes

appears to have a future. In California,
theLos Angeles
CountyTreasurer's

difficulty
in monitoring
Federal
mortgage
disclosure
datais beingmet by a
proposal
fromtheCenterfor NewCorporate
Priorities
andtheSouthern
California
Association
of Governments
for howto develop
andimplement
an effective
system.
Colorado
Republican
StateRepresentative
Jim Reeveshasco-sponsored
a
billto prevent
theStateTreasurer
fromusingdeposit
placement
forreinvestment

orother
social
purposes.
Inaninterview
withCOMP,
Reeves
described
hisintent
as follows:

"Theseadministrative
procedures
are usurping
theauthority
of

legislature.
Also,it is interference
withthefreeenterprise
system."However,

Reeves
says,
"Thebillisn't
doing
well.Itwillprobably
getdefeated
inthe
Senate. Localpeople
wantto be ableto do thesamethingas theStateTreasurer."

2. Mortgage
Disclosure.
Theexisting
Federalmortgage
disclosure
legislation,
asimplemented
by theFederal
Reserve
Board's
Regulation,does
notrequire
infor

mation
on theportfolio
ofexisting
mortgages,
onlynewadditions
during
there
porting
year. In addition,
no information
is required
on thesourceof deposits
bycensus
tractof thedepositor.
Finally,
certain
institutions,
notably
mortgage
bankers,
areexcluded.Proposals
havebeenmadeto address
theseweaknesses.
Thefirsttwoaredealtwithin theNew YorkStateBanking
Department's
Supervisory
Procedure
G-107. However,
theFederal
lawdistinguishes
between

mortgages
originated
andmortgages
purchased
bythereporting
bank.New

York

State
isattempting
tousetheFederal
definition
retroactively,
inorder
to
maintain
theexemption
ofstate-chartered
institutions
fromcompliance
with
Regulation
C.

204

There
isa billintheCalifornia
legislature
toaddsavings
deposit
datato themortgage
disclosure
requirements.

Connecticut's
Bill1399combines
mortgage
disclosure
requirements
with
fairlending
regulations.
Washington's
Financial
Institutions
Disclosure
Actwillrequire
separatereportingof mortgagedata to the state.
3.

CreditNeeds.Thetwomainwaysof ensuring
equitable
accessto home

mortgage
creditare:(a) requiring
financial
institutions
to meetthecredit
needsof theirservice
areasas wellas theirdeposit
needs,and(b) ensur
ing that lendingis fair and non-discriminatory.

Thecreditneedsapproach
is embodied
Federally
in SenateBillS.406,
the"Community
Reinvestment
Actof 1977,"as introduced
by Senator
William
Proxmire
in January
1977. It specifically
statesthat"theconvenience
and
needsof communities
includes
the needforcreditservices
as wellas deposit
services."
It givespermissions
for mergers,
branching
andotheractions
by
regulated
institutions
dependent
uponcompliance
withthisprinciple.
Compli
ancemeansthatan institution
must"delineate
the primary
savings
service
area
of thedeposit
facility,"
wheresucha service
areais defined
as " a compact
areacontiguous
to a deposit
facility
fromwhichsuchfacility
obtains
or
expects
to obtainmorethanone-half
of itsdeposit
customers."
It must
thenshowhowit is meeting
areacreditneeds.Forexample,
on a proposed
new

facility,
itmust"indicate
theproportion
ofconsumer
deposits
(anydeposit
lessthan$100,000
ownedby individuals)
obtained
fromindividuals
residing
in the primary
savings
service
areaby thedeposit
facility
thatwillbe re
investedin that area."

205

A billis beingintroduced
in theIllinois
legislature
to dealwith

foreclosure.
As partoftheir
obligation
toservice
credit
needs
intheir
area, bankerswouldbe required
to exercise
"forebearance"
in theeventthat
a borrowermissesa payment.Forebearance
meansoffering
thedelinquent
debtor

an alternative
toforeclosure:
making
upthelatepayment
either
immediately
or over the remaining
termof theloan. At theinsistence
of bankers,
the

billis tiedtoshortening
theredemption
period
forforeclosed
property
to
avoid vandalism.

Massachusetts
is attempting
to reformitsmutualsavings
bankselections

to maketrustees
moreresponsible
todepositors.
The New YorkStateBanking
Department
hasbeenpetitioned
by theNew

YorkPublicInterest
Research
Group
toamend
Supervisory
Policies
SB2andSL2
to add to the requirements
for newbranches
that" theapplicant
satisfies
the
needfor mortgage
and homeimporvement
loansin itsexisting
service
areas."
The Department
is alsopreparing
a proposal
to changethe votingprocedures
of mutualsavingsbanks,to makethemmoreresponsive
to depositors'
creditneeds.
Mutualshavedemocratic-sounding
charters
butin practice
theirboards
of directors
are self-perpetuating.
Details
of the NewYorkStateproposal
werenotyet
available
to COMP,butthefollowing
arethe kindsof proposals
thathavebeen
discussed.

Bankscouldbe required
to makeavailable
dataon boardmeetings
and
executive
compensation
schedules,
andtheirvotingprocedures
couldbe modified
to mandatebroader
depositor
participation.
Bankelections
couldbe monitored
by requiring
annualsolicitation
of proxies
andnoticeof meetings
andelection
andnomination
of trustees
through
openmeetings.
Conversion
to stockassociation
couldbe prohibited
unlesstheinstitution
candemonstrate
a creditadvantage
to

theneighborhood.
Voting
could
belimited
toresidents
ofinstitution's
primary
service
area.

88-032 0.77

. 14

206

4. FairLending.California,
theleaderin introduction
of FairLending

regulations,
is proposing
togoa stepfurther,
torequire
thatrealestate
agentsand brokers
present
prospective
homebuyers
witha rangeof financial
al
ternatives.
Theregulations
wouldbe administered
by theBusiness
and Trans
portation
Agency's
Department
of RealEstate.
Another
important
proposed
changein California's
regulations
would
require
thatbanksadvertise
residential
lending
alongwithdeposit
services
as partof an "affirmative
marketing
plan."The planmightentailpublication
of disclosure
dataquarterly,
witha summary
goingto alldepositors.

InIllinois,
community
groups
areconcerned
about
thelackofenforcement
provisions
in theexisting
Fairness
in Lending
Act. TheMetropolitan
AreaHousing
Alliance
hasdeveloped
a bill,introduced
by Rep.Michael
Holewinski,
which
would:require
a financial
institution
to givewritten
noticeto an applicant
of hisor herrejection
fora mortgage
loan;woulddefinereasons
forrejection
whichwouldnotviolate
thelaw;wouldestablish
a mortgage
reviewboardto
reviewcomplaints
administratively
andrecommend
to theAttorney
General
when

prosecution
ofthebankseems
appropriate;
and,finally,
would
provide
for
damages
to therejected
applicant
andmandate
an affirmative
marketing
plan
fortheoffending
bank.
Connecticut
hasa fairlending
billunderconsideration,
# 1399,combined
withmortgage
disclosure.
Nebraska
is considering
legislation
whichwouldrequire
lenders
to

provide
equal
opportunity
toapplicants
"onan individual
basis."
Michigan's
proposed
fairlending
billwouldbe extended
to coverthe

appraisal
process,
toensure
thatappraisals
arenotdiscriminatory.
Pennsylvania's
Legislature's
Business
andCommerce
Committee
hasbeen
working
on a fairlending
bill.

207

Washington's
proposed
Financial
Institutions
Disclosure
Actprohibits
the
"unfair practice"
ofusing
neighborhood
considerations
deciding
whether
tomake
a mortgage loan.
5.

MortgageReview.Mortgage
reviewprocedures
areincorporated
in thefair

lendinglawproposed
inIllinois,
andthemortgage
disclosure
lawproposed
in Michigan.

208

6. Mortgage
Support.
AttheFederal
level,
theU.S.League
ofSavings
Associations
hasbeenpromoting
theideaof greatly
expanded
coinsurance
programs,
whichwould
meangovernment
insurance
of high-risk
areas.Thereaction
of an anti-redlining
activist
at National
People's
Actionto thisproposal
is: "Thislegalizes
red

lining.
Theywantgovernment
insurance
tomeetthesupposedly
non-existent
demand
for mortgage
loansin redlined
areas.It'sanother
HUD."Theproposed
coinsurance

program
would
require
higher
interest
fromborrowers
andexemption
fromstate
usuryand forbearancelaws.

Stateinitiatives
in thisareainvolve
refunding
housing
finance
agencies

which
purchase
mortgages
or make"loans
tolenders."
A typical
state
official's
reaction
is thatof NewYorkHousing
andCommunity
Renewal
Commissioner
JohnG. Heimann
whofavorstheU.S.Leagueof Savings
Association's
coinsurance
program
andan
increase
in theusuryceiling.He pointsoutthatNewYork'sceiling
(oneof the
lowestin thecountry)
harmshigh-risk
areasin thestatethemostsince,witha
limited
supplyof creditandno bidding
forfunds,themostsecureareasreceive
highest
priority.
7. DirectPrograms. To ameliorate
someof theadverse
effects
of Federal
housing

programs,
it hasbeenproposed
thatneighborhoods
andcities
begiven
fullstand
ingto petition
HUDandsuetheFHAor the Veterans
Administration
(VA) under
certainconditions. An example
wouldbe whenit can be reasonably
alleged
that

there
isundue
concentration
ofFHAor VA-insured
low-income
lending
tothedetri
mentof a neighborhood.
Thissuitwouldbeespecially
important
in thecontext
of unregulated
mortgage
banking
practices
whichuseFederal
guarantees
to lend
indiscriminately,
and thencontribute
to neighborhood
blight
withfastfore
closure
procedures.
Another
proposal
is thatHUDand VA be required
to obtain
certification
of rejection
by a conventional
lenderbefore
makinga subsidized
residentialloan.

209

Californiais
considering
a turnkey
program
forrehabilitation
of
olderhousing.Under
thissystem
themoney
fortherehabilitation
willbe
advanced
to local
residents
andwillberegained
whenthehouse
is putonthe
market.

Michigan's
Governor,
in hisStateof theStatemessage,
hasproposed
that the Michigan
StateHousing
Authority
develop
grantandloanprograms
to
assistdeteriorating
neighborhoods.
Two favored
prescriptions
of the1960's,
subsidy
of interest
rates
for multi-family
mortgage
financing
and building
of morepublichousing,
are
missingfrom theabovelist. Theyarelessoftenproposed
by reinvestment
advocatestodaybecause
interest
ratesubsidies
and housing
projects
are
seen as boonsto builders,
notneighborhoods.
Subsidized
buildings
have

movedlowerincome
people
fromtheir
homes,
butthegoalofcreating
new
lower income housingfor them is often abortedby cost overruns.

Pensionand Insurance
Regulation.
Pension
fundsandlifeinsurance
companies

aremajorsources
oflong-term
capital.
Pension
funds,
forexample,
have$370
billionto invest.Yetlittleof thismoneyis usedforresidential
financing.
Abouttwo-thirds
of pension
fundmoneyis in stocks,
andonlyabout5% in resi

dential
mortgages
(lessforprivate
funds,
moreforstate
andlocal
funds).
Pro
posedrequirements
underFederaldiversification
principles
in the1974Employee

Retirement
Security
Act(ERISA)
would
encourage
thepension
funds
toincrease
theirresidential
mortgage
investments.
Thereis concern
amonglegislators
in theMichigan
Statelegislature

about
insurance
company
redlining,
butno bills
hadbeenintroduced
atthetime
of COMP's survey.

210

9. Community
Banks.Although
theBankof NorthDakotais theonlyfunctioning,

fullyfledged
statebank,therehavebeenproposals
forstateandcitybanks
elsewhere. New Yorkis an example.A lessfar-reaching
proposal,
alsobrought

upina variety
ofguises
andplaces,
istocreate
local
institutions
which
will
consolidate
SmallBusiness
Administration,
Economic
Development
Administration

andCommunity
Services
Administration
programs
suchaslending,
coinsurance,
is to promote
local
guarantee
andmortgage
marketprograms.An alternative
development
banksalongthemodelof Chicago's
SouthShoreBank.
10. CityTaxesand Service
Equity.Morerapidtaxassessment
changes
havebeen
proposed

haltdeterioration
causedby the heavytaxloadin areaswherevalues

arefalling.Somecitiesarealsobeingurgedto takeoverbuildings
withback
taxesowingon themmorequickly
in orderto protect
themandneighboring
buildings
fromblight.
InIllinois,
thelandon whichmulti-family
housing
units(morethan
sixapartments)
arelocated,
is assessed
at themarketvaluewereit to be used
for highriseapartment
construction,
wherezoningpermits
suchconstruction.
Representative
EllisLevinis arguing
thatthestatelawapplied
to farmland,
whichassesses
it at itsmarketvalueforfarming
purposes
butcollects
back
taxesat a higherratefor threeprevious
yearsshouldit be soldfor develop
ment,oughtalsoto applyto cityproperties
whichare notbeingusedfortheir
most lucrativepossiblepurpose.
CONCLUSIONS

Although
manyof thereinvestment
issuesare unsettled,
reformers
such
as National
People's
Actionin Chicago
andtheCoalition
Against
Redlining
in

LosAngeles
areconvinced
thatchanges
inregulatory
andincentive
programs
to

211
1

improve
theinnercityreinvestment
climate
cannotwait. Theirproposals
are

farmore
sophisticated
thansimilar
programs
a decade
earlier,
andarebased
on
thefinancial
institutions'
longhistory
of publicpurpose
as specified
in
theircharters. Banks'chartercommitmentto serve the " convenience
and

needs"
oftheir
service
areas,
whether
defined
asdepositor
areas
orlending
areas,
isbeing
harnessed
to bringthembehindreinvestment
targets.In

the debate that

isunder
way,an important
consideration
isthatloans
which
might
beunprofitable
andfruitless
fora singleinstitution
can becomeprofitable
andeffective
when

backed
bygovernment
disclosure
andlending
standards
applied
toallinstitutions.

212

PROPOSALS

Public

deposits
2.

Mortgage
disclosure

Credit

Fair

needs

lending
5.

Mortgage
review

Mortgage
support

Direct

programs
8.

Pension &
Insur. reg.

b
9.

10.

Community
banks

City taxes
Service

equity
TOTALS

i 1

1
25

213

ForRelease:
February17,
1977

comp
NEWSLETTER

Vol.IV,
No. 1

CouncilOnMunicipalPerformance

REINVESTMENT: PUBLIC DEPOSITS
Under the FederalHome MortgageDisclosure
Act of 1975 and

theiractionsshould be open to

in commercial banks in ghetto

public
scrutiny
inorder
topermit areas,
in returnfora commitment
similar
acts
inCalifornia,
Illinois,
planning
for neighborhood
rein bythebankstomakeloanstosmall
businesses.
vestment.
In
addition,
many
feel
Massachusetts,NewJerseyandNew
public
deposits
should
be in
York,hithertounavailable
informa- that
Theargumentofthosewho favor
factors
in allocating
tionon banks'
mortgage
lending vestedso
astoencouragebanks
to usingsocial
practicesisbeingmadeavailable
to respondtoperceivedsocialneeds.
governmentdepositsisthatbanking
thepublic.
Actionby individuals
and or services
arehighly
regulated
and
andthat
public
agen
Theimpetusforthislegislationganizations
tomove their
depositsstandardized,
cieshave much discretion
which,
and otherinitiatives
pending on
to more responsive
banks,known
boththestateand Federal
levels
as "greenlining,"
was advocated in theabsence
of published
per
comesfrom concernwith"redlin- by Chicago's
Citizens
ActionPro
formancecriteria,
would tendto be

ing"
or thealleged
bankpracticegram
.Keyanti-redliningcommunity
usedforpolitical
purposes.
Cam
contributions
ortheconnec
of systematically
denying nort- organizers
likeNational
People'spaign
neighborhoodsActioninChicagoarenow
demand tionof bankingofficers
with polit
because
of economicconditions
or
ingregulatoryactionon
thepart
of icalpartiesand electedofficials
racialfactors
lioistrictlyrelatedto
government.
haveoftenplayedapart
indecisions
loanloss
experierce.
Soin:argue
In fact
there
isa longtraditionon whereto placepublic
funds.
thatwholecities
havebeenredlined of public
involvement
in banking. Therefore,
makingthecriteria
for
governments
grant allocation
of public
deposits
stan
in termsof mortgageson certain Stateor Federal
bank charters.
As a result,
bank
typesofproperties(e.8.,niultifarnily
dardized
and(especially
wherethe
brownstones),
and thatthishas regulation
ishighly
restrictive.
For potential
forcompetition
on inter
hastened
urbandisinvestment.
example,FederalReserveRegulation
estor service
groundsislimited
by
Mostbankersmaintain
thatthey
O setsa limiton the amount of
law)socially
relevant
would,
itis
interest
thatbanks can pay small argued,
donotredline,
butreject
loans
on
improve
thefunctioning
of
thebasisof theirlossexperience depositors.
Therationalebehind
the boththepublicandprivatesector.
Social
criteria
couldinclude
such
inindividual
neighborhoods.
How. resulting
artificially
lowinterest
on
ever,some,
suchas I.).
Lasurdo, savings
(and the4% differential
diverse
considerations
astheequal
President
of New York's Green
allowedto savingsinstitutions)
is employment
practices
of banking
or their
willingness
to
Point
Savings
Bank,acknowledge thatpotential
mortgagelenders institutions
forpollution
control
thattheywould not grantmortwillhaveaccess
tolow-cost
savings make loans

gages in certain

gages
incertain
areas.
Whilea debatecontinues
over whether or

and can continueto make avail

exists,
theobviousdeterioration
of

some

equipment.

ablelow-cost
loansfor housing. However, the use of mortgage
argue with
fund is peculiarly
applicable
as
notthe
practiceof
redlining
infact Anti-redlining
activis
cogency that banks have

a socialfactor because it is at the

crisis
of the
cityhousinghasprompted
govern. eaten
thecarrotwithout
budging heartof thefinancial
mentstoact,
ifnotto curb theal- realizing
theadvantagesof
Regula major U.S.cities.
I Northeastern
legedpractice,
atleast
to mandate tion
Qwithoutbeingmoved
inthe bankscouldbepersuadedtoredirect
thatadditionalinformationon
resi- mortgage investment direction

dentialloansbemadepublic.sought
bytheregulators.
Some advocaiesof mortgage
On themunicipal
level,
former
disclosure
feelthat the immense
New YorkCityFinance
Adminis
powerthat
bankswield
todestroy tratorRoyM. Goodmanintroduced
orresive
neighborhoods
shouldbe
brought
under publiccontrol

social
considerations
in cityinvest

ingaslongastenyears
ago.His
Oilers,
moremoderate,
think
that approachwas to deposit
cityfunds

0 1977bytheCouncilOnMunicipalPeriormance

more of theirmortgageloansfrom
suburban and Sunbeltrealestate

speculation
backto rehabilitation
andreir.vestmentintheurbunneigh
borhoodswhere most of theirde
posits
come from,thiswould be a
major stepforwardfor the older
cities.New

York State banks

spondthatthestate's8'2%ceiling
on

interest
discouragesloans.
Anthony

214

responsiblefor
allocating
to banks
Nicholas,vicepresidentof
Citibank,outthecommunitywithinthelimits
Court and TrustFund
and prudent thevaluable
hastestified
that"the841%legal of itslegalrestrictions
practices."
There are,
ceiling
mustbe eliminated."
City financial
Deposits.
Thesedeposits
areleft
and stategovernments need to
however,noenforcementprocedures
withthecity
through
abandoned
property,
landlord-tenant
or testa
intheIllinoislaw.
review
suchpolicies
of their
own
which may hindercity reinvest
A different
approach
was taken mentary court decisions.Under
present
New YorkCitylawsand
ment,butany incentives
which en
bytheChicagoCityCouncilin1974
couragebanks to make mortgage whenit
thedeposits
may
passed
anordinance
statingcourtpractices
loansinthecentral
cities
shouldbe
mustremain
inthe
that"no (city)
money shallbe notbepooled,
countyofjurisdiction,
and
mustbe
viewed
withrespect.
Useofpublic deposited
in any bankorsavings
depositsis
nota total
solution,
but and loan association
untilit has leftinpassbookaccountswhicha
subject
to Regulation
Q deposit
couldbe a useful
signal
of public beendesignatedbytheCityCouncil
ceilings.
Thereforethere is little
policy.
As former
New YorkState as a depository."
The CityComp
fortheTreasury's
shopping
Superintendent
of BanksJohnG. trollerreceives
information
regard scope
Heimannsays,"
Itcouldn'thurt." ingtheresidential,
consumer
and around for higher interestrateson
the basisof thelong averagetime
Northeastcities
couldlearnfrom
commercial
lending
practices
of thefundsareondeposit
(fiveyears
theexampleoftheStateofColoradotheinstitution
applying
to be a
which has introduceda unique depository.
Deposit
information
on iscommon) and the substantial
size
of
many
accounts.
approach to encouragingsocial savingsandcheckingaccountsmust
i

responsibility
amongbanks.
This

CommissionerButlerasked the

alsobe submitted.
For loansmade

on:
widely
reported
butso farlittlewithin
Chicago
and fordepositsbanksforinformation
1. Totaldeposits,
withinNew
from Chicagoresidents,
the infor
emulated
programwas instituted
YorkCityandoutside
New York
by former StateTreasurerSam
mationmustbeprovidedbycensus

tract.
In addition,
each institution City.
The Treasurerinvitescompetitive
mustpledge
notto redline.
After 2. Dollarvolume of mortgages
by location
(inside
and outside
bidsfrombanksand savings
and reviewingthe informationabout
Brown in 1975.

loanassociations
forthedeposit thepractices
of a banktheCity
whetheror not to
ofstatefunds.
WhiletheplacementCouncildecides
ofstatefunds
ismade as a result
of
designate
itas a depository.
This
the competitive
bidding
process,wasthefirstsuchlawinthenation.
Many bankshavechosento for
tothebids
on thebasis
oflending sake the cityfunds and failedto

interest
rateadjustments
are made

New YorkCity).

3. Dollarvolume of mortgages
withindepressed
New York City
areas,

4.Loans to restoration
corpora
tions.

therequested
information.5. Whether the bank handles
policies
theTreasurer
istrying
to provide
encourage.
Banksreceive
upward Overthepastthreeyearsabouthalf food stamps.
Savingsbanks were singled
out
adjustments
on thebasis
of their oftheeligible
Chicago
bankshave because
ten times more of their
"activity
ratios"
in thefollowingcomplied
withthecity's
disclosure
areas:studentand small business requirements.

loans,
agricultural
loans,
and low
costandolderhousingloans.
Inthe

Asimilarreluctanceofsomebanks

money isin mortgagesthan com

mercial
banks'
money:67% of as

setsvs.7%, respectively.
In New
tochange
their
mortgage
practices

YorkStatetheyhold
$45billionin
evenifitmeansforgoingprofitable
mortgages,more than all other
petewiththe otherbanksin their governmentdepositswasdisplayed
economicregion
(thestateisdividedin Utahwhere theStateTreasurer, financial institutions (including
insurance
companiesand pension
intofoureconomic
regions).
The David Duncan, committed over
$5 million
instate
fundsto be de
funds)
combined.
They have$48
savings
andloanassociations
com
pete on a state-wide basis. The
in deposits
in New York
posited
onlyin banksthatmake billion
(mostofitinManhat
Treasurer
hasconsidered
additional mortgages
in "highrisk”neigh Cityalone
compared
to the$53 billion
criteria
such as loans to minorities
borhoods.
Not one bank hasso far tan),

competitive
bidding,
bankscom

and women.

Amoremodestefforttodealwith

takenthestate
upon its
offer.

total
assets
of Citibank,
thesecond

bank intheworld.
The Chicago
deposit
program largest
Commissioner

Butler'sintention

thesocial
responsibilities
ofbanks seemstobeworking,whilethe
Utah
wasto direct
thecity's
moneyto
has been made by theStateof Illi programso fardoes not.In both
banks which show greatersocial
nois which requires
that when a
cases,however,thecarrotwaspub
in addressing
New
banksubmits
a bidforthedepositlicly
identified.
The bankswere responsibility

ofstatefunds,thebankmustinclude
apprised
of what they couldgain

acommitmentexecutedbythe
pres orlose
by complying
withthere

York'smortgageneeds.Fifteen
of
the 42 banks failed
to respondto

hisquestionnaire,
withone,Amer
Bank pledges questsfor information
on man
ican,flatlyrefusingtocoopera
notto reject
arbitrarily
mortgage datedlendingpolicies.
COMP analyzed
thedatafrom
loans for residential
properties A more flexible,
but alsomore
withinanyspecificpart
ofthecom
arbitrary,reinvestmentprogram
was the responsesthat were received
andspokewiththeofficialsinvolved
munity
servedbythe
bankbecause launchedin New York City when
inallocatingfunds.
As anorganiza
of the location
of the property. its Commissioner of the 'Trea
tionconcernedwith open govern
wroteto the42
The bank alsopledges
to make sury,JayE. Butler,
loansavailableon low andmoderate
New York City mutualsavings mentand measurable
public
ob
we proposethatthe mort
banksin 1976.The Treasury
is jective,
incomeresidentialpropertythrough

identthat:
" The

215

Thistableshowshowapubliclyannouncedincentivesystemmightwork.
Thestatistics
arebasedonspreadsheetsprovided
theNewYork
City
Treasury
Departmentshowingresponsestoa
questionnairesent
to42NewYorkCitysavingsbankshyCom
missionerJay
Butler.
Ofthe42bankssurveyed,
23 provided
full
deposit
andmortgage
answers,
4providedincompleteanswers,
and15failed
torespond
altogether
(anasterisk
indicatesnon-response).
IMPLICATIONS

OF MORTGAGEPARITYCRITERION

FORPLACINGCOURT&TRUSTDEPOSITSINNEWYORK CITYSAVINGSBANKS
Total

Implied

Deposits

End1975 (outof
Smillion 26)?

NYC/
NYC Mortgages,
NYC/
Mortgage
Parity ActualCity
Target Implied
Change
TotaldepsEnd1975
TotalMortgagesParity
Rank
Deposits Deposits
Per Cent Smilion
Per Cent
Per Cent (outof 24) sthousand Sthousand'sthousand

2,062

88.1

Deposits,
Rank

BronsCounty
Dollar
Eastern
NorthSide

727

45.1

51.2

604

79.0

133

98.9

113

26.7
38.7

33.8

400

73.6

379

17.0

39.1

2,202
672

5,083
0

324

791

395

+2,881
-

672

+ 467

KingsCounty(Brooklyn)
Anchor
Brooklyn
DimeofNewYork
DimeofWilliamsburgh
EastNewYork
Fulton
GreaterNewYork
GreenPoint
Hamburg
Independence
Lincoln

Metropolitan
Roosevelt

Williamsburgh

:
3,368

.
.
.
.
.
.
.
.

:
23 1

173

679

747

0
O

98.1

170

15.5

15.8

781

93.3

427

88.7

100

61.5
30.2

65.o

34.0

700

726

81.5

37.1

45.5

220

1,645

89.2

106
487

35.0

39.2

361

1,162
3,409

511
1,699

84.9

207

62.0

73.0

81.7

188

15.4

18.8

477

11.8

395

173

512

91.260

24
20

23
4

2
21

678
2,488

493

102
1,039

86
-

85
678

2,989

1,449
0

747

501
+

631

912
+
+ 3,048
493

+1,287
- 1,039

NewYorkCounty(Manhattan)

American
Bowery
Central
DryDock
EastRiver

Emigrant

Empire
Franklin
Greenwich
Harlem
Manhattan
NewYorkBankforSavings
Prudential
Seamens
UnionDime

UnitedMutual
QueensCounty
CollegePoin:
Flushing
Jamaica
LongIsland
QueensCounty
RichmondHill
Ridgewood

3,762

1.507

1,176

91.2

199

94.2
116

245

338

196

194563
.

443

84.3

196

90.9

638

2,280

1,000

93.0

113

202

91.1

2,260

24
24
489
40.737.1
+

2,735

113

7.1
4S.S

1,823

22.3

1,136
481

603
152

1,512

20.31,108

24.1
33.630.5

371

24
10

308

1,358
o

3,101
0

1,052

86.6

121

15.5

17.9

2.172

79.6

220

40.6

51.0

883

1,540

142

83.0

314

581

90.0

135

29.3

32.6

417

95.1

69.3

87.7

211
157

65.9

711

27.3

31.1

100.0

125

100.0

101

772
554

340

738

+ 2,620

603
-

308

-1,052
-2,172
+

945

1.014

1,477

2171

305

875

200

707

31424

772
+

85
558

152

+ 3,954

1,099
0

987

-1,136

698

196

4,466

1,125

202

338
-1,000

340
+

207
1,416

RichmondCounty(StatenIsland)
RichmondCounty
StatenIsland
Total,NeroYorkCity

329

623

50.4

SO4

27,970

31,151

570
507
+3,53130,476

Totaldepositinformationisavailableforeverybankinvariousindustrydirectories.
Figuresareshownonlyforthosewhoprovided
theminthequestionnaireinordertoindicateabasefortheratiointhethirdcolumn.
?Therankisprovidedonlyforthe26bankswhich
providedtotaldeposit
data.
"Thisistheratioof
NewYorkCity
depositsto
totaldeposits.
Industry
spokespersonscautionthatsomebanksmayhaveahigh
proportionofdepositorsresidentinthesuburbswhilemaintainingdepositsneartheirplaceofwork
intheCity.

'Ifthetotalofallthemortgagesinthiscolumn,56.2billion,iscomparedtothetotalo
considerablylowerthantheoverallaverageforall
mutualsavingsbanks–nearly70%.
Inotherwords,whilesavingsbanksareput
ting570outofevery$100depositsintomortgages,only$20ofthesemortgagesare
forNew
York
Citybuildings.
NewYork
Citytotalmortgagesdivided
byNewYorkCity
totaldeposits.
Non-respondingbanksareassigned
the
lowest
rank.

Basedonmortzageparityindex.Bankswhichfailedtoprovideenoughinformationtocal
depositsofso,asarebankswhichshowafigureoflessthan
25%ofmortgageparity
*Thisissimplythedifferencebetwcenl'rojectedTargetDepositsandActualCityDepo
ofmunicipalfundsfromthebank.
A plusindicatesthemagnitudeofincreaseondepositsby
themortgageparitycriterion.

216

In addition
to riseof mortgage
datathepublished
criteria
might
includeservicestandards
(pro
cessingtime,accountingaccuracy,
method of interest
ratecompu
tation)
and otherpossible
con
siderations
such as whetherthe
bankadvercisesitsloanprogram,
whetherithas opened or closed
brancheswithinthecityorwheth
erithandlesfood
stamps.

gagecriteria
being
applied
by the
lion
. !.!!deposits
fromcity
Souice3
Treasurybepubliclyspecified.
3. Allcira largerof $7,000in
In preparing
itsanalysis
and
hypothetical
mortgage
parity
cri
Court and TrustFund deposits
teria,
COMP
took into account
theratioof
New York Citydeposits

forevery
$1million
in New York
Cityinvrigages

tototal
deposits,
whichpermits
a

The target
deposit
levels
which
wouldresult
fromthisprocedure
thanifall
deposits
areassumed
to couldbe usedinconjunction
with
such as the services
originate
from New York City. otherfactors
provided
by thedifferent
banks
in
However,
industry
spokespersons

fairercomparison
ofmortgagedata

4.Onthe basis
ofpublished
cri
cautionthatsomebanks
(e.g.,
those handlingaccounts,and whether
teria,developtargetdepositl
in Manhattan)
may havea higher theyareopeningorclosingbranches
neighborhoods.
Public foreachbankannuallyandmove
proportion
thanothers
of deposit indeclining
ors resident
in the suburbs but
maintaining
deposits
in the city

nearwhere
theywork.
Thisbias
is

standards
for othercriteria
could

fundsintobanksbelowtheirtar

also
bespecified.

get.

RECOMMENDATIONS

difficulttodetermineanddeal
with,

Professor
RobertBishofthe Uni

versityof
Maryland,
noting
thelife

Publicdepositsarebythemselves
insuranceand pensionassets,
as
not the answer to disinvestment,
wellas savings,
of neighborhood
buttheycan be an important
part residents
(eveninpoorareas),
con

without census tract data on the

residence
of depositors
such as is

required
byChicago.

ofa solution,
especially
ifthere
is cludes,
"Locally
generated
funds,
publicsupportfor
bankswhichare if channeledinto neighborhood
makinganefforttomakecitymort
economies,wouldbe
morethansuf
mortgagesby
NYCdepositsto
total
gages.
It wouldhelpindividuals
If nore deposits
come
deposits
ficient
toend neighborhood
disin
The indexthatCOMP created
dividesNYC mortgagesto total

from outside
New York City,one

seekingguidanceonmakingdeposits
vestment."
Publicdeposits
are one

theindexadjusts
theratioof New
York Citymortgages
to total
mort

shouldremain
thebasic
criteria
for

and localgovernments
were
way ofencouraging
themobilizing
could
expect
moremortgage
loans ifstate
foreconomicdevel
tobe madeoutside
thecity.
Only to move toward more open social of theseassets
criteria
for
allocation
of
public
opment and stability.
the two Richmond County banks
deposits.
Competitive
bidsfor
takein alltheir
deposits
from New
This Newsletter
is the first
yield
andservice
provided
Yorkers.
Inalloftheotherinstancesinterest
of a series,
fundedby a grant

deposits,
butsocial
criteria
become
fromthe
FordFoundation,
on
important
where
deposits reinvestment. The material
gages
upwardtoreflect
thesubur especially
in
this
Newsletter
is
based
on
aresubjecttoRegulation
Qorother
bansourceofsomeoftheirdeposits.
limitations.
A keysocial
fac
Dataon New York Citymortgages yield
information
provided
by the
tor
is
the
proportionof
mortgage
arenow public
forallNew York
SavingsBank Association
of
loansmade by a bank withinthe
areafrom which itsdeposits
are

New York State,
the National
Training and
Information
Center,
the New York Public
municipalitiessuchacriterioncould
Interest
ResearchGroup, the
beappliedinthefollowingway:
WoodstockProject,
and other
1. Where neither
Federal,
state
loansithasmade.
Deposit
informa
institutions
and individuals
norlocal
disclosure
requirements
tion
isalsocollected,
but(incon
identified
in the text.
It was
banks under Regulation
G-107 of

theNew YorkState
Banking
De

partment.
Each bank must main
tain,
by censustract,
a breakdown
of thedifferent
typesof mortgage

drawn.
InNewYorkCityand
other

thesource
of de
trast
toChicago
whereitispublic) make public
posits,
sendoutan annual
ques
isbeingtreatedby
thestateas
con
tionnaire
toareabanksinterested
fidential.
However,Deputy Super

preparedbyJohn
TepperMar
lin,formerly an economist
with theFederalReserveBoard

intendentof Banks William Wood

in public
deposits,
requesting

wardIII
says,
" Thisdecisionis
sub

information
on the residence
of

and the FederalDepositIn

depositors
by census
track.
Ex

surance
Corporation.

ject
to review."

cludefrom consideration
banks
thatdo notrespond.
2.Ifthecityisconcerned
about
loans to depressedareas and
1. Eliminate
from consideration wants to give"extracredit"
for
loansin theseareas,it should
!or new deposits
thosebanks

COMP's hypothetical
mortgage

criteria,
shown in Table1, use the
followingdecision
rules:

whichdo not respond
to the
Treasury's
request
forinforma
tionon deposits.
2. Eliminate
from consideration
bankswhich havelessthan25%
of theirmortgageswithinNew

York City,after
dividing
the
mortgage
ratio
by thepropor

specify
thecensus
tracts
to be
counted
asbeing
depressed,
and

COUNCILONMUNICIPAL
PERFORMANCE

JohnTepperMarlin
ErecutiveDirector
Maris Cakars
PublicationsDirector

Membership
intheCouncil
should ask about the average
$15 annually.
Publication
lengthof
mortgages
andaverage is
listsent on request.
Phone:
downpayments.
(212) 243-6603.
3.Makepublic
thequestionnaireContributions
to COMT are
results
and thecriteria
by which

tax deductible.

publicdepositsaretobeallocated.

217

The CHAIRMAN.
Thankyouverymuch Mr.Weiler.
STATEMENT OF CONRAD WEILER,ALLIANCEFOR NEIGHBORHOOD
GOVERNMENT, QUEENS VILLAGE,PHILADELPHIA

Mr.WEILER.
Thankyouverymuch,Senator.
I wanttothankyou
fortheopportunitytotestify.I
amhereon behalf
oftheAlliance
forNeighborhood
Government,which
isan organization
ofneigh
borhoods,
several
hundred
members
fromvarious
cities.
Firstof all:The billissomethingwe support.
However,we

wouldliketosuggestsomechangesinitto
strengthen
it.
Our overall
concern
isnotreinvestment
so muchasreinvestment
for whom .

I comefroma neighborhood
whichisaperfectexample
ofwhat
Mr.Holmanwastalkingabout.Manyoftheneighborhoodsthat
associationrepresentsareneighborhoodsinwhichreinves
longertheproblem,but
whatkindofreinvestment,and
reinvestment
for whom .

We wouldliketostrengthenthisbill
soitwouldshowforwhom
thereinvestment
isbeingmade,who
isbenefitting
fromit.
To be veryspecific,
we wouldlike
toseethebill
strengthenedto

giveussomemeasuresastowhetherreinvestmentis
simplybringing
investment
fromthesuburbs
tothecity,
butnothelpingthe
lower
and moderate
incomepeople.

Theneighborhood
ismorethanjust
theterritory,
theneighbor
hoodisthefabric
ofinterrelationships
amongthepeopleliving
there.

We areafraid
thatreinvestment
isjust
goingtorecycle
those

neighborhoods,
bring
intheuppermiddle
classprofessionals
and
so on.

So I wouldsuggestseveral
additions
tothebill.
First:
The bill
should
include
theFederal
National
Mortgage
Association,
whichon numerous
occasions
hasexpressed
a clear

interestin
middleincomehousing
intheinnercity.
By middleincomehousing,
Iam afraidthattheymean some

thingmorethanwhatotherpeopleI assumethey
meanhousing
in
the$30,000,
$40,000,
$50,000,$70,000pricerange.

Ifso,ifawaycouldbe
foundtobring
FNMA underthis
bill,
I

thinkthiswouldbe a stepforward
in showingtheimpactof
reinvestment.

Second:
Sortofpositive
criteria
forevaluating
reinvestment

mightbe advisable.
I wouldsuggest
simplycriteria
showing
the

effect
of reinvestment
on achieving
andmaintaining
bothracial
andincomediversity.Also
theeffect
ofreinvestmentin
causing
economicdislocations,drivingpeopleoutofthe
neighborhood.
Third:
I wouldsuggest
there
bea commonbasisof
collection
of

thedataamongthe
variousagencies
that
will
besupplying
it,be

causewithout
acommon basis,such
asCensus
tracks,the
neighbor
hoodswhich
will
trytousethisdatawillbeatagreatdisadvanta
in trying
to bringitalltogether.

Finally:
Iwouldsuggest-excuseme.
Thefourth
pointisthatthe
responsibleagenciesconsidersomeaction
wherenecessary-Irealize

218

this
will
be verycontroversial—
todiscourage
credit
actions
which

result
in destabilizing
neighborhoods,
toomuchreinvestment,
or

forcing
economic
dislocation.

Finally:
I wouldsuggestto
tietogetherallofthesethings
consolidated
statementbeissued,
andI wouldsuggest
thenamebe
“NeighborhoodReinvestment
ImpactStatement”,suggestive
of the
environmental
impact statement.

Andthatpublichearingsperhapsmaybepartofthe
development
public
hearing,citizen
participationprocess
be re
quired
alongthelines
Mr. Naderand othershavetalked
about.

Thiswouldbeespeciallyimportantif
community
developmenti

amendedaswehopeitwill
betoinclude
a stronger
role
forneigh
borhoods.They
arepresently
notmentioned
inthebill
specifical
as partof thecitizen
participation
process.
Sothatisthesummaryofmyremarks.
Thankyouverymuch.

[The complete
statement
of Mr. Weiler
follows:]
PREPAREDSTATEMENTOFCONRADWEILER,
CHAIRMAN,ALLIANCE
FORNEIGHBORHOOD
GOVERNMENT

NEIGHBORHOOD

DIVERSITY

Neighborhood
diversity
includesbut
isfarbroaderthantheconceptofracial
integration.
Neighborhood
diversity
means,aboveall,
socio-economicdiversity
themixtureofpeopleof different
incomes,
education,
occupation
and ethnic,

religiousandracialgroupswithinaneighborhood.
Impliedinthesocio-econo
diversity
ofthe population
of the neighborhood
isa diversity
oftheeconomic

baseand oflanduse,
sothat,residential,commercial
andindustrialuses
are

viewedas potentially
compatible:
single
familyhomes with apartments,
light
industry
wtihcommercial,
thecornerstorewithsingle
familyhomes,the arti
san livingupstairsand his workshop and storedownstairs.
Occurringwithintheneighborhood-thatis,
a small urban area in whichface

to-facecontacts,
personalknowledge,
and puredemocraticdecisionmakingc

exist–
diversity
isan historic
turning
away from two centuries
of homogeniza
tion,
specialization,
centralization
and regionalization
of residence,
workplace,
recreation,
shoppingandpublicaffairserectedbyindustrializationandp

in the Americanmetropolis.
NEIGHBORHOOD

DIVERSITY AS A GOAL OF PUBLIC POLICY

Neighborhood
diversity
isan extraordinarily
desirable
goalof publicpolicy
because
of the profoundsocial,
economicand political
effects
itcouldhave on
American citiesandlifegenerally.

Neighborhood
diversity
couldhelp,obviously,
to promoteracial
integration.
Diversitycould
helpandtheisolation
oftheoldfrom therestofsociety.
Diver
sitycouldhelpfight
crimeby havingmany different
eyeson thesame streets
allthetime.Diversity
couldreducethedestructive
effects
of theprivate
auto
mobileand reducetheneedfor public
transportation
by putting
peoplecloser
towheretheywantto beforjobs,
shopping
orrelatives,
by emphasizing
accessi
bility
overmobility.
Diversity
wouldreducebothpanicselling
and speculation
inrealestateby
reducingtheimportanceof“blockbusting”
ofanykind,whether
intermsof social
change,
or in termsofintroducing
commercial
usesinto
resi

dential
areas.
Diversity
wouldhelptointroduce
human scaletechnology
into
the city,
and make conservation
of resources
more effective.
Diversity
would
helprestore
holistic,
familymedicine
and reducetherigidity
of sexroles.

Mostimportant,diversitycouldtransformpoliticsandpublicl
neighborhood
assembly
debates
anddeals
withalltheissuesin
society,becaus
theyarecontained
withinitsmembership,notjustthoseissuesofa
singlenarrow
economic
classor ethnic
outlook.
Diversity
wouldreduceor eliminate
theneed

forbusingtopromotehetterschools,
forforcingblacksintowhiteneighbo

forhousingpurposes.
Diversity
wouldend thesplit
ofurbanpoliticsintoeithe
reformorpartybossfactions,
and unifyboththeinnovation
and objectivity
of

219

reformand
thepersonalcontact
and correctiveto
bureaucratic
inhumanity
of

thewardbossatacontrollable,overseeableneighborhoodlevel.

Diversity
wouldprovide
theordinary
citizen
withaccesstodecisionmaking
andgovernment
withoutdependence
on evermore remoteregional
or national
interestgroups,
partiesandcandidates.
STRATEGIES

FOR

ACHIEVING

DIVERSITY

Therearetwogreatstrategiesdeveloped
inpublicpolicy
forachievingneigh
borhood
diversity,
basedon how one viewsthe growthpatterns
of our metro

politan
areas.
The strategy
thathasdominated
sofar(totheextent
diversity
hasbeen
an importanteffectiveconcern
ofaction
atall)hasfocussed
primarily
onracialdiversity
and isbasedon a centrifugal
modelof metropolitan
growth.
Inthecentrifugalmodel,racialandincomegroupsarearrangedinahierarchy
ofrising
statusfrom the centerof the cityoutward.The whitesare fleeing
the

city,
factories
are movingout,and thecities
aredying.
Publicpolicy
doeslittle
ornothing
to stopor evenslowdown thisbasiccentrifugal
trendbut merely
triesto
achieveracialdiversity
by tryingto make blacksmoveeven fasterthan

thewhitesso thatblackswillbe dispersed
intothe outercityand suburban
housing.
Thisstrategy
hasbeenlargely
unsuccessful
becauseitactually
acceler
ates
themovement of allpopulations
in the metropolitan
industrial
systemof
homogeneous
specialized
land use whiledoingalmostnothingto changethe
basic
socio-economic
forces
promotinghomogeneity.
Thismay be called
the cen

trifugal
forcestrategy
forcing
blacks
outwardlyfaster
thanwhites.
The secondstrategy,
a long-range
strategy,
has beento attract
the middle

classback
tothecity,
primarily
through
massiveand
strategic
applications
of
federal
urban renewalgrants.
This strategy,
the recycling
strategy,
after20
to30yearsof patient
layingof groundworkisnow beginning
to bearfruit.
Inmostofour bigcities,
itisnow obvious
thatsome ofthemiddleclassare

returning
tooldneighborhoods
in andaroundthedowntown,
preserving
and

restoring
old houses,
creating
new artist
quarters
and attractive
and often

avant-garde
shopping
areas,staging
cityfestivals,
helping
to revive
ethnic
pride,
serving
as communityorganizers
to fight
crimeor superhighways
or to

organize
green-lining
campaignsor
to buildbasement
trouttanks.
Whilethis
revival
and rediversification
of old cityneighborhoods
may still
be largely

unnoticedbyurbanpolicyanalysts,
anyonewhoactuallylivesinoldcity
neigh
borhoodsand
looksaround
inBoston,
Philadelphia,
Baltimore,
Washingtonor

dozensofothercitiesknowsitishappening.

In the next5 to 10 yearsthisreturnto the city
- spurredby the gasoline
shortage,
disillusionment
withsuburbanlife,
residential
tastechanges,
rising

costofnewhousing,
and many other
factors—
willbecomethe
dominant
trend

ofmetropolitan
politics.
But willit achievediversity?
Though it willachievemore diversityor

destroyitlessto
bemoreaccurate_than
didthegreat
twocenury
eraof out
wardsuburbangrowth--becauserecycling
willoccuron
an alreadythoroughly
urbanized
base,recycling
byitself
isat bestneutral
andinthelongrunalso

hostile
to diversity,
becauserecycling
isreally
metropolitan
geopolitics.
Recy

cling
issimply
thestrategic
replacement
ofthepoorbythemiddleand
upper
middleclassthrough
public
policy.
Recyclingisnotany
morethansuburbani
zation
an attemptto create
diversity,
exceptinan abstract
statistical
sensein

thatcity
populations
asa wholewill
becomemorestatistically
diverse
ifthe
middleclassreturns.
THE

NEIGHBORHOOD

AND

CITY

RECYCLING

Theneighborhood
conceptoffers
usa uniqueopportunity
torestructurecity
ofathird
andtruestrategyfor
diversity
inmetropolitan
areas.For
thefirst

recyclingso
thatis
notsimply
a re-suburbanizingofthecity,
butthecreation

time,recyclingputsthoseon
thesideofdiversity
intheposition
ofbeingcon
servative,
ofnotforcingsocial
change,
butiftryingto
absorband
diffuseitto
preserve,notforce,diversity.
How would thisoccur?

process
itself.
As theneighborhood
Theanswerlies
in theredevelopment

redevelops—orasitis"preserved”,tousea
HUDphrase-severalthingshap
pen.
Thereisanincreaseinprivateinvestment,
sometimesprecededbutusually

220

followedbyanincreaseinpublicinvestment.
Propertyvaluessuddenly
increase,
oftendramatically.
Abandoned,
"bombed-out"
buildingssuddenly
become" shells
forrestoration
by urbanpioneers.”
Newpeoplemove intotheneighborhood
and
thesenew peopleare typically
artists
or middleor upperclassprofessionals.
At first,they
move intotheempty buildings
or onesbeingsoldin the normal

neighborhood
process
ofrealestate
turnover.Often
thesenewcomers
establish
or attractnewbusinesses
and givenew lifeto old ones.They become activeand

actually
helptoimprovethe
neighborhood.
Typically,theyvaluethediver
neighborhood
highlyand originally
moved to the neighborhood
because
theybelievedinadiverse,
urbanneighborhoodlifestyle.
Uptothispoint,
neigh
borhooddiversityhasincreasedasaresultofrecycling.
Unfortunately,
the diverse
recycling
or redeveloping
neighborhood
is merely

of th

ata temporarymidpointbetweenwhatmighthavebeenalargelypoor
ingclasshomogeneity
and an emerginguppermiddleclasshomogeneity.
Justas racial
stability
in a neighborhood
has cynically
but perhapsaccu
ratelybeen called“the time between the firstblacksmoving in and the last

whitemoving out,”so diversity
in the redeveloping
neighborhood
might be
defined
as “thetimebetweenthefirst
uppermiddleclassprofessional
moving
in to restore
an oldhouseand the lastold-timer
beingmoved out by rising
property
taxesand changein neighborhood
life-style.”
Unfortunately,
thetraditional
urbanpolicy
fightsofthepastdecadeshaveob
scuredwhat is happening
in redeveloping
neighborhoods.
Most of what is hap
peningto recycle
theseneighborhoods
and to progressively
turnthem over to
theuppermiddleclassis
happening
because
ofliberal
successesin
stopping
the
razingof neighborhoods
throughdemolition-style
urbanrenewal,
fighting
the
destruction
of neighborhood
scaleby introduction
of public
housinghigh rise,
preventing
theripping
apartof neighborhoods
forsuperhighways,
and by stop
pingred-liningofcityneighborhoods.
What

has been done as a resultof these and other actions has been to restruc

turemarketpreferences
and investmentparametersso
thattheprivate
investor
now has a new and potentially
vastmarketof oldcityhousingto exploit
with
virtually
noadequatepublic
policycontrolstopreserve
suchvaluesasdiversity.
Inpart,thisis becausepractically
nooneactuallyanticipated
cityrecycling,
and anyway,most urbanpolicy
analysts
still
gloomily
anticipate
the death of
the cityand supportblackpopulation
dispersal
as the main liberal
housing
issue.
Moreover,
mostof thebasicpolitical
issues
and institutions
of our cities
wereestablished
duringthemunicipal
reformmovementoftheturnofthe cen
tury,whichposedtheconflictbetween
local
and regional,
parochial
andgoodof
thewhole,
bossandgoodgovernment,
corruption
and technical
efficiency,
neigh
borhoodand centralization,
stagnation
andeconomicand socialprogress.
WHAT

MUST

BE DONE TO PRESERVE NEIGHBORHOOD

DIVERSITY ?

Oncethereisa recognition
ofthefactofcityrecyclinganditsvast
potential
either
forresegregation
ofoururbanneighborhoodsorcreationoftruedivers
inthem, certainmeasuresbecomelogicallynecessary.

First,
and profoundly
important,
is the establishmentof
the neighborhood
as a legitimate
and basicpolicy
contextforachieving
diversity.
This is the
singlegreatest
and most dangerousdefectof the Housingand Community
Development
Actof1974.NowheredoestheCD Actestablishthe
frameworkby

whichtomeasure
theprofessed
goals
of neighborhood
diversity.
It isclearly
impossible
to measure
success
or failure
inachievingneighborhooddiver

untilacommonneighborhoodunitofobservationisestablishedforpublic
Furthermore,
theremust be a single
neighborhood
unitof observation,
not the
proliferation
of "community”or “neighborhood”
oriented
programsnow found
in city,
stateand federal
programseachof whichestablish
differentneighbor
hood boundaries,
different
specialized
citizen
boards,
different
deadlines
and
procedures—all
of which furtherfragmenttheneighborhood
to itself
and to
anyonetryingtogetaholisticviewoftheneighborhood.
In establishing
the neighborhood
as a contextof publicpolicy,
it must be
recognized
thatthe neighborhood
itself
must participate
in and playa major
ifnotdominating
rolein defining
itself.
Thisisnecessary
notonlyto definea
real,
functioningneighborhood
and not a bureaucratic
vision
of one,but also
to establish
thegoodfaithwiththeneighborhoodthat
willbenecessary
todeal
withdiversity
anditsenemies.

221

Second,
neighborhoods
mustbe given
a formal,
legal
status
withresources
fornecessarytechnical
services,
sothattheycanadequately
participateasan
equalinpreservingandpromotingdiversity,andalsobeheldresponsibl
and politically
fortheir
actions.
Thus,some form of neighborhood
government
isnecessary
whetherrequired
by federal
law,or established
by cityordinance.

Third,a reconceptualization
and revision
of present
zoning,building
code,
planning
and land-use
controlsmust
beundertaken,
so thattheydo notpromote

onlyhomogeneity,
butalsopromote
diversity.
Zoningforexample,
mustnot

rigorouslyseparateresidentialcategoriesbydensityandespeciallynotrigor
separateresidentialfromcommercialcategories.

Fourth,aseriousrevisionoftherealpropertytaxmustbeundertaken,s

rising
neighborhood
property
marketvaluesdo not driveout personson low
andfixedincomesthroughradicalincreasesin
taxassessment
betweenintrinsic

improvements
tothehouseandgeneral
appreciation
oftheneighborhoodwith
atleastthetaxassessmentincreaseongeneralappreciationoftheneigh
beingdeferreduntilsaleoftheproperty.
DIVERSITY

AND

REINVESTMENT

Finally,
and perhapsmostimportant,
a wholerangeofnew controlsand
pro
cedure must be developed with the gentrifyingan

homogenizingeffectsof

reinvestment.
(Gentrification
is the opposite
of deterioration
- itis the rapid

increase
of public
and private
investment
in a neighborhood
accompaniedby
thereplacementof
lowerbyhigherincomeresidents.)
Reinvestment
is now underwayin such programsas Neighborhood
Housing

Services,
thePhiladelphia
MortgagePlan,
various
greenlining
effortsfollowing

fromthe fight
against
redlining,
and in a greatvariety
of publicly
supported

programs
suchas those
listed
in HUD'scatalog
“Neighborhood
Preservation.”
Some oftheseprogramsareso eminently
necessary
and represent
an historic
reversalof urban declinethat it may seem the sheerestof follyto criticize

themnow. Yet,in truth,
few ifany oftheseprogramshaveany inherent
resist
ancetogentrification.
Ithasbeensuchanexhaustingandoverwhelmingstruggle
to reversethe trend of urban declinethat we never dreamed that our success

mightgenerate
even worseproblems.
And,on the whole,thesesuccesses
have
notyetresulted
in wholesale
uppermiddleclasshomogenization
of the“inner
city"
buttheyprobably
willinthenearfuture,
ifnotby themselves,
thenwith
thehelpof such massivereorientations
of the privatemortgage
and construc
tion
industry
as are proposed
by theForum One and Forum Two proposals
of
the FederalNationalMortgageHousingAssociation.
Here a National
Cities
Corporation,
controlled
directly
by Presidential
and Congressional
appointees
wouldinfluencethe
investmentofbillionsofdollars,
havethepowerofeminent
domain,
and direct
itsmassive
energies
to providing
"middleincomehousing
in
theinner city.”

Clearlythetimehascometoanticipateevents,foronce,
ratherthan
waituntil
itis too late.Reinvestmentmust occur withina framework that willachieve,

butnot destroy
neighborhood
diversity.
An excellent
opportunity
to do thisis

provided
by Senator
Proxmire's
Bill
S.406,
The Community
Reinvestment
Act

of1977.This Billwould callattention
to the needfor reinvestment
in city
neighborhoods
and establish
a mechanismforencouraging
and monitoring
the
reinvestmentprocess.

OnbehalfoftheAllianceforNeighborhoodGovernmentIwouldlikehoweverto
suggestseveraladditions
tothebill
thatinouropinion
wouldgreatly
strengthen
it.

First,
thecoverage
of thebill
shouldbe extended
toinclude
theFederalNa.

tional
Mortgage
Association.
FNMAis perhaps
evenmoreimportant
thanthe

agencies
already
mentioned
in theBill,
theFederalReserveBoard,theFederal

Deposit
Insurance
Corporation
andtheFederal
Home LoanBoard,
increating
anddirecting
theactual
flowofmortgages
toorfrom cityneighborhoods.
More.

over,
FNMAfor several
years
now hasbeenconducting
studies
ofthemarket

for"middleincomehousingintheinner
city,"
hasdevelopeda
specificlegislative
program
to promotethiskindof reinvestment
and isrightnow in theprocess

ofconductinga
nationalprogrampublicizingtheirplans.Omitting
FNMA from
thecoverageof
this
Billwould
leave
a great
pieceof
theoverall
reinvestment
processoutsideoftheunifiedlookatreinvestmentthe
Billattemptstocreate.

88-032 0.77

• 15

222

Second,criteria
forevaluatingreinvestment
should
be written
intothe
Bill.

We wouldstrongly
suggest
thatmeasurement
of theeffècts
of reinvestmenton
achieving
and maintainingincomeand
racial
diversity
in neighborhoods,
andon
economicdislocation
of existing
neighborhood
residents
whethertenantsor
homeownersshouldbe included
among such criteria.
We are veryconcerned
thatreinvestment
benotjustforthefewwhocanafford
$50,000or$75,000town
houses.
We are veryconcerned
thatreinvestment
and thereturn
tothecitynot

bemerelyacontinuationofthesuburbanizationprocessofcreat
uppermiddle classenclaves.
I mightadd herethatmy own neighborhoodorgani

zation,
Queen Village
Neighborhood
Association,
is veryconcerned
aboutthe
problemandthatthe
Philadelphia
Councilof
Neighborhood
Organizationsaswel
as the Alliance
for Neighborhood
Government,
have alreadytaken positions

againstsuch
economicdislocation
andhomogenizationof
neighborhoods.

Third,
thereshouldbea
common basisforthecollectionofthesedata,
perhaps
censustracts,
asintheMortgageDisclosure
Act,and a singleagency
responsible
forcollecting,
publishing
and perhapsevaluating
thedata.We areparticularl
concerned
thattherebe a common basis
forreporting
so thatthethousands
of
neighborhood
groupsin our cities
can getholdof thisdata,interpret
it,and
perhapstakeaction
ofsome kind.
Ifeachreporting
agencyusesitsown format
and reporting
basis,
itis likely
thatthiswillonlymake it verydifficult
for
neighborhoods
to playa rolein monitoring
theveryprocess
in whichtheyhave

such a great stake.On the other hand, as the variousgreen-lining
campaigns

haveshown,neighborhoods
armed withtheright
kindofinformationcanaccom
plishagreatdealintheirownandinthepublicinterest.
Fifth,
thatwhereitbecameclear
from thedataco!lected
undertheBillthat
reinvestment
policies
are causingor leading
to a destruction
of neighborhood

diversity
orcausingforcedeconomicdislocationofresidents,tha
Boardsof

the various
agencies
coveredunderthisBillbe required
to takestepsto dis

courage
lending
andother
policies
causing
oraugmenting
these
trends.

Finally:
Wewould suggest
a name for thesedata and the procedurethat
wouldsymbolize
thefullintent
expressed
in theBill.
The name Neighborhood
Reinvestment
ImpactStatement
mightservethispurpose,
paralleling
the Envi
ronmental
ImpactStatement
thathas doneso muchto open-uptheprocess
of
spending
federal
money on physical
improvements.
Alongthesesame lines,
it
mightbe wellto require
annual public
hearings
in cities
on reinvestment,
as
expressed
in thedataanticipated
inthisBilland thechanges
suggestedhere,or
some otherform of citizen
review,
perhapsrequiring
itas partof the citizen
participation
processunderthe Community Development
Program.
NEIGHBORHOOD

DIVERSITY AND

AMERICAN

CIVILIZATION

Achievement
of neighborhood
diversity
isfar more thana housingprogram.
Itisa programtotransform
Americanlife:
tofinallyovercometheconflicts
defects
ofindustrial
civilization,
and toexploit
thebenefits
ofindustrializati

bymerging
themwithanoldertradition
andalsoanewervisionofhumaniz
civilization.

The CHAIRMAN.Thankyouverymuch.

Ms.Greenwald,
S.406provides
foranongoingreviewoflen

practices,aswellasareviewinconnectionwithappli
open

new branches.

Asa Stateregulatorwith
considerable
experience
and withafine
record
of effectiveness,
do you findthatthebranchapplicati
process
provides
you withthemostappropriate
leverage
to en

courage
communityserviceon
thepart
ofbanks?

Ms.GREENWALD.
Yes,I do.Itisanopportunity
whenthebank
wantssomethingforthe
bankdepartmenttosayitwantssome

fromthebank.Sowe findthatisthemosteffective
timefortalking
about it.

The CHAIRMAN.
What canyoudo witha bankthat
isnotinter
estedin opening
a branch,and
is not doinganything
in the
community?

223

Ms.GREENWALD.
Ourexperience
ismostbanks
do wantabranch.
The CHAIRMAN.There
areStates
inwhichbranching
isnotper

mittedor isverylimited.
Ms. GREENWALD.I realizethat.
ThoseStateshavemany
problems,

oneofwhichisthey
havenocompetition
inthelocal
communities.

When wewrotetoyour
staffon
thisbill,wesaid
wedonottreat

branchesasanexclusivefranchise.
Wehaveverymuchaprobranch
ing process.

I am afraid
I really
don't
haveagoodanswer
foryou.
We do
haveonebankin
Bostonwhohaschosen,hastold
me,theywill
not
comein forabranchaslongasI am thebankcommissioner,
be
causetheydon't
wanttodiscuss
their
credit
practices
withme,ex
ceptthrough the MortgageReview Board,whichreviewstheir

practices.
Theyarebeingpenalized,though.
Theyarenotgetting

intothe
suburbs,
wherealloftheother
bigbanks
aregoing.
This
bankis goingtolose
inthelongrun by saying
we wouldrather
waituntil
youaregonebefore
we openanybranches,
rather
than
talkto thedepartment
about
credit
practices.
The CHAIRMAN.
Do youthinkasa national
initiative
thatthis

legislationmighthelp
toovercome
oppositiontobranching,
by pro
viding
thatoneofthecriteria
toencourage
branching
isa record
ofcommunityservice,
and therefore
a recognition
thatthebanks
thatcomeinwouldbemorelikely,

Ms.GREENWALD.
Yes,
I do.Thecommunity
groups
in Boston
I pushedforstatewide
branching
in Massachusetts,because
I be
lieve
thatisproconsumer.
The community
groups
inBoston
havea
record
oftestifying
against
thatlegislation,
because
theyhavejust
thisconcern.

TheCHAIRMAN.
Thepicturethat
I think
a lot
ofpeople
have,it

isan understandable
picture
forlaymen,
isthatyou geta big
bankinBostonor
Milwaukee,and
theyarenot
interestedin
Water

townorinsomerelativelysmall
townon theoutside.
Theycomeinto

thecommunity,theyareabsenteeowned.
Top management
isabsent.
Localcitizensthink
ofthesebanks
asputting
theirmoney
inSaudi
Arabiaor some place,
notreally
interested
in developing
thelocal

community.

Ms. GREENWALD.
That isright.
I thinka bill
likethisanswers
someof thoseproblems.

In Boston
we workwiththecommunitygroups,tryingto
resolve
their
dislike
ofstatewide
branching.
Thatishowwecame upwith

theideathatifa Bostonbank wanteda suburban
branch,
thebank

would
havetogive
thebankingdepartment
a letter
ofcommitment
tocontinuetoservethecity,and
continuetoofferallof
theservices
theynowoffered
attheirbranches,
pluseliminatinganydeficiencie
ofservices
in thecityof Boston.

Thismethodof handling
branchapplications
came outof a
dialogue
withthe community
groups
andithelped
removetheir
opposition
toallowingstatewide
branching.
We gotthecompromise
ofgoing
15 milesoutofthecity,
whichdoestakethebanksintothe

suburbsof Boston.

The CHAIRMAN.Mr. Marlin,
some of the provisions
of thisbill

aregeneral
statements
of policy.
We can't
provide
every
detail
of

224

administrativeprocedurebystatute.
Thathastobedone,
ofcourse
by theregulatoryagencies
through
regulations,
and itempowers
themtoissue
regulations
tocarryout
theact.
From your knowledgeof reinvestment
initiatives
at the State

level,
arethere
goodexamples
of Stateor local
regulations
that
wouldprovideamodelforthe
Federalregulatory
agenciestocar
out theintentof the act?

Mr.Marlin.
Ithinkthebestexampleofwhatyouareaski

isprobably
California,which
introducedfairlending
regulatio
administrativelythroughthedepartmentofsavings
andloanofthe
businessandtransportation
agency.

The department
introduced
itsregulations
through
5 amend
mentstochapter2oftitle
10oftheCaliforniaadministrati
code.
The five
amendmentsrelatetoapplications
fornewbranches—
or
otherchanges
infacilitiesofthekindwehavebeen
talking
about,
applications
formergers,
public
information
and fairlending
re
quirements
and guidelines.

Thechangesspelloutproceduresforensuringth

tions
processloan
applications
equitably,andthat
theyengage
in
whatiscalled
an affirmativemarketingof
loanservicesthrough
their
lending
area.
An affirmativemarketing
program
of this
kind
was referred
to by GaleCincotta
in earliertestimony.

The affirmative
marketing
feature
requires
lending
instituti

to maintain
on file
withtheCommissioner
an affirmative
marketing
plan.Such a planmust describe
how theinstitution's
marketing

efforts,
specifically
including
themakingof loans,
aredesigned
to

reachgroupsprotected
against
discrimination.

TheCalifornia
regulationshave
fourother
interestingprovi
They incorporate
two mortgagereviewboardsof inquiry
as part

of the systemfor dealing
withcomplaints
of unfair
lending
practices.

UnlikeMassachusetts,
wheretheBostonmortgage
boardisa vol

untaryactivity
onthepart
ofthebanks,
theCalifornia
boards
are
partoftheregulatorysystem.

TheCalifornia
regulations
specify
procedures
forensuring
fair

marketappraisalsofproperty
on whicha mortgage
issought.The
specifically
prohibit
10types
ofdiscriminatory
practices.

Finally,theyofferguidelinesforprocessinga

nondiscrimination.

The majordifferencebetweenthe
California
approach
andS.406
isthatCalifornia
institutionsare
permitted
todefine
their
service
areaquite
broadly,
morebroadly
thanthecharter
areareferredt
in S.406,whichrelates
to thesource
of thedeposits.

The CHAIRMAN.
What istheattitude
on thepartof
thebanks?
Are theyresisting
thisor accepting
it?

Mr. Marlin.
Iunderstand,
fromtalking
totheauthor
ofthese
regulations,
thatheispersona
nongratain
California
amongthe
banking
institutions,
eventhough
theCoalition
Against
Redlining
complains
thattheregulations
aren't
strong
enough.

However,
intermsofbankcooperationwiththe
regulations
I
think
ithasgone
fairly
well.
I am notawareofanygreat
problem

225

withtheregulatoryproceduresorthelenders'compliancewi
The CHAIRMAN.
Are theystrenuously
tryingto changethe
regulations!

Mr. MARLIN.
I don't
sense
thatthat
iswhatisgoingoninCali
fornia.
Anti-redlining
groupsarelobbying
forstronger
regulations

buttheS.& L.'s
arecooperating
withtheonesthatare
in effect.
The CHAIRMAN.What you describe
isa situation
thatwouldbe

different
on the Federallevel.Here we would have at leastfour

bodiesinvolved
inregulatingthis,as
Iunderstandit,thehomeloan
bankboardandthethree
bankregulatory
agencies.
Would thatmake a difference?

Mr. Marlin.Notto mention
theotheragencies
involved,
like

Housingand Urban Development.
The CHAIRMAN.That'sright.

Mr. MARLIN. I wouldthinkitwouldmakeadifference.
But Idon't

thinkthatitwouldmake itimpossible
toadminister
a regulationof
thiskind.Afterall,
thereareotherregulations
whichareadmin

istered
commonly
bythedifferent
regulatory
agencies.
Ithinkthat
something
could
beworkedoutamongthemwhichwouldbe pro
cedurally
acceptable.

The CHAIRMAN.
Mr.Weiler,
youexpressed
concern,
andechoing
Mr.Holman'sconcern,that
thiswouldnot
really
helpmany people

intheinnercities,
lowincome
peopleandothersfrom
beingpushed
out,the elderly.

As I toldhim,Icertainly
sharethatconcern,but
I wonderifwe
cansolveallofthe
problemswith
thisbill?

We have,
asyouknow,a
number
ofother
legislative
initiatives
we arefollowing.
HUD isundernew management
now andthey

haveindicatedthey
recognizethis
problemandarepushingto
pro
videhousing
forthepoorand elderly.

Can we reachthis
problem
withthis
bill?
Thisisreally
a bill

thathastogoprimarilytoconventionallyfinanced
housing.
Unfortunately,
astheHarvard-MIT
study
showed,
onlya small
proportion
of ourpeople
canafford
thatkindofhousing
anyway.
Thatis,about25percentofourpeoplecan
afford
newhousing,and
35 percentcan
afford
usedhousing.

Sothisislimited.
Anditseemstome
wecan'texpect
itto
reach,

as far as housingisconcerned,
everyone.

Thenasfarasthebusiness
groupsare
concerned,
itwouldhave
limitedapplication,too.
Wehave
an
SBAwhichhasresponsibilities
for that also.
Mr.WEILER.
Well,
Iamsurethatwedon't
wanttotrytochange
thecreditmarketthroughthisbill.
Ijustfeltthatthegoaloftrying

toobserve
thereinvestment
process
should
include
someway of

generatingthedata
andraisingthequestions
thatMr.Holmanand
myself
areconcerned
about.

Ithinkthatisall
Iam reallyencouragingtobemadepartofthis

bill.

I do recognize
thatthereareotherlegislative
actions
thatwould

gotowardsactual
actiononthisissue.
ButIthinksincethepurpose
istogenerate
a sense
of awareness
and togenerate
informationthat

226

thiscouldbeanimportantfactorincludedintheproce
generat
ingawarenessanddata.

The CHAIRMAN.
Mr.Connell,
you stressed
thatthe quality
of

bankingservice
should
includenot
justgrossloansor
deposits,b

particular
types
ofloans.
Ithinkyoumakeagoodpoint.
Inotherwords,ifabankisdo
a vigorous
jobof promoting
credit
cards
inthelocal
community
at18-percentinterest
thatis
onething;
ifthey
arepromotingmor
gages
thatissomething
different.
Do youthink
this
legislation
could
be moreprecise
on theques

tion
ofwhatistobeencouraged,
without
getting
into
thecredi
allocationsituation,which
wouldbehard,
I think,to
getpassed.

Mr.CONNELL.Ithinkcertainly
languagecouldbe
putinthere

portthat
woulddirect
theagencies
toconsider
various
Govern
mentprograms
tofacilitate
thecredit
being
granted
in particula
areas.

Afterall,whenyouthinkofthestudentloanprogram
inConnec

ticut,
50 percent
guaranteed
by theFederal
Government,
50 percent

by theState
government,
andtheinterest
rate
issubsidized,
there
is no risk,
and a good return.

The Connecticuthousingfinanceauthorityprog

withlow-and moderate-income
housing,
butalsoprovide
for pur

chaseofhomesbypeopleofgreatermeansand
whomightreloca

in thecityincertain
areas.

Althoughthatcanconflictwith
somepeople'sideasofwhats

happen
inthecities,
itisa verycomplicated
andcomplex
issue
But therearemany
many programstobe
dealtwith.
I wouldprobably
rathersee
itinthereportlanguage
butI do
thinkthisbillneedsto be broadenedto dealwith otherservices
as

well.
I wouldrather
seeitin thereport
language,
so theycould
develop
their
criteriaoveraperiodoftime.
Rightnowthe
statute
saysnothingbutshall
approveabranch.
TheCHAIRMAN.
Ms.Greenwald,yourtestimonyindicate

done a lotof what we have in mind in thisbilladministrativel

underyourgeneral
public
interestauthority.
Doyou thinkthattheFederal
agencies
could
go anddo likewise
follow
yourlead,
oristhere
somelegal
constraint
onthat?
Ms. GREENWALD.
I really
am notan expert
on that.
I would

assume
that
theycoulddoso
administratively,
butI am notsure

thatthere
isnotsomething
inthelaw.I can't
imagine
thatthere
is,but
I am nota legal
expert
on thatpoint.
Itseemstomeyoucan
doagreatdeal
withadministrativeau
ity.
Iam suretheycouldhavepublic
hearings
andinvite
thecom
munities,notjustgivenoticetothebanks.
ThatIam sureof.
The CTIAIRMAN.
At any rate,
thisbill
wouldstrengthen
their
hand.

Ms. GREENWALD. Yes,itwould.

The CHAIRMAN.Table1 inyourtestimony
reflects
thatthepoorer

communities—
Itakeitthepoorercommunities,
I am notasfamilia

withBostonany more asI usedto be.I spent5 yearsthere,but

I am notsureIcanremember.
At anyrate,
I wouldconstrueitt

227

meanthepoorer
communities
areleast
likely
togettheir
mortgage
financing
frombanksand
savingsinstitutions.
Yourstatement indicates
thisis not for lack of demand, but

ratherbecause
the banksdiscourage,
or at leastdon'tencourage,
applications
from theseneighborhoods.

You pointoutthey
getitfromprivatemortgagecompanies,which

chargehigher
interestand
haveshorter
terms,and,
therefore,
the
monthly
payments
area great
dealhigher.

Do youhave any evidence
thatloansmadein theneighborhoods

withthelowpercentageofbankloansarenecessarilymoreris
Ms.GREENWALD.
Justtheopposite,actually.
The CHAIRMAN. Ifnot,whatmotivatesbankstoavoidtheseareas?
Ifitislessrisky

Ms. GREENWALD.I wouldn't
say less
risky.
I wouldsaytherisk
isnotgreater.
Our evidence
istheforeclosure
rateisaround2 per

centon conventional
mortgages
anywhere
inthecity
ofBostonby
census
tract.
Itisonethingto
getthe
dataanditisanother
thing
tohaveperceptions.
I thinkwhen we havetoldthatto bankstheydidn't
believe
it,
and theynow haveourdatato lookat and canletitsinkin.Be
causeIthink their
perception
isdifferent
thanthat.
We haverun
intotheproblem
, Ithink thishasbeenshowninothercities
also

The CHAIRMAN.Do you thinkitistrueof thesmaller
cities
too,

thattheyarealso
asoutoftouchwithreality?
A bigcity
like

Boston,
Iimaginethereisperhapslessunderstandingofth
poten

tial
thantherewould
beina city
like
Brockton
orSpringfield.
Ms. GREENWALD.Well,
we havesome feeling
thatwhat has
actuallyhappened
in cities
like
Springfield
andBrockton
isthey
areso afraid
ofhavingarepetition
of thepublicoutcry
thathap
penedin Boston,
therehasbeenmore action
by thebanksthere
to

forestall
havingitbroughtupon
thembythecommunitygroups.
So I think
thestimulus
didn't
comefromtheir
size,but
from

seeing
an example
within
theState,
thatyouhavetodealwith
this,so
youmightaswell
dealwithitnowbefore
ithitsyou.

Onethingwehave
comeacrossisappraisalpracticesand
guide

books
thathave
a bias
inthemwhichiscompletely
outdated,
ifit
was evertrue.I am not sureit was evertrue.It isthe notionthat

neighborhoods
havea lifecyclelikea human being,
thataftera

certain
numberof years
a neighborhood
inevitably
declines,
and
itwill
certainly
inevitably
decline
ifitisnota homogeneous
neighborhood.

Sothatifwehavedifferentethnicgroupsmovingin,ord

landuse,thisnecessarilywill
meanitisariskier
placetoloan.
This

isrightin
theappraisalhandbooks,
right
intheguidebooks.

Yesterday,
wehada discussion
meetingwith
bankers,
appraisers
andcommunity
groups,
and withDarel
Grothaus
fromSeattle,to
talkabout
thiswholeperceptionoftheappraisal
process,and
what
itsaysaboutneighborhoods.
Whatcameoutofthatmeeting,
and alsodatawe gathered,
is
thatitisa
completely
erroneous
impression.
What itsaysisthat
I
cannotusetoday'smarketvaluetotellme
whattheappraisedvalue

228

ofthishouseshouldbe,
because
Iam lookingintothe
futureand

inevitably
there
will
bea decline
inthisneighborhood,and
I,the
bank,
holdamortgagefor20yearsand
Idon'thave
toknowwhat
housingisworthtoday,
I havetomakeaforecastaboutwhatitw
be worth25 yearsfrom now.

Hereiswheretheappraisal
process
brings
in misconceptions.
If

blacksaremovingintoaneighborhoodor
Italiansaremovin

a neighborhood,
thatmakesitheterogeneous
andtherefore,
makes
itlessdesirableand
theappraiser
willdowngrade
thevalue
ofthe
property

We tried
to showthebanksthatintruth,
probably
because
of
inflation
- and inflation
issomething
we haveconsistently
had in

thiscountry,
although
we canargueabout
whether
itis5percent
or 2 percent,
butinflation
hasalwaysbeena factof life
in this
country—that
homesaleprices
in thecityarenotless
thanthe
bankmortgage
onthem,no matter
inwhichneighborhood.
Inthe
blackestghetto
ofBoston,thehome
sale
pricetodayisgreatert
theprice
thebankputonthemortgagewhen
theygave
themort
gage,and
thatisthetruth.
Althoughwe
allsaythatinflation
is
terrible,at
least
ithashadthis
onepositiveeffect,
thatthewhole

appraisal
process
hasbeenmademuchmucheasier.You
canuse

today'smarket
value
and youdon't
haveto worrythatthe
home
sale
price10years
fromnowwill
belessthan
today'smarket
value.
TheCHAIRMAN.
Ithinkyouare
rightabouttheprospects
forthe
next20 yearsor so.

I wouldcertainly
disagree
withyouon economic
history.
If you
takeaperiod
of1840to1940,
there
wasno increase
intheprice
level—
ofcoursethere
isadispute
overthe
validity
ofthefigures
because
of thehaziness
of statistics
and inaccuracy.
But upuntil

about
1945,
we hada remarkablystable
price
level.
Wehad infla
tionineverywarperiod,sharpinflation,thenasharpd
after
thewar.Aliofthebetsare
offsince
World War II,wehavehad an

entirely
different
economic
situation,
certainly
asfaras prices
are
concerned.

Ms. GREENWALD.
I don't
know anything
aboutdatafromthe
1840's,
and I wouldquestion
databefore
the1860's.

TheCHAIRMAN.Youaresoyoung,you
wouldn'tremember.
Ms.GREENWALD.
ButI willcheck
itforyou.Wehad adeflation
inthe1930's,butappraisalanalysiswill
neversavethebank
froma
generaldepression.
Inthatcase,it
won'ttell
youthatin thisneigh

borhood
theprices
willbebetter
in20 years.
If wehave another

1930in 1980,no appraiser
can tellyouin thisneighborhood
the
houses
will
sell
formoreand inthatneighborhood
forless.

Sothatisoutsideoftheappraisal
process.
Butinthenormaleco

nomiccyclewehavehad
ofbusinessrecessionsand
recoveries

The CHAIRMAN.
I thinkyou areright
asfaras thefuture
is
concerned.

As you know yourSenator,
Senator
Brooke,
hasbaseda very
interesting
housing
initiative
on thisnotion
thatinflation
is going
to make the valueof
thehouseincrease
astimegoeson,and there

foreoneofthethings
heisproposing
isthatthepaymentsat
the
beginningofthe
payingoffofthemortgage
should
be alotless.

229

Ms.GREENWALD.
The reason
thatI brought
thatup isyouasked
why aren't
theymakingmortgages
inthisneighborhood.
Itisbe
causetheycontinuetothinkthat
thewaytheyhavetoappraise
the
propertyis
tomake a projection
aboutits
value
in20years,
and
theirownappraiser'sperception
isthatifitisgoingtobea
hetero
geneous
neighborhood,blacks
and whites,
themanualtell
youitis
notasgooda propertyandtherefore
appraiseit
down.
Thatiswhytheapplications
arenotthere.
The CHAIRMAN.Mr. Connell,
I haveonefinal
question
foryou.
You saythatthere
needstobe abetter
remedial
mechanismwhen
a financial
institution
isfoundnottohaveserved
itscommunity.

Areyouindicatingweoughttohaverenewablecharters,
acharter
shouldbe
grantedasitis
foraradioand
TVstation,
for3or5 or

10years,andthentakealookatwhatkind
ofjobtheyhavedone?
And iftheyhavenotdoneagoodjob,cancelthecharter?
Mr. CONNELL.I believe
theoriginal
national
bankcharter
was a

renewablecharter.
Thatisn'treally
anythingnew
eitherinbanking
ortheFederal
Communications
Commissionoperation.
I don'tfeelwe necessarily
needthatharsharemedy.

TheCHAIRMAN.
I don't
think
wecanpossibly
getthatconsidered

favorably
by thecommittee
ortheCongress.
Mr. CONNELL.Thereareotherwaysof dealing
withremedial
ac

tion.
An affirmative
marketing
oradvertising
program.Maybe
sus
pension
of business
in a morefavorable
areafora week ortwo.It

onlyhastobe doneonceand people
areverysensitive
totheem
barrassment,
more than the actualfact.

TheCIIAIRMAN.
Ms.Greenwald
putsa lotofemphasis
onthe
branchingand
itseems
shemadea veryconvincing
argument
that

that should do it.

Mr.CONNNELL.
We areusingthat
approach,
asmy testimony
in
dicated,
inseveral
areas.
ButI feel
thatwe needsomething
more
thanthat,
because
youwaitfortheinstitutions
tomakea move.
I
know we haveatleast
two institutions
in Connecticut
thathavenot

· branchedforalongtime,andarenotservingtheircommunitie
at all.

So Ithinkthatitwouldbe perfectly
proper
tohavea review
system
in thebankstructure
area.

Iwouldliketocommentononething,
Senator,intermsofvalues
ofpropertyandlending
practices.
We havedonea studyin Connecticut
on a rather
brief
basis
on

someofthelendingpracticesintheinnercity.
Oneoftheproblems
wefoundinthecorecityhasbeenthat
inthepastbanks
madeloans

on100percentappraisalbasistoabsenteelandlordsformult
dwellings,
thethreedecker
thatsomeone
leftand movedto the

suburbs.

The borrower
gottheloanwithout
anypersonal
liability.
And
within
a few years
theproperty_began
todeteriorate,
anykindof
maintenance
was deferred.
And I wouldsaythat75 percent
of the

loanschargedoffinthecityinvolveabsenteelandlordowner
these
werebigdollars,
$3 million,
$4 million,
$5 million.

SoIthinkpartoftheurbandecayproblem
isrelatedtoimproper

lending
practices.

230

I guesswhat
I wouldhavetosayiswe needa much deeperstudy

in thewholebanking
practice,lending
practice
area,
other
than
merely
theHome Mortgage
Disclosure
Actprovisions.
Butthatact
isanexcellentbeginningpoint.
In Connecticutweareproposing
todo thattypeofanalysis,
thelegislature
permits
usto.

TheCHAIRMAN.Iwanttothankthepanelverymuch
forexcelle
testimony.
Ithasbeenmostenlightening.
Thishasbeena finemorn
ingforus,we havean excellent
record.
The Committeewillstandin recess
until11 o'clock
tomorrow
morning.

[Thereupon,at
12:45
p.m.thehearing
wasrecessed,
toreconven
at11a.m.thefollowingday.]

COMMUNITY

CREDIT NEEDS

THURSDAY, MARCH 24,1977

U.S.SENATE,
COMMITTEEON BANKING,HOUSING,AND URBAN AFFAIRS,
Washington,
D.C.

Thecommitteemetat11a.m.,inroom5302,
Dirksen
Senate
Office
Building,SenatorPaul
S.Sarbanes,presiding.
Present:SenatorsSparkman,Williams,Sarbanes,and
Lugar.
Senator
SARBANES.
The chairmanisat a meetingof one of the

appropriationssubcommitteesandwillbebackshortly.
Inthemean

timehe
askedustogo aheadand begin.

And it's
no longer
designateMr.Secretary.
Wearepleased
to
haveyou
herethismorning,andifyou
wouldgo aheadwith
your
statement
as you wish,either
readitorsummarize
it,and proceed,
wewouldappreciate
that.
STATEMENT OF ROBERT EMBRY, ASSISTANTSECRETARY FOR
COMMUNITY DEVELOPMENT, DEPARTMENT OF HOUSING AND
URBAN

DEVELOPMENT

Mr.EMBRY.Thankyou.Senator
Sarbanes.

I'dlike
toreaditifI may.It's
short
andI think
thatitade
quatelyexplainsour
position.
Iamgrateful
fortheopportunity
toappearbeforeyoutodiscuss

the
Department'sview
ontheproposed
CommunityReinvestment
Actof1977.
Attheoutset,letme
saythatthe
Departmentstrongly

supports
theobjective
ofthisbill.
We believe
thatfinancial
institu

tionsshouldbeencouragedtohelpmeetthecreditneeds

munities
inwhichtheyarechartered,
and we commendtheChair
manforintroducing
this
legislation.
The community
reinvestment
concept
isa valuable
and realistic
component
in approaching
the
problemofneighborhood
revitalization.
IfImay,I wouldliketo
takea momenttotell
thecommittee
of
åstudy
concerning
reinvestment
thatwas undertaken
while
I was
the
Commissionerof
Housing
forthecityof Baltimore.
Several

yearsago,thecityexaminedthe
problem
offinancial
disinvestment
cialinstitutionswererefusingtomakemortgageloans
theseareas.
initsdecliningneighborhoodsand
foundthat,
indeed,several
finan

Asaresultofthisstudyandtheimpact
ofthedisclosureofthes
lending
patterns,Baltimorewasabletoachieve,first

ofallarbitrary
restrictionsonmortgagelendingincluding
ageofhousing,second,
a pledge
of$45million
above
theprevious
(231)

232

year'slending,and,third,theestablishmentof
a committeeof
lend
ersand officials
to reviewclaims
of unfair
denial
ofmortgages.
I
believe
thateffort
demonstrates
clearly
boththeneedforanaware

nessoftheveryreal,seriousproblemsin
thearea
ofurban
reinvest
mentandtheneedfora comprehensive
approach
tothesubject.
Communityreinvestment
isnotan end in itself,
buta meansto
thegoalof neighborhood
revitalization.
We believe
thereshouldbe

acomprehensive
approach
torevitalizationwhich
includes
specifi

attention
toreinvestment
problems.
The Department
is already
working
actively
toencourage
andfacilitate
revitalization
through
itscommunity
development
block
grant
program,
itsdemonstratio
programs
suchas urbanhomesteading,
itsmodification
of itsinsur
anceprograms,
and itsresearch
program.

Webelievethatanoverallstrategy
isrequired
whichnotonly
addresses
theissuesofredlining
and disinvestment,
butalsosuch
matters
asneighborhood
representation,careful
utilization
of mort

gageinsuranceprograms,
andintegrationof
investmentlevera

withcommunity
development
activities.
Initiatives
in these
latter
areashavealready
beenundertaken.

InJuly1976,
theDepartment
helda factgathering
fairhousing
administrative
meeting
on redlining
and disinvestment.
Testimony
was givenby 58 witnesses
representing
private
financial
interests
community
groups,
andStateandlocalgovernments.
Thosehear
ingsdocumentednot
onlythespecific
practices
ofhome mortgage
lenders,butalsoexamined
therolesof
realestateappraisal
andun
derwritingpracticesandthesecondarymarketin
influencinglend
decisions.Wearenow
intheprocessof
reviewingthesummary
re

portofthatmeetingandotherrelevantliterature

ommendedchangesin
federal
law,administrative
policies
and vol

untaryremedieswhich,
we believe,
willenhance
our ability
to deal

with
thediscriminatory
practice
ofredlining
anddisinvestme

The Department
alsohasbeguna comparative
analysis
of the
statutes
andregulations
ofthesix
States
whichhavestatutory
and

regulatoryprovisions
aimed
atcombating
redlining.
Wehopenext

tolookattheeffectsofthese
provisionsto
determine
iftheyare
in
factbringing
moreinvestment
intocredit-poor
neighborhoods.
We
havealso
issued
a request
forproposals
underwhichacontractor
willcatalogvariousmethodsthatlocal
groupsareusingforanal
anduseofdatadevelopedunderthe
HomeMortgage
Disclosure
Act
sothatthiscan
be distributed
andgroupsinmany
communitiesca
make realuseof thisdata.
We hopeto awardthecontract
by the

middle
of May,withverifiable
descriptions
on these
methods
due
in December.

Additionally,
the FederalInsuranceAdministration
Advisory

Boardhasbeguntoaddresstheproblemofredlininginth
industry.
Thisproblem
isaseriouscomponentof
thedisinvestme
issue,
in thatbanksarereluctant
if nottotally
unwilling
tolend
moneyon property
forwhichinsurance
hasbeenrefused.

Webelievethese
activities
represent
thebeginning
of an overall
strategy
fordealingin
a rational
way withtheproblem
of commu

nity
reinvestment.

233

We support
theproposition
thata financial
institution
should
applya portion
ofitsresources
towardthecredit
needsfromwhich
itgeneratesitsdepositbase.
Forthatreason,we
strongly
supportthe
objectives
of S. 406.
However,inourreviewofthebill,several
issuesandconcernshave

arisen
whichleadustoquestionthe
adequacyofthebill
inmeeting
itsownstatedobjectives.
Indeed,
in some respects,
we believe
the

billcouldhaveadverseeffectsontheproblemitisseekingto

Thepurposeofthisbill
istorequireeach
Federal
financialsuper

visory
agency
toencourage
federally-regulated
financialinstitutions
tohelp
meetthecreditneedsofthelocalcommunitiesinwhicht
arechartered,
consistent
withthesafeandsoundoperation
ofsuch
institutions.
To accomplish
thatobjective,the
bill
wouldrequire
any
federally
chartered
or insured
depository
institution--those
regu
lated
by theFederalReserve
Board,the Comptroller
ofthe Cur
rency,
the FederalHome Loan Bank Board,the FederalDeposit

Insurance
Corporation,and
theFederal
SavingsandLoan
Insur
anceCorporation
todemonstrate
initsapplication
fora deposit
facility,
asdefined
inthebill,
how itismeetingthe
creditneeds
of
its
current
primary
service
areas
andthat
itwilldo
soforitsnew
service
area.
The intention
ofthebill
isto establish
minimumper
formance
standards
on institutions
requesting
charter,
merger,
relo

cation,branching,
ordepositinsurance.

In introducing
this
legislation,
ChairmanProxmire
saidthat

those
whoobtainnewdeposit
facilities
approval
receive
a semi
exclusive
franchise
todo business
in a particular
geographic
area,
and thattheFederalGovernmentconveys
certainbenefits
to that

institution,
suchasdeposit
insurance
andaccessto
lowcost
credit
through
theFederal
Reserve
Bank or theFederal
Home Loan
Banks.
In turn,
itwasstated,
theFederal
Government
should
re
quireinstitutionsreceivingthosebenefits
tofulfill
somepublic
pur
pose.
We agreewiththatbasic
premise.
Our concernsrest
in an

assessmentofthespecific
approachproposedbythisbill.
Thetrigger
forreview
ofaninstitution'sperformancein
meeting
thecreditneedsofitscurrentprimary
service
area,
anditsprogram
formeeting
those
ofitsproposed
newarea,wouldbethe plication

foradepositfacility,
asdefinedinthebill.
Because
applicationsfor
deposit
facilities
varywidelydepending
on general
economic
condi
tions
andinternal
policy
decisionsbyindividualinstitutions,
there
islikely
to be an unevendistribution
of applications
submitted
by

institutions
differing
inlocation,
size,
andfiscal
solvency.
Itisthereforedifficulttoassesshowsystematicallythi
begin
to coverfinancial
institutions
underitsjurisdiction.
Never

theless,webelieveabasic
principleofestablishingperformance
cri
teria
forsuchfacilities
could
bean appropriatemeans
toestablish
a broad
Federal
policy
towardfinancial
institutions
and their
re
sponsibility
to meetthecredit
needsof their
service
areas.

Also,thebillwouldrequireapplicationsfornewdeposit
facilities
toinclude
information
on:

One:Thedelineation
oftheproposed
newservice
area;
Two:How theproposed
facility
wouldmeetcredit
needs
there;
and

234

Three:
The proportion
of deposits
fromthatareawhichwould
be reinvested
inthatarea.
We recognize
thatthereareencouraging
signsthata few financial
institutions
arebeginning
to branch
into
areaswhichhave previously
beencredit-short.
However,in our

view,
requesting
dataon how an applicant
institution
intends
to
serve
thecreditneedsoftheproposednewserviceareais
tothebasic
purpose
ofthisbill,
whichistoassurethatthecred
needs
of aninstitution's
current
service
areas
arebeingmet.We
believe
thebill
should
focus
exclusivelyon
how thelending
institu
tions
areservingtheir
present
serviceareas,
and thatthese
require

mentsshouldbedroppedinfavoroftheexistingregulat
regard

ingproposedservicingofnewareas.
Thekeyprovisionofthis

istheonewhichexaminesoverall
currentperformance
ofan institu

tioninitsexistingserviceareabyrequiringthatthes
for
anewdepositfacilitydemonstratethattheinstitutio
creditneedsoftheprimaryservice
areas
inwhichitisalready
oper
ating.
Thisisthecriticalfeatureof
thebill
andone which,
coupled
withtheprovision
forpublic
hearings,
couldhelpencourage
finan
cialinstitutions
to servethecreditneeds
of theircurrent
service
areas.

However,
we question
theeffectiveness
ofthisprovision.
Inher

ently,itisareportingrequirement,andthereislittl
inthelanguage
ofthebill
todirect
howinformation
required
tobe collected
would

beused.
Further,
a statement
ofhow an institution
ismeetingthe
creditneeds
ofitscurrent
primary
savings
service
areaisdeficient
in ourview,if
itfails
specifically
to provide
thatan institutio
demonstratethatitismeetingtheneedsofcredit-shor
within
itsoverall
service
area.
Forexample,
a financial
institution
which
servesthenorthwest
section
ofWashington,
D.C.,
shouldberequired

specificallyto
address
howits
meetingthecredit
needs
inthe14th

Streetcorridor.

In orderto make such a determination,
a Federalregulatory
agencywouldneedinformation
from a variety
ofsources.
However,
theburdenofproofunderthe
bill
wouldbeon theapplying
institu
tiontodemonstrate
how itismeeting
credit
needs.
Testimony
from

therequired
public
hearings
anddatarequired
by theHome Mort
gageDisclosure
Actcouldprovidea
generalized
picture
oftheappli

cant's
performance,
butwouldnotbea realsubstituteforthet
ofdetailed
reporting
that,
although
verydifficult
toobtain,
would
giveapictureof
aninstitution's
commitment
toitscommunity.
Therefore,
thebillshould
givemore
direction
on whatdatawould

besubmittedby
institutions,and
whatstandardsshould
be usedby
theFederal
agencyin
evaluating
applications.

ChairmanProxmirehasstated
and theDepartment
agrees
thatit
isnottheintention
of thisbill
to forcefinancial
institutions
into

makinghigh-riskloansthatwouldjeopardizetheirsaf
We agree
withtheChairmanthatithas notbeenproventhatinvestment
in

credit-short
neighborhoods
willjeopardize
a financial
institution
fiscal
solvency.
Thisconcern
hasnotbeenborne
outbytheexperi
enceof
theurbanreinvestment
task
force
experience
in 33cities.
As notedbefore,
neighborhood
disinvestmentand
redlining
are
critical
issues.
We agreewithPresident
Carter's
remarkbefore
the

235

U.S.Conferenceof
MayorsinMilwaukee
last
summertotheeffect
thata national
urbanpolicy
should
include
a prohibitionagainst
redlining.
Thebestforin
forsuchaprohibition
isstill
notclear.
Wesupportthebasic
thrust
ofS.406,
thatlending
institutions
should
demonstratethattheyareadequatelyservingthecredi

oftheir
community
beforeits
applicationfor
a deposit
facility
is

granted.

We cannoturge
passageofthisbill
atthistime,however,because
of theobjections
Ihavejustoutlined.
We wouldinstead
urgethe
Committee
toworkwithustodevelop
an overall
strategy
onurban
reinvestment.

We areveryanxious
toworkwiththecommittee
onsucha com
prehensive
approach
and lookforwardto a close
workingrelation

shipwithCongressand
thiscommitteein
thiseffort.

Again,
Iwanttothankyoufortheopportunitytoappearbe

thecommitteeon an issuewhichis of greatimportance
to the
Department,

Senator
SARBANEs.
Thankyouverymuch,Mr.Secretary.
Senator
Sparkman.

Senator
SPARKMAN.
Ienjoyedthepresentation.
Ithinkit'sa
very
clearstatement.
I don'thaveany
particularquestionsto
askaboutit.

Senator
SARBANES.
Iguessweoughttogotothelastpageandget
abetter
senseofwhatyoumean
by“acomprehensive
approach
and
anoverall
strategy."
Whatdoesthatencompass?
Mr. EMBRY.Well,
we believe
thatdealing
justwithinstitutions
thatcome in and request
abranch

Senator
SARBANES.
First
of all,
doesthatencompass
legislation

along
thelines
ofthis
legislation?
If notthisparticularpiece
of

legislation,
isthat
strategyin
lieu
oflegislation?
Mr. EMBRY.No,thatstrategy
includeslegislation.
Senator
SARBANES.
OK. Nowwhat wouldthelegislation
be?

Mr.EMBRY.
Well,havingonly
beenatwork
forashort
time,we

don't
haveanyspecific
legislation,
butwhatwe do recommendis
a

policy,
whichweare
intheprocess
ofpreparing,
that
encourages

ending
institutions
tosupply
money
incredit-shortareas
which

wouldinclude
notjust
those
institutions
whichareseeking
branch

ingapprovals
butwouldinclude
Federal
and Stateinstitutions
to
theextentthatthe
Federal
Governmenthassome
regulatory
author

ityover
Statessuchastheamendmentofthe
Federal
insurance
pro
visionperhaps,
toinclude
moreability
to lookintowhatState
institutions
aredoing;
butitincludesmore
thanjust
thetrigger
mechanismthatisincluded
inthisbill.
We dosupportthe
approach
ofthisbill;
thatis,thatiftheFederalGovernmentthroughits

variousregulatoryagenciesistogiveapproval
tocertaininstitutions
tobranchand
dootherthingsthat
hopefully
will
makethemmore
money,
thatapprovalshouldbe
conditionedon
themshowing
that
theyarepursuingnational
objectives.
Spellingouthowthatisdone,wethinkrequiresagood
dealmore
work,
atleast
a gooddealmore detail
and thoughtthan
isin this
bill
at the moment.

SenatorSARBANES.
But you wouldgo backtothose
institutions

thatalreadyhavegotten
their
chartersandwhich
already
arepro

236

ceedinginacertain
way,and,in
effectrequirethem,ifthey
weren't
doingso,
tomeetthis
community
responsibility?
Mr.EMBRY.We areconcerned
thatthelending
institutionst
arenotbranching,
who arenotrequesting
these
approvals,
which
wewouldsuspectrepresentthemajorityofthelending
oninthiscountry,thatwe
havea policytoencouragethem
tomeet
thetotal
credit
needsof their
community.

Thatdoesnot
includeamandatory
percentagebutitdoesinc
various
incentives
whichwe hopedonot costthe
Federal
Govern

mentmoney,which
isoneofthestrongpointsofthisapp

itdoesn'trequire
Federal
fundsanddoeshavea regulatory
effect
that
ineffect
wouldpermitthe
institutionsto
regulatethemselv
In otherwords,theydecide
howmuch isreasonable
butwe don't

knowwhatstandardwecanmeasureitby,but,yes,it
alookatthoseinstitutionsthat
arenotbranching,thatare
notcom

ingtotheFederal
Government
forthese
approvals.

Senator
SARBANES.
Whatwouldbethesanctionfor—
recognizin
firstofall,thequestionofthestandardthattheysho
whatwouldbe thesanction
forfailing
to meetthatstandard
for
existing
institutions?
For newinstitutions,the
applicant's
areseek
ingtodosomethingand,therefore,
thesanctionis
thedenial
ofa
charter.For
existing
institutions
whatwould
thesanction
be?
Mr.EMBRY.It's
tooearly
tosaywhatitwouldbe.We would
ratherlook
intermsofcarrots
rather
thansticks,
atleast
thecarrot

herebeingthe
abilitytobranch.
Thecarrotwith
respect
toexistin

institutions,
I gatherthey
borrow
moneyfromtheFederal
Govern

mentandtheyhavecertainregulatoryprovisionsthat
intermsofreserves
andother
aspectsof
running
theirinstitut

AtthismomentIdon'tknowenoughaboutthe
incentivesthatmig

beprovided
toexisting
institutions
tosaywhattheymight
be,but
thatwouldbewherewewouldbelookingtobeginwith.
Senator
SARBANES.
In theBaltimore
situation,
whichyoutalked
aboutattheoutside,wasn'tthecommitment
forthose
fundsrelated
tolegislation
theywereseekingin
theStatelegislaturewith
respect
totheusurylaw?
Mr. EMBRY.That's
right.

Senator
SARBANES.
Sothoseinstitutions
really
madethatcommit

mentinordertoinfluencethevotesinthegener

Statelimit
on interest
rates
lifted
in ordertodealwiththemoney
marketsituation?

Mr.EMBRY.Someinstitutions
hadalready
madethecommitment
beforethat
issue
cameup.That
issuedid
helptopersuade
someof
themorereluctant
lenders
tojoinin.They havesince
reviewed
that

commitment
annually
withnolegislativethreat,
theusuryproble
already
havingbeenresolved
asfaras theyareconcerned,
butthat
certainly
wasan important
factor.

Senator
SARBANES.
Of course,that
annual
renewal
isinterest
because
Igatherthat
theirexperience,as
a consequenceofcha

ingthose
fundsdifferently,
tends
tobemuch morepositive
than
I
guessthey
anticipated
orfearedbefore
theyevermade it.

Mr.EMBRY.Ithinkthatis
probably
themostimportant
point.
Thereisa question
of definition
between
those
who areadvocatin

237

increasedlendingandthosewhoareresisting.Thosewhoar

ingitcontinually
cite
theexample
ofneighborhoods
that
arein
completedecay;welfare
families
wanting
toborrowmoney.
They
contendthatto lendin suchareaswoulddrivethem intobank

ruptcyorcertainly
intofinancial
irresponsibility.
The advocatesfor
increasedresponsivenessarenottalkingaboutthosesitu
What

theyaretalkingabout
areneighborhoodswhereloans
areperfectly
reasonable,althoughperhapsnotasattractiveasthe

thesuburban
areas,
butarecertainly
reasonable,
responsible
loans.
The NHS experience
oftheFederal
Home Loan Bank Boardhas

indicated
thatthevoluntaryaction
byFederal
savings
and loans
that have been ableto extendtheiractivities
intoareasthatthey

previously
weren't
active
in,havehadbeneficial
results.
We think

there
isalargearea
inwhichthey
canmovethatdonotinclude

areasof
financial
irresponsibility.
I think
theBaltimore
experience
has demonstratedthat.

SenatorSARBANES.
What elsewouldthecomprehensive
strategy

involve
besides
legislation
of thesortthatwehave beentalking
about?

Mr.EMBRY.
Itwould
involve,as
I indicated,
theinsuranceprob

lemsincities,
fire
insurance
problems
thatmany areas
arehaving,
and other
aspects
ofinsurance
thatarerestricting
reinvestment
in
cities.

It would
involve
neighborhoodorganizationsand
strengthening

them,butIcannotindicatethetotal
magnitude
ofthisstudybecause
weare juststarting
itover
thenextfewweeks.
Senator
SARBANES.
Senator
Lugar.
Senator
LUGAR.No questions.

Senator
SARBANES.
What's
yourresponse
totheargumentthat

howdowedeal
withthequestion—
I guessthe
14th
Streetcorridor
isyour
answer—
buthowdoyoudealwiththequestion
that
they
willservice
their
credit
area,butthey
woulddefine
thatcredit
area
insuchbroadtermsasstill
essentially
tochannel
fundsintothetop

partofthespectrumand
ignore
thebalance
ofit?
Mr.EMBRY.Thatisapointweweretryingto
make,
that
I think
thatthe
representatives
oftheFederal
Home LoanBank Boardwill
make,amongothers.
Itisthedefinitional
question,
theapproach
of

lookingwherethedepositorscomefrom
anddrawingacirclearound
itoran oblong
orasquare
ortriangle,
whateverit
mightbe.We
don't
really
thinkthataddresses
thequestion
ofservicing
thecom
munityneeds.
Thefirst
thingis what communityneedsarewe talking
about?
Are we talkngaboutelderly?
Are we talking
aboutblacks,
Puerto

Ricans,women, middleclass,
moderateincome?There area lotof

communityneedsthatareincluded
withthatdefinition.

Weassumethatthecommunityneedthislegislation
isaddressing

itselfto,and
Ibelievetheexplanatorylanguagemakesthi
is

areasthatarecredit
short,
areasthatareredlined,
and thathas
beentheprimethrust
inthis
areaforsometime.
We thinktheprob

ablymoreuseful
focus
istodetermine
how lending
institutions
are
servicingcredit
shortareas
thanareasfrom whichtheir
depositors
come,and how you define
thosecredit
shortareas,
what standard

88-032 0.77

- 16

238

youuse
indeterminingwhether
theyareorarenot
adequately
serv
icingthat
area,
we think
requires
a great
dealmorethoughtbefore
legislation
is passed.

Senator
SARBANES.
Ilowdo youdefine
itintheBaltimore
situation

whichyououtlined
before?
Wheredidthey
maketheircommitment?
Mr.Embry.Theymadetheircommitmentinthecity
andwemon
itored
iteveryyeartoseewhetherby census
tract
thoseareasthat

werereasonablerisks
fromourpointofviewin
termsoftheaverage
income,
ageof thehousing,
price
of thehousing
and so forth
whether
loans
weregoinginto
those
areas.
But we didnotdefine
certain
areas
of thecity
and we alsohad a complaint
committee
whichwe could
do locally
butperhaps
istoughtodo underthis
Federallegislation.

Anybodyanywhere
in thecity
or any community
groupthat
thought
itwas beingshortchanged
by lending
institutions
could
cometothatcommittee
and thebankshouldaccept
those
loansthat
we thoughtwerereasonable
on a rotating
basisthebanksand the
otherlending
institutions.

Wedid notdrawspecific
lines
around
specific
neighborhoods
but

I gather
thatiswhat isintended
here.
I thinkthereneedsto be

somekindof predictability
fora lending
institution
comingin
asking
forsomething
asto whatstandard
ithasto meet.
Maybe
this
cannot
be doneand onlya public
hearing
isrequired
where
everybody
states
what theyhaveto state
andthe regulators
rule.

butsince
there
iscourt
review
inthis
there
may besomejudicial
requirements
forincreased
specificity.
Wethink tothe extent
thatitcanbe arrivedat,itshouldbe.

SenatorSARBANES.
Well,we want to thankyou,Mr. Secretary,
verymuch forsome veryhelpful
testimony.
Mr. EMBRY. Thank you.

SenatorSARBANES.
Mr. Marston,
if you couldcome forwardwe
would be happy to hearfrom you now. You can proceed
as you

choose.
We haveyourstatement,
andit's
a lengthy
one,
andifyou
choosetosummarize
it,
andthengotoquestions
thatmightbe
help
ful.
Or,ifyouwish,
follow
itas youhavesubmitted
it.
STATEMENT OF GARTH MARSTON, CHAIRMAN, FEDERAL HOME
LOAN BANK BOARD, ACCOMPANIED BY DONALD M. KAPLAN,
DIRECTOR, OFFICE OF ECONOMIC

RESEARCH;

ROBERT

S. WAR

WICK, ACTING DIRECTOR, OFFICE OF HOUSING AND URBAN

AFFAIRS;AND STEPHEN M. EGE,ASSOCIATEGENERAL COUNSEL
Mr. MARSTOX.
Mr. Chairman,
it's
a 10,000
wordstatement.
Where
asI thinkitisextremely
welldone

Senator
SARBAXES.
Essentially,
a book,
yes.
Mr. MARSTON.
I thinkitwouldbe bestandappreciated
by allof
us hereifI simplysubmitted
itfortherecord.
Therearecopies
I

believenow
andIthinkyouhavesome
othercopies
comingand
per
hapsI wouldjustsummarizeand I willtryto move alongvery

quickly
andsummarize
whatwe believe
tobe thekeypoints,
and
thentrytoanswer
anyquestions
thatyouhave.

239

SenatorSARBANES.Fine.Withoutobjection,
the statement
as sub

mitted
will
beincluded
intherecord.
Why don't
yougo aheadand
proceed?

[Completestatement
follows:]
PREPAREDSTATEMENTOFGARTHMARSTON,CHAIRMAN,FEDERALHOME LOAN BANK
BOARD

Good morning,Mr. Chairman. The FederalHome Loan Bank Board welcomes

thisopportunity
to discuss
withtheCommitteetheproposed
Community Rein
vestmentAct (S.406).
Inmy testimonyI
propose
to discuss
how theBoardis
currently
processingdepositfacility
applications,
tooutlinesome
of thespecific
consumercreditproblems
whichS.406 may be intended
toaddress,
and topoint
out how themechanismsproposedin S.406toencourage more activelender
serv

icingofcommunityneeds
mayormaynotbringaboutthedesired
results.

S.406wouldrequirethefour
Federalfinancialregulatory
agenciestoseethat
theirregulatedinstitutionsare
“encouraged”
tomeetnotonly
thedepositary,
but
also thecredit
needsof their
local
communities.
Themechanismthebill
would

setuptoaccomplish
thispurposewould
beintheformofrevised
review
proce

dures whichtheagencies
wouldbe required
to usewhen any of theregulated
institutions
soughtapproval
of: a national
charter,
insurance
of accounts,
a
branchfacility,
office
relocation,
a mergeror a holding
companyacquisition.
In
addition
to theusualconsiderations
weighedwhen assessing
an application,
the

agencies
wouldberequired
totakeinto
account
material
indicating
an institu
tion's
(anditssubsidiaries')
pastperformanceand
proposedefforts
tomeetthe
creditneedsofitsexisting
and proposed
primarysavings
service
area.
Further
more, the supervisory
body would permitand encourage
communityand con
sumer testimony
on theapplication,
and require
periodic
reports
fromtheregu
lated institution
concerningthe amount of consumer depositsit obtainedfrom
and the amountofcredititextendedto itslocalarea.
The fouragencies,
in turn,

would report
annually
to Congress
on actions
takeninfulfilling
theirresponsi
bilitiesas set forth in the bill.

Prior to a substantive
assessmentof the bill,
I would liketo briefly
indicate
to

you thepresent
application
procedures
and approval
standards
whichtheBoard
employswithrespect
tothetypesof applications
addressed
in thebill.
FEDERAL

CHARTERS

Pursuant to the statutoryrequirementin Section5(a) of the Home Owners'

Loan Act,the Board issues
charters
forFederalassociations
"giving
primary
considerationtothebestpracticesoflocalmutualthriftand
homefinancing
insti
tutions.”
In the connection
withsuchcharter
applications
theBoardconsiders
threecriteria:
1) thenecessity
fortheproposedassociation
inthecommunityto

beserved,2)
thereasonableprobabilityofusefulnessandsuccessofth
association
and3) thequestionofwhetherthechartermay
begranted
without
undue injuryto properly
conducted
existing
localthrift
and home financing

institutions.

Also,in connection
with such applications,
thereis a requirement
thatthe
applicant
publish
notice
oftheapplication
ina local
newspaper.
An opportunity
is providedfor oral argument upon the writtenrequestof the applicantor a
protestant.
In addition,
any member of the publicmay filewrittenstatements

insupportoforoppositiontotheapplication.

CandidatesforaFederalchartermustsubmitdetailed
informationon housing,

competition
and general
communityneeds.
Data on recorded
mortgages
isused
to identify
the institutions
making loansin the localarea.This data givesthe
Board an indication
of generalcreditneeds.Informationon buildingpermits
discloses
the levelof housing activityin a community, another barometer of
creditneeds.
Additionally,
applicantssupply
informationon thesavingsand time
depositsofallfinancialinstitutions
inthemarket area and thesavingsratepaid.

Theyalsodescribe
what theirproposed
lending
policies
willbe and define
their
primarymarket.Moreover,theymustdesignatethekindsofloanstheywillmake
and on what type of collateral,
indicatewhether they willofferVA and FHA

loans
and whatwillbethesources
forloanorigination
(walk-in
orbrokerorigi
nated),
and finally,
disclosetheloan
rates
contemplated
and thefeescharged.

240
INSURANCE

OF ACCOUNTS

With regardtoinsuranceofaccounts,
theBoardobservesthestandardsofthe

National
Housing
Actwhichgenerallypermitthe
Corporationtoinsureall
Fed
erallychartered
associationsandeligible
Statecharteredassociations.
The Corpo
rationisrequiredto"givefullconsideration
to allfactorsin connectionwith the

financialconditionofapplicantsandinsuredinstitutions."

Thecriteria
theBoardusesforreviewing
insuranceofaccountsapplicati
for nev

institutionsare:
1) the need foran additional
insuredinstitution,
2) the

reasonable
probability
of usefulness
and success
of thenew institution,
3) the
extentof possible
undue injuryto existing
insuredinstitutions
and 4) insurance
riskto the Corporation.

As withtheFederal
charterapplication,
public
notice
isrequired,
thereisop
portunity
forwritten
commentand provision
ismadeforanoralargument.
The
datarequiredtobe
submitted
in anapplication
forinsuranceofaccounts
isvery
similartothatrequired
for charterapplications.
In deciding
insurance
of
accountsapplications,
theBoardcarefully
considers
thequestion
of community
needsfrombotha savings
and credit
viewpoint.
However,litigation
ispending
whichseekstorequire
theBoardtoaccept
thejudgmentoftheStatechartering
authorities
on thesepoints.
BRANCH

APPLICATIONS

The Boardhasfullplenary
authority
overFederal
associations'
organization
and operation.
The Board usesthefollowingcriteriatoreviewbranchandlimited

facility
applications
fromFederal
associations:
1) thenecessityfortheproposed

branchinthecommunityto
beserved,2)thereasonableprobabilityofus

and success
and 3) whethertherewillbe undueinjuryto properly
conducted

existingthriftinstitutions.
Publicnotice,commentandoralargumentprov
areidentical
tothoseprovided
in charter
and insurance
applications.
When a Federalsavings
and loanapplies
fora branchor limited
facility,
it
isrequested
toprovideinformation
on thethrift
andcreditneedsoftheprimary
marketarea,datarespecting
allotherfinancial
institutions
currently
operating
there,
thedemographicsof
thecommunity
and a descriptionofthekindsof
hous
ingactivity
takingplace.

In certainrecentcaseslocalcommunityactiongroupssought,and have
received,
the opportunity
to participate
in Board branching
proceedings.
RELOCATION

With regard to relocation
of a home office
or branch office
of a Federal asso

ciation,
theBoard's
statutory
authority
resides
intheHome Owners'Loan Act.
The reviewingcriteria
which the Board usesare: 1) the need for the relocation

and 2) thepossibility
of undueinjury.
Provisions
forpublic
rotice,
written
com
ment and oralargument are the same as thosedescribed
above.
The data submittedin applications
for relocations
is generally
similarto the

branchapplication
material,
although
lessdetailed.
HOLDING COMPANY

ACQUISITIONS

Pursuanttosection
408(e)oftheNational
HousingAct,theCorporation
uses

asitsstandard
forreviewof
savings
and loanholding
companyacquisitions
consideration
of “thefinancial
and managerial
resources
and futureprospects
of thecompanyand institution
involved,
and theconvenience
and needsofthe
communityto be served.”
The Corporation
publishes
in the FederalRegister

notice
ofa holding
company
acquisition
application
allowingforsubmissio

writtencommentsorviews.
In connectionwith the initial
acquisition
of a savingsand loan association

by a holding
company,the National
HousingAct requires
the Corporation
to
consider
onlythe financial
and managerial
resources
and futureprospects
of

thecompanyand institution
involved,
nottheconvenience
and needsofthe
community.
However,
inallotherinstancesofholdingcompany
acquisitions
(i.e..
where theapplicant
alreadyhas acquired
a savings
and loanand isacquiring
a new one or theapplicant
has acquired
a savings
and loanand isacquiringa

new onewiththeintent
tomerge),theappropriate
formsrequest
information

concerning
theconvenience
and needsof thecommunityto be served.

241
MERGERS

The Boardhasfull
authority
undertheHome Owners'Loan Acttoreviewall
Federalassociation
mergersand underthe NationalHousingAct to review
insuredinstitutionmergersbecause,
amongotherthings,oftheresultantincrease
ininsuredaccounts.
The Boardusesthesamereviewingstandardsforbothtypes
of merger.Thosecriteria
involve
a reviewof:1) thelegality
of the proposed
mergerand 2) economicconsiderations,
including
a reviewof:(a) themarket

concentrationandranking
oftheresulting
institutions
andofother
competing
institutions,
(b) thenumberand
size
distribution
ofcompetitors,
(c)actual
or
potential
competition
significantly
curtailed,
(d) trendstowardconcentration,
(e) the overlapof branch savingssubmarkets,and (f) the extent to which

rates
paidon savings
instruments
and charges
on mortgages
appearto be

competitively
determined.
The Board alsoconsiders
the extentto which the
merger willaffectthe convenienceand needs of the communitiesto be served

in termsof savings
facilities,
typesof loansavailable
and the impacton the

operating
efficiency
oftheresultinginstitution,
as wellas themanagerial
and

financialcapabilitiesoftheapplicantinstitutions.

Public
notice
oftheproposed
merger
ina local
newspaper
isrequired
inall
cases.

Thus we may state,
as a generalization,
thattheBoard's
licensing
activity
is
alreadykeyedin substantial
respects
to a showingof credit
needswithinthe
communityto be served.
However,we do notestablish
as a rigid
criterion
that
aninstitution
mustplaceafixedpercentageofitsassetswithina
primaryservice
area.

CONSUMER

CREDIT

PROBLEMS

We turn now to our substantive
assessmentof S. 406.The Chairman,in intro

ducingS.406 on January24,1977,made a number of argumentsinsupport
of
thislegislation
which the Board would liketo address.He statedat several

points
thatin applying
thestatutory
criteria
necessary
forcharter
and branch
approvals,
theregulatory
agencies
haverelied
almostexclusively
on deposit
as
opposed to creditneeds.As we have just indicated,
the Board, in fact,does

give
significant
weight
tobothsavings
andcredit
needs
inacting
uponcharter
and branchapplications.
The Board wouldnotbe meeting
itsstatutory
respon
sibilities
wereitto do otherwise;
we necessarily
mustfocuson theincomethat
can be expectedto be generatedfrom creditextensionsso that the institution

canmeetthedividendandinterestrequirementsessentialtoobtain
andmaintain
deposits.
Especially
fornewlychartered
institutions
thismeansa
clear
indica
tionof likely
creditneeds.Even for wellestablished
institutions
the Board
expects,
inpassing
on branchor relocation
approvals,
to havea clearindication
ofcredit
needs.Thus,we believe
thatthe statements
made in supportof the
legislation
concerning
the emphasisgivento savingneedsare overdrawn,
at
leastin
thecaseoftheBoard.The Boardhasin thepast,
doesnow,and,absent

legislative
change,
will
inthefuture
givesignificantweight
tocredit
needs,
in
passingupon the applications
which are the subjectof S. 406.

Thestatement
insupportof the bill
alsodeclares
“ a public
charter
conveys
numerouseconomicbenefits
and in returnitislegitimate
forpublic
policy
and

regulatory
practicetorequire
somepublic
purpose,
without
theneed
forcostly

subsidies,or
mandatoryquotas,
or abureaucratic
credit
allocation
scheme.
.

Theauthority
tooperatenewdepositfacilitiesisgiven
away,free,
tosuccessful
applicants
eventhough
theauthority
conveys
a substantial
economic
benefit
to
theapplicant.
Thosewho obtainnew deposit
facilities
receive
a semi-exclusive
franchisetodobusinessinaparticulargeographicarea.”
We disagree
withthethrust
oftheseremarkswithregardtotheinstitutions
weregulate
inseveral
respects.
Whilewewould agreethatthepresent
barriers
toentrydo createbenefits
for regulatedsavingsand loaninstitutions,
we do not

agree
thatno public
benefit
isgivenin return,
thatthecharter
and insurance
certificates
come "free,”or that charteredinstitutions
enjoy a semi-exclusive

franchisecomparable,
asthestatementasserts,
toan FCCstationlicense.
Letme
dealwiththesepointsinturn.
First,
we aretroubled
by theproposition
thatthepresent
systemofregulated
financial
institutions
conveysno publicbenefit,
or even no significant
public
benefit.
Webelievethattheentirethrustofthegreatsavingsand
loanlegislation
ofthe1930's
wasthatthereis
substantial
public
benefitfrom
limitingentryinto

242
and closely
regulatingthe
businessofbankingand ofthriftinstitutions.
We fur
ther believe
thatthe Congresshas long sincedeterminedthatthe nation'smort
gage creditand housing needs are well served by the creationand supportof

specialized
housingcredit
financial
institutions,
thesavings
and loanindustry.
Thus wedo not believe
itaccurateto characterize
the presentstructureofregu

latedfinancial
institutions,
as created
and expandedby the Congress
overt
years,asconveyingnopublicbenefit.

Second,
we do notbelieve
thattheFederalcharter
or insurance
of accounts

comes“free”,especiallyfors&ls,
who arerestrictedlargely
tomakingmortgage
loansevenifotherloansmay oftenbe moreprofitable.
Inrecentyears,
theCon
gresshas alsoprohibited
discriminatory
lending
practices
and required
disclo
sure of lendingterms and disclosure
of the costsassociated
with closingmort

gageloans,
amongotherthings.
Thus,asCongresshasaddresed
variouspractices
of lendinginstitutions,
it has sought those thingswhich,in itsjudgment,are

appropriatecorrectiveactions.
Theselawsareenforcedby
theBoardwithrespect
to the institutions
underitsjurisdiction.
The Federalfranchise
forfinancial
institutionsis
not“free”
inanymeaningfulsenseofthattermanddoesinvolve
a
quidproquoonthepartoftheseinstitutions.
Third,and lastly,
we takeexception
to thenotionthatFederally
chartered
or insured
institutions
enjoya semi-exclusive
franchise
akinto a broadcasting
license.
The Boardinitschartering
and branching
decisions
favors
theentryof
new institutions
intomarketareasso thatsaversand borrowers
may have a
choiceof savings
and loanassociations—
in fact,
a verybroadchoice
in large
marketareas.
We believe
thatthisisapro-competitivepolicy.
At thesametime,
however,
theBoarddoesnotgo sofarinthisdirection
astoendangerthesafety
and soundnessof existing
institutions,
or to establish
institutions
orfacilities
of

existing
institutions,
which
arenotneededbythecommunty
which
theyserve.
We do notbelieve,
however,
thatthislatterpolicy
consideration
hasoperated
to

deny to saversand borrowersmeaningfulchoicesas among existingfinancial
institutions.

Let me trytosummarizewhat we havesaidtothispoint.
We do notbelieve
thatthe statement
in supportof thislegislation
accurately
characterizes
the

presentregulatory
treatmentof
thefinancialinstitutionssubject
totheBoard's
jurisdiction.We
do notconsider
saving
needs
totheexclusion
ofcredit
needs.

Savingsinstitutions
are subjectto substantial
legislative
and regulatory
limita
tionson theiractivities
to protect
theinterestsof
theircustomers,
and the Board
does not insulate
the institutions
itregulates
from the forcesofcompetition.
The

equation
between
Boarddecisions
on applications
ofthetypeincluded
in S.406
and the publicresponsibilities
of institutions
receivingagency approval is
balanced.

Westrongly
support
improvingcommunity
effortbysavings
andloanassocia

tions.
However, the need for thislegislation
must not be based on an attempt to
correctan allegedimbalance between publicbenefits
and publicresponsibility.
sinceitdoes not,in fact,exist.
Rather,itshouldbe based on themeritsof S. 406

as a corrective
action
fora perceived
failure
ofpresent
legislative
structures
to
meet defined “credit needs."

In theremainder
of our testimony,
we shallexamine,
as bestwe areableto
determine,
precisely
what credit
needstheproposed
legislation
mightbeseeking
to address.After statingthisperceivedneed,we willbriefly
discussexisting
mechanisms for meetingtheseobjectives.
We willthen returnto themechanism
proposedin the legislation
to see whether S. 406 seems likelyto helpor to hurt
in meetingthesestatedobjectives.
There area greatvarietyofcreditneedswhich relatetothepurchaseorrepair
ofhousing.Aside from thecreditneedsofexpandingcommunities,
with respectto
individuals
seekingcredit,
thereare minoritycitizens
who may face creditdis
crimination
: thereare lowandmoderate incomeborrowerswho may needhelpin
meeting theircreditneeds; and thereare middle income peoplewho may not

currently
be abletoafford
thehousing
theydesire.
With respect
tocredit
needs
ofgeographicareas,
thereareblighted
areasthatneed
massivefundingforresto
ration;thereare deteriorating
neighborhoodsthat requireconcertedefforts
for
theirrejuvenation
; and theremay be "redlined”areasthat are the subiectof

geographic
or racial
discrimination
thatneedtheactive
enforcement
ofthefair
housinglaws.Finally,
thereis the more generalized
question
of whetherall
financial
institutions
should servetheirlocalcommunitiesonly,to the exclusion
of other areas.

243
In what follows,
we willexaminethe various
credit
needswhichmightfall
subject
tothe “meetingthecredit
needsof the primarysavings
service
area"
testfoundinsection4(2)of S.406.Webelieveitisimportantinassessing
S.406,

todelineatewithparticularlytheobjectives,
intermsofvarioustypes
of"credit
needs,”which
this
legislation
mightbeseeking
tomeet.
The Boardinadminis
tering
theproposed
legislationwouldbe
required
todefine
" creditneeds”
admin

istratively
andenforce
thelegislation
alongthe
lines
suggested
below.
In other
words,
ifthereis
no further
legislativeclarification
oftheexpression
"credit

needs”to be addressed,
the Board would develop
itsown workingdefinitions
and impose the sanction
of section
4(2) onlywhere the Board deemed the
impositionofthesanctionasanappropriatemeansofreachingparticular“cr
need" objectives.

Letus nowturn toa consideration
ofthevarious
typesof"creditneed”
objec
tiveswhich
S.406mightbetaken
asaddressing.
Soasnottoundulylengthen
this

testimony,
thediscussion
whichfollowswill
focusprimarily
on thebranch

approval
process,
eventhoughS.406wouldoperatewith
respect
toa numberof
"applicationsfordeposit
facilities."
DISCRIMINATION

AGAINST

INDIVIDUALS

OR AREAS

The first
credit
needwhichtheproposed
Act may seekto address
isthatof
individuals
unableto obtaincredit
becauseof unlawful
discrimination.
In this
regard,
theBoard is committedstrongly
to the principles
of thefairhousing
laws.
It activelysupportsthegoalsoftheFair
HousingActandtheEqualCredit
Opportunity
Act.The Boardhas promulgated
regulations
toimplementtheFair
HousingAct,has issuedformalopinions
interpreting
theregulations
and has
revised
itssupervisory
procedures
in ordertoensurecompliancewith
bothActs.
As you know,as partof theBoard's
regulatory
authority,
itperiodically
exam
inesallof itsregulated
institutions.
To aid indetection
of fairhousingand equal

credit
law violations,
eachof ourexaminershas recently
completed
a two and
one-half
day intensive
training
courseon the purposeof theselaws and ways
todetect violations.

The Boardhastakeneffectiveaction
todetectand
remedynotonlydiscrimina
tioninlendingbutalsodiscrimination
in employmentas well.At the time of each
examination,
the Board'sexaminersdetermine:(a) the extentof management's
familiarity
with the variouslaws and regulations
dealingwith discriminatory

practices;
(b) whetherthe institution
has established
and implemented
non
discriminatory
policies
and evaluate
theeffectiveness
of such policies
and (c)
whetherthe
institution
iscomplyingwith
thelawsand regulations
dealingwith

discriminatory
practices.
Additionally,
theBoard's
examiners
willdetermine
whether
theinstitution
hasconsidered
utilization
of governmentalor
private
programsdesignedtoaidinmeeting
thehousingneedsofminority
orlow-income
groups.
Inaddition
tothese
regularactivities,the
Board's
Officeof
Examinations
andSupervisionmakesspecialinvestigationsofcomplaintsof
alleged
discrimina
tionmade by individuals,
documentedcomplaints
made by responsible
public
groups
regarding
specific
institutions
and complaints
made by or throughother
governmental
agencies.
When theexaminerfindsinstances
of policies
or prac
tices
whichgivetheappearance
of beingdiscriminatory
or whichare,in fact,
discriminatory,
suchinstancesarebrought
totheattention
ofanddiscussedwith

theinstitution'smanagement,anda
requestismadeforpromptcorrectionofth
unsatisfactory
condition.
Innearly
allcases,
theexaminer's
actions
result
in
immediatecorrectionoftheproblem
.

Duringthesix-month
periodendingJanuary31,1977,theBoard's
examiners
detected
581instances
offailure
tofollow
requirements
relating
to nondiscrimi
nation.
Many of theseinstances
involvedmattersof form, such as the failureof
the board ofdirectors

adoptasatisfactory,formal,writtenpolicyofnon

mination
orfailure
toprovide
required
statementsof
equalopportunity
in lend
ingoremployment
in advertisements.
Otherinstances
were moresubstantive
in
nature.
Regardlessoftheimportanceofthematter,all
581instanceswerebrought
totheattention
of and discussedwith management by the examiner.In 481 in
stances
(82.2percent),immediatecorrection
waseffected.

Generally,
thereport
of examination
will
disclose
allmaterialdeviations
fromrequirements,
irrespective
of whetherthe matterhas beensatisfactorily
corrected.
Ineveryinstance
wheretheexaminerbelieves
management's
response
tobe unsatisfactory,
the reportwillcontain
thefactsregarding
thesituation,

sothatthe
Board's
Supervisory
Agentmay request
theboardof
directors
toin

244
stitute
correcive
measures.
In addition,
eventhoughsatisfactory
correction
was

obtainedbytheexaminer,the
Supervisory
Agentmayprovidetheboard
ofdirec
torswithhiscomments,
requestsoradmonitions
soastoreinforce
andconfirm

theexaminer'sactions.

Itmay wellbeaskedwhetherthe
reviewmechanismsproposedin
S.406would
giveadditional
weighttoenforcementof
thefairhousing
laws.ItistheBoard's
viewthattheadded penalties
of denialor postponement
of a deposit
facility
application
couldhave a salutary
effect
of encouraging
promptresolution
of

problems
detected
inan examination
withrespect
todiscrimination
violations.
The Board presently
deniesbranchapplications
wheresupervisory
objection
is
raised
on safety
and soundness
grounds.
With theaim of seeking
resolution
of
discrimination
violations,
when evaluating
requestsfor a depositbranch facility,

theBoardisprepared
toconsiderrevisionofitsreviewingprocedurest

a consideration
oftheexamination
report
of an applicant
institution
forcompli
ancewiththefairhousingand
nondiscrimination
laws.ItistheBoard's
opinion
thatinstitutions
would be lesslikely
to incursuch violations
and would be

prompterincorrectingthem
iftheapproval
ofdeposit
facilityapplicationswe
toincludeconsiderationofthismaterial.

However,inthisregardwebelieve
S.406presentsseriousproblems
inatleast
threegeneral
respects.
First,
as written,
"credit
needsof the primarysavings
service
area”doesnotclearly
reflect
thatthe “needs”referred
to are thoseof
individuals
subjectto unlawfuldiscrimination.
Second,sincethe Board'sactions

indenying
or postponing
branch
applications
on thisbasis
wouldbejudicially
reviewable,
itwouldbe appropriate
to havelegislative
clarification
of the quan
tum of proofwhich would form the basisof the Board'sfinding
of unlawful
discrimination
sufficient
to justify
such actionon branchapplications.
Third,
the legislation
doesnot make clearthatthe Board would be relying
upon its
examination
reports
in takingthisaction.
The typeof information
to be pro

videdby
theapplicantundersection4(1)
ofS.406,doesnotspecifically
address

the problemof unlawfuldiscrimination.
If the Board'sview,usingexisting
examination
reports
wouldbea surerwaythanthemechanisms
setoutinS.406
to encouragecompliancewith the nondiscrimination
laws and insurethat credit
wasavailabletoallcreditworthyindividuals.
BLIGHTED

AREAS

Anotherpossible
objective
to be servedby theproposed
CommunityReinvest
ment Act may be to bringmore money,in theform of mortgagecredit,
into
blightedareas.
However,sincesuchdepressedlocationshavea
myriadofcomplex

problems
needing
simultaneous
attention,
itmay beaskedwhether
thesavings
and loanindustry
isequippedto make significant
contributions
withoutalso
runingthe
riskofjeopardizingits
safeandsoundoperations.
We believethat
the
answerisclearblighted
urbanareasneedthekindof massiveassistance
that
onlygovernmentsubsidyandotherbroadlybasedprogramscanprovide.
Examples
are HUD's Community Development
BlockGrantsand the urbanrenewalpro

grams of many Stateand localgovernments.
In the Board'sview,itwould be in

appropriate
topenalize
savings
and loansfornotserving
areaswhereonlycon
centratedgovernmentalassistance
can haveanyreal influence.
DETERIORATING

NEIGHBORHOODS

Anothertypeofcommunity
" creditneed”
notadequately
beingmetwhichmay
be an objectiveof
S.406istheneedforfinancingin
deterioratingneighborhoods
In responseto the particular
problemssuch neighborhoodsface,the Board has

encouraged
assistance
through
itsparticipation
intheUrbanReinvestment
Task
Force.
The Task Forcehassupported
thedevelopment
of Neighborhood
Housing
Services
whichcombinethe voluntary
efforts
of thelocal
citizens,
citygovern
ment and financial
institutions
in restoration
of a declining
community.In those

neighborhoods
wherethe NHS programhas beensetup,theresults
have been
mostencouraging.

However,S.406couldbeconstrued
torequirethe
Boardto makeparticipation

inNHSmandatory,asproofofserving"creditneeds,”whenevaluatin
or relocation
application.
The Boardbelievesthat
sucha requirement
couldhave
a deleterious
effect
sincetheveryheartoftheNHS program
, namelyvoluntary
cooperation,
wouldbeundermined.
Further,
ithasbeenourexperiencethatwhen

245
NHS efforts
areinstituted,
voluntary
participation
by thesavings
and loansin

theareahasbeenverygood.Thus,
ifS.406isaddressed
tothe"community

needs"of neighborhoods
receiving
VHS assistance,
we believe
thesanctions
of
thebill
arenotonlyunnecessary,
butperhapsevencounterproductive.
LOW

AND

MODERATE

INCOME

INDIVIDUALS

Stepping
backfora moment from theproblems
ofthecities,
theBoardisalso

awareofthemoregeneralproblemofprovidingcredit
forlowandmoderatein

come individuals
wherevertheyreside.
Serving
their
“credit
needs"may alsobe
an objectiveofthe
bill.
However,istheanswertotheirproblems
simplytiedto
theavailability
ofcreditor
rather
canitbetterberesolved
by theuseof govern
mentalassistance
to cushionthe borrower's
paymentobligations?
We believe
thatproperservicingofthis
kindof"credit
need”falls
largely
withintheareas
ofspecialgovernmentalassistanceprogramstargetedtotheseincomegroups.
However,wouldtheBoard be required
underS.406toevaluate
the participa
tionof savings
and loansin suchsubsidyprograms,
ifavailable,
as proofthat
theyare servicing
community"credit
needs"when applying
for a depository
facility?
In theBoard's
view,assuming
thatan institution
iscomplyingwith
all
safeand soundlending
regulations
and thenondiscrimination
laws,themix of
itsportfolio
assets
isproperly
a business
rather
thana governmental
judgment.
Indeed,thestatementinsupportofthislegislationmakesclearthat
"thebill
..
doesnot substitute
thejudgmentof theregular
forthejudgmentof a banker
on individual
loans.”
In thisregard,
itisthe Board'sobservation
thatto the
extentthatsuchprogramsasthe
GinnieMae tandemprogramaremadeavailable
with a minimum
participate.

of administrative
burden, institutions
are very willingto
MIDDLE

INCOME

INDIVIDUALS

Whataboutthemiddleincomepersonwho,somestudieshaveindicated,c
afford
thehousehe orshe wouldliketopurchase?
Is therea " credit
need”here
whichthriftinstitutionsshouldaddress?
Theanswerdependsonwhetherthereis
anunmet "affordability
gap" betweenthecostof existing
housingand what a

middleincomepersoncanpay.
Recentstudiesbythe
Congressional
BudgetOffice
andtheHarvard-MITJointCenterseemed
tohavedetermined
thata “gap”does
exist.
OnlytheCBOstudyhasbeenreleased,
andtheBoardistroubledbyseveral
methodologicalproblemswe
seewiththatstudy.
Lookingtotherecentrecordof
home sales,
thereisstrongevidence
thatpotential
home buyershave founda
way toacquiretheirnewhomes.
Wewouldbehappy toprovidetothe
Committee
a moredetailed
Boardanalysisofthe
CBO study.Nevertheless,
if,
infact,
a gap
doesexist,
thenitssourcemay wellbe in a broadrangeofeconomic
conditions,
not keyed to the “creditneeds" of localborrowers.In thisevent,the bestap

proachtoa
solution
ofany"credit
need"problems
wouldnotlie
in penalizing

individual
institutions
but would look to broader based,macro-economicpolicy
tools.

As you know,theBoardispresently
studyingarangeofflexible
mortgagein
strumentswhich willbedesignedto increasehousingavailability
in certaincases

andtoimprovetheabilityofparticularpopulation
sub-groupstopurchase
homes
ortoimprovethequalityoftheirhousing,ortodo
both.Ifthesenewinstruments
whenavailable
meeta “ credit
need”in an individual
area,wouldS.406require

theBoardtoimposeoninstitutionsarequirementthatafixedpercenta

loansbemadein theform of the alternativemortgageinstruments?
Again,wedo

notbelievethatmandatorygovernmentportfolioinvestmentdec
forthrift

institutions
are properor desirable.
Yet,as drafted,
thelegislation
would in

effectbringaboutjustsuchamandatoryinvestmentresult.
ALLOCATION OF CREDIT TO LOCAL AREAS

A moregeneralized
concern
thanthefive
issues
justdiscussed,
whichS.406
may seektoaddress,
involves
thequestion
of whethersavings
and loaninstitu
tions
shouldbe required
toconcentrate
lending
in their
local
communities
quite
apart
fromthe" credit
need"objectives
whichwe havethusfararticulated.
An
* In this connectionwe note that Senate Report No. 94-187 favorablyreportingthe

Home MortgageDisclosure
Act states,
at p. 11:"[ T]he Committeerejects
thenotion
thattheremustbe some fixed
ratio
betweendeposits
gathered
from acommunity and
loansreturnedtothat
community."

246
answerto thisquestion
lieswiththe development
of thesavingsand loanin

dustry
andthe legislation
governing
thatindustry.
As is wellknown,when
savingsandloansoriginated,theyfocusedonlocalcommunitylend
Thisview
pointwasadoptedby
Congress
when itenacted
theHome Owners'Loan Act.The
rationale
behindthislegislation
wasto setup mechanismsby whichthe Federal

Home LoanBankBoardcould
encourage
local
thrift
andhomefinancing.
How.

ever,
Congress
gradually
expandedthelending
territory
ofFederalsavingsand
loans.
Originally,
theycouldlendonlyon homes located
withina radiusof
50 milesfrom theirhome offices.
But,overthe years,
Congress
increased
the
territory
lendinglimitto 100 miles,then State-wide,
and finally
nationwide.In

practice,
ofcourse,
mostinstitutions
lenda smallpercentage
oftheir
portfolio
ona nationwidebasis.

Moreover,
overtheyears,
therole
ofthesavings
andloanassociations
inthe
economyhaschangedandtheindustryhastakenonadditionalroles.
Increasingly,

thriftinstitutionshaveactedasfinancialintermediatriesshiftingth

capital
surplus
to capitaldeficit
areas.
Congress
haspromoted
theconceptof

improving
theefficiency
ofthesecondary
marketas evidenced
by theseparation
of FNMA

from HUD

in 1968 and by the creationin 1970 of the Federal Home

Loan MortgageCorporation
to providea secondarymarket for mortgage
investments.

Notwithstandingthedevelopmentstowardwide-spreadmortgagemarket

ipation
there
remain,
ofcourse,
constraints
uponFederal
associations
lending
outside
theirprimary
service
areas.
As previously
noted,
in practice
most retail
oriented
savings
and loanassociations
invest
onlya smallpercentage
of their
assetsoutsidetheirlocal
area.
In addition,
theBoard'sbranchingpolicy
and that
oftheStateauthoritiesgenerallylimit
savingsandloan
branchestowithin
State
locations.
Withoutregardtotheseresrictions,
andprobably
moreimporant,
there
are the businessnecessities
of the thrift
industry.Thebusinessof making home

financing
loansalmost
requiresthat
thelendinginstitutionsbelocated
neartheir

mortgageinvestmentsinordertoproperlyappraisethesecuritypr
andto
takeremedialactioninthecaseofadefaultina
mortgage.
From an economicperspective
we wouldliketo pointoutthatstudies
on the
characteristics
of thoseindividuals
who traditionally
maintain
thehighestsav
ingsaccount
balances
indicate
thatsuchindividuals
aretypically
higherincome
persons
and are more elderly
thanthetypical
individual.
As a matterof fact,
our present
branchapproval
process
recognizes
thatthesavings
potentialofan
areaislikely
tobemuch greaterifitisa
higherincomearea
orcomposedofolder
individuals.
However,conversely
thedemand forhousing
credit
needstendsto
come from middleincomeindividuals
and youngerhouseholdswho
havelittleor
nothingin the way of savings.Yet many communitiesin thiscountryare homo

geneous,consistingofpeopleinthesameageorincomegroup.
Suchcommunities

willbecapital
surplus
or capital
deficit.
Thismeansthatthereisboundto bea
significant
mis-match
betweenthesourceof savings
and the needfor housing
creditina largenumberofcommunities.This indicates
thata substantialamount

ofcommunityreinvestment
may notalwaysbeafeasibleobjectiveand,giventh
higherincomecommunities
generate
a disproportionate
volumeof savings,
too

muchcommunity
reinvestment
may sometimes
be inconsistent
withthesocial
goalofattemptingto
direct
more mortgage
creditinto
lowerormoderateincome
neighborhoods.

Abasicproblem
withthebillarisesfromthedifficultyofdefiningwhatwe

byaprimary
savingsservicearea
andtherelationshipthatthis
has,ifany,toa
"community.”
A particularly
difficult
situation
arises
inthecaseofdepository
offices
in downtownareasof central
cities
and offices
located
in super-regional
shopping
centers
thatattract
customers
from a verybroadarea.It so happens
thataverylargeproportion
ofdeposits
areinofficesof
thistype.
Yet,itispre
cisely
inthecaseoftheseofficesthat
theprimarysavings
service
areaand,even

moreimportantly,
thecommunityconceptmakesleastsense.
Downtownofficesof
largecentral
cities
oftendraw theirdeposits
primarily
fromthoseworkingor
shoppingin
thearea,
mostofwhom arelikely
toreside
invarioussuburbanareas
surrounding
thecentral
city.
Does thebill
contemplate
thattheprimarysavings
servicearea for such offices
would be definedon the basisof the location
ofthose

workingin thearea,
whichmay includeonly
a smallnumberofcityblocks
sur
roundingtheofficesandcontainonlylargecommercial
structures?
Ordoesthebill
contemplatethat
theprimary
savingsservicearea
istobedefined
on thebasisof

247
theresidential
addressof thedepositors,
whichwould oftenproducea service
areathatwouldencompassmuchofthemetropolitan
area?Wewouldassumethe
latter.
The same problem ariseson a somewhat lesserscalein thecase of offices

insuper-regional
shoppingcentersinsuburbanareasthatattractemploye

shoppersfromabroadregiontranscendingcomunities.

Givenitstitle,thebillappearstofocuson
"communities.”
Butits
implementa
tioninvolvesthe
useofthe“primarysavings
servicearea”
concept,
whichisde
finedsolelyintermsofanareafrom
whichmorethanone-halfofdeposit
custom
ers are drawn. There is no reason why a primary savingsservicearea should

necessarily
coincide
witha "community”
as we traditionally
thinkofit.
This
brings
outamajorproblemthatisposedbythebilland
itstitle.
Towhatextent
doesan office
servea specificcommunity
thatismore thanmerelya contiguous
geographicalarea.
Bycommunitywe traditionally
thinkofan areathatisbound
togetherbecauseofsomedegreeofcommonlocal
government,
common schoolsor
otherpublicfacilities,orethnicorother
characteristics
that make for some type

ofsocial
cohesion.
Insofar
as primarysavings
service
areasdo notalwayscoin
cidewith communitiesand straddlea numberof communities,the useof service

areasraisequestionsabout
whetherthepractical
effect
ofthebill
istofocuson
communityneeds.

Inthisconnection,wehavetoberealisticandrecognizethetremendousmobi
oftheAmericanpeople.
Almosttwenty
percent
ofhouseholds
moveeachyear.
In
largemetropolitanareasitiscommonforhouseholds
tomovetoentirelydifferent
neighborhoods.
It istruethatmany smalltownsand certain
neighborhoods
in

largercitiescontinuetohaveconsiderablestabilityanddiversityi

of theirpopulation
and do meetthe conceptof what we normallymeanby a
community.However,thistraditional
conceptof a communityprobably
is no
longerapplicabletolargesectionsofthecountry.
Wewouldlikenowtoturntothespecificdefintionofaprimary
savings
service
area.
Thisisan areaaroundthefacility
in whichitisexpected
thatmore than
one-halfofitsdeposit
customerswould be drawn. We have triedto wrestlewith

theproblemofhowtoapplythisdefinition.
Thefactisthatthereisnooneunique
geographicarea around an office
from which one-halfof the depositcustomers
willcome.It may be possible
tohave onesuch uniquearea ifwe insist
on usinga

perfect
circle,
in whichcasewe wouldexpandthecircle
to the pointwhereit
contains
halfof the deposit
customers.
However,a perfect
circleis
rarelyan
accurate
depiction
of an areafrom whichdeposits
come.As a result
of natural
boundaries
or transportation
patterns,
a savings
service
areamay wellbe repre
sentedby anellipseor,
morelikely,
by a raggedtype of geometricshape.
In prac

tice
one couldspecify
an infinite
number of different
geographic
areasforthe

primary
savingsservice
area,
anyofwhichwouldcontain
atleast
onehalfof
thedepositcustomers.
Oneway todeal with thisproblemwould be to allow regu

latory
authorities
toinsist
on a primarysavingsservice
areathatitself
seemed
mostlogical
and notmerelyaccept
any suchareaas put forthby theapplicant.
Thisisnotan easytasktodo,basedon thisagency'sexperience
in dealing
with
applications.
Anotherproblemhastodo
withthethreshold
ofpercentage
ofdeposit
custom
ersthatisusedinspecifyingtheprimary
savings
service
area.
The bill
putsthe
threshold
at50percent.
In many cases,
however,
theuseofa 60percent,
75 per
cent,
or 80 percent
threshold
couldexpand verysubstantially
the geographic

boundariesoftheprimary
savings
servicearea.
A 50percentthreshold
mightin
manycasesleadtoan
areathatisquite
small,
perhapswitha radiusof
onemile
orless.
Theuseofa75percentthreshold
couldwellextendthistoan areafouror

fivetimesas
large,
depending
on theexactgeographical
dispersion
ofaccounts
andthetransportation
patterns
in thearea.Noneof theseprimary
savings
service
areaswould necessarily
coincide
with any meaningful
definition
of a
community.

The bill
posesparticular
problems
formulti-branching
savings
and loanasso
ciations.
Asyouknow,therehasbeenextensivebranchingof
S&Lsinrecentyears.
AsofSeptember
1976therewere
255S &Lsthathad 10or more branches.
Allin
stitutions
withmore thanone office,
no matterwhat thenumber,would be re

quired
toshowhow theyaremeeting
thecredit
needsof theprimary
savings

services
areasof each of theiroffices
if theywishto have an application
ap
proved.
Theverycomplexityand
timeconsumingnatureofascertaining
whether
creditneedsaremetinthecaseofinstitutionsthat
havealargenumberof
offices

248

wouldbestaggering.
Therewouldcertainly
bea blizzardofpaperwork
onthe

partofapplicants
and a corresponding
needon thepartofourstaff
toexamine
thecontentionsoftheapplicantandallthosewhomayprotest.
Thebillalsoposesaserious
conflict
in termsoftheweightto be giventothe

needs
ofdepositors
versus
those
oftheborrowers
oftheintitution.
Giventhe
highlycompetitive
natureof savingsmarkets,
S&Ls are underconsiderable

pressure
to payhighinterest
rates
todepositors,
usually
atceiling
rates.
At
thesame timethatthesehighrateshave to be paidto deposiors,
savings
and
loanassociations
are alsounderpressure
to buildup theirreserves
and net
worthby havingan adequate
amount of earnings
remainafterpayinginterest
to depositors.
This means thatS&Ls must channeltheirfundsintomortgage
loansthatyielda rateof return
sufficient
to producenecessary
earnings,
con.
sistent
withsafeand soundlendingpractices.
It is a continuing
factof life,
however,that thereare geographical
differences
in mortgage interests
rates.

Some savings
and loanassociationsare
legitimately
facedwiththeproblem
that mortgageinterest
ratesavailablein
theirown serviceareasmay not always

be adequate
and,infact,
may be lessthanthosearailable
elsewhere.
Thereis
the difficult
situation
posedby restrictive
usuryceilings
insome stateswhich
makes itdifficult,
ifnotimpossible,
to meet the goingratethatmust be paid
on deposits
if a substantial
portion
of thesedeposits
are lentin that State.
Sincesavingsand loan associations
investa large bulk of theirfunds in resi

dential
housing,
regardless
of wherethe geographical
location
of thishousing
may be,theBoarddoesnotbelieve
thattheseinvestments
arenon-socially
pro
ductive
simplybecausefundsflowto an areadifferent
from theirorigination.
Aswe havenoted,
much ofourproblemwiththebill
stemsfromthefactthat
itrequires
credit
needsto be analyzed
in termsof theprimarysavings
service
areaasdefined
in thebill.
Yet,bothbusiness
realities
and social
objectives
may
argue for a mortgagelendingservicearea thatis broaderor different
than that

oftheprimarysavingsservicearea.

Unfortunately,
thebill
as drafted
isa double-edged
sword.
It may putin
creasedpressure
on savingsandloan
associations,
eitheron
theirownorbecause
of the way the Bank Board would administerthe bill,
to channel more of thier

fundsintocertain
arbitrarily
defined
primarysavings
service
areas.
But what
ifthiswereoffset,
as wellitmightbe,by a withdrawal
offundspresently
being
putintothoseareas
by institutions
thatdonothaveoffices
inthoseareasorthat
areinvestingmore
thanthesavings
thantheyobtain
from offices
in thatarea?
Moreover,
one community's
gainin termsof increased
lending
isanothercom
munity'sloss.
It isnotclearwhetherthosewho gain willbemoredeserving than
those wholose.

Thisbrings
us to what we thinkis possibly
a misplaced
emphasis
in thebill.
From a socialpointof view,the relevent
issueis not whether a particular
office

ofa financial
institution
adequately
serves
or isgoingtoservethecredit
needs

ofsomearbitrarily
defined
savingsarea
aroundit.
Instead,the
social
concern

shouldbe withhow wella particular
geographical
areaisbeingservedby all
financial
institutions
together.
It wouldseemthatlittle
isgainedby examining
evidence
thata proposed
office
willbe investing
a certain
percentage
of itsde
posits
inanarbitrarily
defined
savings
service
area,
if,
infact,
thatareaispart
of a communitythatis beingwellservedby a variety
of financial
institutions
with respecttoitscreditneeds.

Inthiscontext,
letme now turntotheBoard'sprocompetitive
policy
and give
you some examplesof the Board's
efforts
to assurethatcredit
needsare being
met.

COMPETITIONAS A MEANS FOR MEETING “ CREDITNEEDS"

The Boardissensitive
to the needforactivemortgageloancompetition
in
individual
markets.
The Board's
policy
hasbeentoencourage
active
competition
among savings
and loans,
on theassumption
thatimprovedservice
to thecom
munitiesinwhich
theyaresituatednaturallywillfollow.?

2 For example,the
Board's
statement
of policyregarding
theestablishmentof
branches
and related
facilities
by Federalsavingsand loans,12 C.F.R.556.5
(b)(5), readsas
“ As a general
nolier,
the Board encourages
the establishment
of branchofficesand
otheroffice
facilities
by Federalassociations
in communities
and marketareaswhich
either
are not servicell
or are underserviced
by existing
savingsand loanfacilities.
In
addition,
the Boardfavorsincreasing
the levelofcompetition,
by permitting
morethan
onesavingsandloanfacilityin
a marketarea,
to provideconvenient,alternativechoi
follows:

resulting
in betterserviceto thepublic.
..."

249
Becausethehealth
of communities
and theirfinancial
institutions
areinter.

related,
and because
thrift
andfinancing
requirementscanvary
widely
from
communityto community(e.g.,
thesavingsneedsof oldercitizens
as opposed

tothehome
financingneeds
of youngercitizens),we
haveused
ourregulatory
authority
toencourage
competition
in thefinancial
marketplace,
finding
itthe
bestmechanismto assurethatdiverse
communityneedsare satisfied.
To this
end,if thereare unmet thrift
or credit
needsin a community,
itisour belief
thatexisting
or newlyorganized
savings
and loanassociations
shouldbe per
mittedtoenterthatmarketandattemptto meetthoseneeds.
Insome instances

theintroduction
ofa new facility
will
be moreconvenient
totheexisting
de

positors
or borrowers
of an association
thus makingcredit
more accessible
to
them. In othercases,the establishment
of new associations
makes creditavail

ableto a new segmentof thepublic.
Instill
othercases,
theestablishment
ofa
new institution
or facility
inan areamakes theexisting
areainstitutions
more
responsive
tocustomerneeds—thesalutary
byproduct
of a competitivemarket
place.

Examplesof the Board'sapprovalof Federalcharters,
conversions,
or in
suranceof accounts
for minority
operated
associations
willdemonstrate
how
ithas encouraged
increases
in the availability
of credit
to new segmentsof
thepublic.

In Septemberof 1973,the Board approvedtheapplication
submitted
by a
groupof Cuban-Americans
for a new Federalcharter.
The proposed
siteof
the Union Federal Savings and Loan of Miami was the businessdistrict
of

thatcity.
Atthetimetheapplicationwasfiledthere
was onesavings
andloan

branchoffice
and fivehomeofficeslocated
withinone mileof theproposed
site.
The designated
primarymarketareafor Unionwas thecityof Miami,having
a population
of 324,859
of which36.6% were Cuban-Americans
and which al
ready was served by eighteensavingsand loan facilities.
At the end of 1976

thisassociationhad$16.4
million
inassets,
an increase
of124% overthe preced

ingyear.

WhileUnionFederal
continued
to grow,theBoardapproved
the applica
tionof a secondCuban-American
organization
in mid 1975.The new Federal
was called
Inter-American
FederalSavingsand Loan Association.
Its office
islocated
approximately
six milesfrom Miami'sdowntown shoppingdistrict.
BecauseCuban-Americans
constitute
a largeand growingportion
of theasso
ciation'smarket
population,
overone-third,
theorganizerscontended
thata need
existedfor a locallybased facility
which would be orientedto the specific

thrift
and home-financing
needsofthe marketarea'sLatincommunity.Inter

American
openedforbusiness
in September
of1976,
and by theclose
ofthat
yearithadacquired$2.4millioninassets.

Otherexamplesfurtherdemonstrate
thatcompetitive
impetuscan leadto

improvedservicingoftheneedsofcommunitiespreviously
underserviced.
In November of 1971 Pan American Savings and Loan of El Paso, Texas,

received
FSLIC insurance
and FederalHome Loan Bank membership.
Its

organizers
wereprimarily
Mexican-American.
At the timeitsubmitted
its
applications,
therewere foursavingsassociations
in El Paso with a totalof
nineoffices.
The cityhad a population
of 322,000,
46% ofwhich were Mexican
American.
By December31,1976,Pan Americanhad$8.1million
inassets.
This
wasup9.3%overtheprevious
year.
The MissionFederalSavingsand Loan Association,
alsoof El Paso,Texas,

received
FSLIC insurancein September,1973.Like Pan American,itsorganizers
were Mexican-Americans.At the closeof 1976, Mission had $5.5 millionin

assets.
Thisrepresented
a 51.7%increase
overits1975assets.
Chinatown
Federal
SavingsandLoan Association
ofSan Francisco,
California,
received
Boardapproval
ofitsFederal
charter
inJanuary,
1973.
Itsorganization
groupconsisted
of 14 Chinese-Americans.
The basicimpetusfor the applica
tionwas to establishan association
that would be identified
clearlywith the

Chinese-American
population
in San Francisco.
The delineated
primaryservice
areaincludedthe
Chinatownportionof
SanFranciscoofwhich
57% was Chinese

American.
Although
there
weresixexisting
association
facilitiesin
thearea.
three
ofthembeing
onlyone-tenth
ofa milefromtheproposed
location,
the
Boardbelieved
thattheapplicantwouldbeboth
useful
andsuccessful.
Between
1975and
1976theassets
ofChinatowngrew
from$8.3million
to$12.8
million
representinga51.4%increase.

250

FulcrumSavingsand Loan Association,
alsolocated
in San Francisco,
Cali
fornia,
was insuredby theFSLIC in June,1975.It isowned and operated
by
blacks.
Blacksrepresent15.7%
ofthetotalpopulationintheprimarymarketare

Urbanrenewal
andredevelopment
formthebulkofnew housing
in thiscom
munity. Between 1975 and 1976 Fulcrum had a 93.8% risein its totalassets
($2.5millionto$4.9million
).
Oakland Federal Savings and Loan Association
of Oakland, California,
re

ceived
a Federalcharter
from the Boardin Novemberof 1972.The organizing
groupconsisted
ofsixblacks,
fourAnglos,
an Oriental
and a Mexican-American.
The purpose
of theapplication
was to establish
an association
willing
to make
mortgage
loansin certain
areasof Oaklandwhicharepredominantly
black.
At
thetimetheapplication
was considered,
therewas onlyone thrift
institution
intheprimarymarketarae.Oakland's
assets
reached
$6.4million
in 1976.This
representeda25.5%increaseover1975assets.

SoundSavingsand
Loan Associationof
Seattle,
Washington,wasincorporat
in November,
1975and insuredby theFSLIC in thefollowing
year.The orga
nizers
consisted
of eightwomen and two men. The savings
and loanplanned
to concentrate
itsefforts
on the downtown and urban renewalareas of Seattle

by meetingtheunfulfilled
needsforcredit,
financial
assistance
and counselling
forwomen and minority
groups.
As of thefirst
fivemonthsof 1976,the total
number of its market area loans was 14.822,
an increaseof nearlyfivetimes
thatforthesameperiodin1975.

FirstFederalSavingsand Loan Association
ofPhoenix,
Arizona,
applied
for
a branchoffice
at Window Rock,ApacheCounty,Arizona,
and was approvedby
the Board in December,1975.The siteselected
is the area'smajor administra
tivecenterfor the Navajo Tribe and is situatedon the Indian reservation.

Presently,
there
isneedfor8,300new
housing
units
andrenoration
or replace
mentof14.000existingunits
inthisarea.

A concluding
setofstatisticsmay
behelpful
inputting
inproperperspectiv
the Board's emphasis on competitionand how it has aided peoplewho were
previously
excludedfrom accessto credit.
In 1971 therewere 40 minorityasso
ciations
with FSLIC insurance.
In 1976 the number had increasedto 73. Within
that same time span the totalassetsof such minorityassociations
grew from
$400millionto$958million.

We believe
thatthechartering
and branching
policies
oftheBoard described
above providea more practical
and sound basisfor encouragingservicingof

particular
marketareasthan the penalty
approachof S. 406.Where special
credit
problemsof the typewe have listed
are presented,
different,
specially
designed
policy
tools
areneeded.
Moreover,ifthe
Congressbelieves
thatexisting
tools are being under-utilized,
the oversightfunctioncan be applied as a
corrective.

Thereis one final
pointwe wouldliketo make thatconcerns
thescopeof
S. 406 and itsapplication
to various
typesof thrift
institutions.
ItshouldbenotedthatwhiletheBoardhastheauthority
toapprovedapplica
tionsforinsurance
of accounts,
holding
company acquisitions
and mergersof
Statecharteredassociations,
it does not have statutoryauthorityto ruleupon

theestablishment
of branches
and related
facilities
or the relocation
of offices
of FSLIC-insured State charteredsavings and loans.The resultis that the

proposed
legislation
wouldaffect
onlythebranching
and relocation
activities
of
Federal
savings
and loans.
Itwouldnotappeardesirable
or in thepublic
inter
esttoimposethestandards
of theproposed
legislation
onlyon Federal
savings
and loanswhichmake up lessthanonehalfofthetotal
numberofthrift
institu
tionsin the country.Also,the Board is concernedthat if the billis enacted
in itspresentform, it may cause some Federal savingsand loans to convert
to State charters.

In concluding
my remarks,
we wouldliketoreiterate
thattheBoardsupports
allof the objectives
which we have discussed
and which we believe
the bill
seeksto meet.

3According
to1976figures
there
were2020Federally
chartered
associations
asopposed

to 2838 State chartered associations.

251

However,
as we haveindicated,
itis notclear
to theBoardthatthebill
wouldachievethe objective
as impliedby itstitle.
The practical
effect
of the
billmight well be to discourageassociations
from making applications
in
neighborhoodswhere funds are badly needed becauseof the reexaminationthat

thiswouldbringaboutwith
respect
tothelending
policies
inservice
areasof
otheroffices.
Savingsand loanassociations
mightwellclosedown offices
that
they alreadyhave in certain
neighborhoods
if theyfeelthatthey would be
publicly
attacked
fornotmeetingthecredit
needsof theservice
areasof these
offices
when theyapplyfora branchin anotherlocation.
Thus,the bill
could

wellhavethepractical
impact
ofconcentrating
offices
ofsavings
andloanin
stitutionsto
a greater
degreein more affluent
neighborhoods.
Thus,we have
gravedoubtsabout
whetherthebill
cancarryoutitsintended
purpose,ifits
pur

posebeinvestmentin
"communities"
simpliciter.
Mostsavingsandloandeposits
arealreadylocated
inordrawn frommoreaffluent
areas.
Anyeffectofthebill
in
reinforcing
thistrendbecauseof a perceived
concern
thatoffices
in problem
neighborhoods
wouldbe vulnerable
tothechargethatthedeposits
in thoseof
fices
are notadequately
reinvested
in theservice
areawouldadd toan already
unfortunatesituation.

TheBank Boarddesires
tobeconstructivein
respondingto
theproblems
that
thebillattempts
to address.
Therecertainly
aresituations
wheresavingsand
loanassociations
may be discouraged
from investing
enoughfundsin a given
area or neighborhoodbecauseof fears,corrector not,about the soundness of

thatneighborhood.
Suchan attitude
can be a contributory
factorto neighbor
hood decline
although
we do notbelieve
thatthistypeof behavior
isthemajor
reason for such a condition.

The way to dealwiththisproblem,
however,
is notto imposea process
of
applicationreview
thatmighthave the practical
effect
of encouraging
money
to remain in the affluent
neighborhoods.
Instead,the best method would be

to devisea means by whichallfinancial
institutions,
regardless
of wherethey
are located,would be bettermotivatedto channel funds into older and less
affluentneighborhoodsin need of revitalization.
The Community Reinvest

ment Act wouldrelyforfundsonlyon offices
intheaffected
areasand onlyto

the extent of depositsgene tedin primarysavings
service
areasaroundthose

particular
offices.
The reality,
however,isthatthe volumeof fundsavailable
from these primary serviceareas are grosslyinadequateto financethe kind of

urbanrevitalization
thatthisbill
appearsto be arguing
for.The majorgrowth
in savingsaccounts
and credit
availability
are notin theseoffices.
The factis
thatwe needto tap the money thatis available
in offices
located
outside
of
theaffected
neighborhoods
or drawingfundsfromamuch widerareaifwe are

todoan adequate
jobofrevitalizing
urbanareas.
Weneed incentives
thatwill

encourage
allfinancial
institutions
regardlessof
location
of offices
and defini
tionof savingsservice
areas—tochannelmore fundsintothe target
areas.
Our comments have been designed
to suggestways to meet the objectives
ofthe bill.
A particular
stepthe Board is prepared
to takeisin thearea of

unfair
anddiscriminatory
housingpracticesmaking
useofthemechanism
sug

gestedby S. 406.We have procedures
which uncoverviolations
of the fair
housinglaws and we require
theircorrection.
Furthermore,
in the courseof
rulingon variousapplications
for depository
facilities,
we require
informa
tionwhichrevealspastperformance
andfutureintent
toservecommunity
needs.
We are proposingtoday
thatin thecourseof our evaluation
of futureappli
cations
we shallweighthe priorperformance
of an institution
in thearea of
fairhousingas revealed
to us in our examination
reports.
S.406 as presently
drafted,
however,needsclarification
as to itsobjectives
and carefulconsideration
of the effectiveness
of themechanism setforthin the

bill
tomeetthose
objectives,
andtheprecise
linkage,
ifany,between
"savings
areas,"
as defined,
and “communities."
In itspresent
form, itprovides
what is,

inourview,
a cumbersome,
vaguely
defined
policy
tool
forahostofdistinct
potential
"credit
need”problems.
We areprepared
to offer
whatever
assist
ancewe can,in addition
to thistestimony,
in clarifying
the bill's
legislative

objectives
and in commenting
uponappropriate,
practical
and administrable
policytoolsto reach those objectives.

I wouldbe pleased
toanswerany questions
you may have.
Thankyou.

252

NINCIPAL APPLICANT'S
NAME,CITY,STATE
fudorel
Momo Loon Bond Board
Office
ofIndustry
Development

CHECKLISTOF SU?PORTINGDOCUMENTS
FOR PERMISSION TO ORGANIZE

INSTRUCTIONS:
Whenrequiredforumcntationisassembledinaccordancewithinstructions,placein
"1" markinCol.a.
Illorinyresponanyoftherequireddocumentationisomitted,placeon
" T" markinCol.
Bandmakeexplanatoryconuocats
below.Column
Cinreservedforusebythe
Board'sSupervisoryAgent.
Positionthisformontopofalldocumcats,which
supportthis
shiret.

CHECKAPPROPRIATE
DONOT

COLUMN ANC
COMMENT AS REQUIRED
REQUIRED ITEMS

REQUIRED

DOCUMENTA
TION
ATTACHED

INCOMPLETE
OR NOT
SUBMITTED

(COMMENT)

USE

THIS COLUMN

FOR

ACENT'S
USE

(A)

Application
Form,FI!LBB133
Echibit
I.
A. Maps.

B.Proposed
Location.

C.ProposedSavingsServicediea
(NarrativcDetail).
1. Population.

2.Residentincomelevels,etc.
3.Savingspotcatialofpopulation.

4.Existingofproposedmajoreconomicboseofcommunity.
D.LocalSavings.
1.Savingsdepositsofbackoffices,etc.
E..
Localllore
Financing.
1.Strengthofmortgagedemand.
[xhibit
II.
A. ProposedOperations.
1. Orlice
location.

2.Capital,subsidiesandestimatedgrowth.
3.Directorate,managementandotherpersonnel.

4.lodependeatground-floorquartersandfullime.
5.Estimatedvoiunieofbusinessforfirstyear.
6.Pledgeshareaccounts.
7.Lendingpolicies.
8.Divideodcates.
B.VoducInjory
(NarrativeStatement).
Exhibitlll.

A.PossibleVaduelajurytoproperlyConductedExistingLocalThriftand
IlomeFinancinglostitutioos.
Exhibit
IV.

A.CharacterandResponsibilityofApplicants.
1. Biographical
sketch.
2. Afiliations
withother
financial
institutions.
3. Alfiliationswith
related
businesNCS.

4.Finauriolresponsibility.
Exhibri
V.

A. Aditional
l'ertinent
Information.

Exhiblo
VI.

A.Allidavit.

TILBBForm956
Jine1971

-49

253

Appendix B
SUIGURYOF DOCUMENT:

oi Economic Data:

A Guide for Savings andSources

Loan Applicants
Thissummaryprovidesan overviewof the detaileddocumentation
of home
lending
and thriftneedsin localserviceareas the Bank boardexpectscharter

applicants
tosubmit
insupport
oftheir
application.
Thisguide
is designed
tohelpapplicants
finddatasources
andanalyze
theassembled
datausedas
documentation.

When a groupappliesfor permissionto organizea new federal
savingsand loan association,
or for insuranceof accounts
on an association
not yet in operation,
it must show a neces
Exhibit
sityin thecomnunity
for theproposed
association.

I of the Outlineof Information
lists the data which the
group must submit to enable the Federai Home Loan Bank Board
to evaluate this necessity. This Guide is intended to assist

applicant
groups
in locating
andpresenting
therequired
information. (This quotation
is takenfrom the introduction

to Sourcesof EconomicData:...)
A. Mads and Delineation of Service Area.

A(1) Delineation
of the SavinzsServiceArea
"The savingsserviceareaof a savingsand loan association
is
that area fronwhichthe pronosedinstitucion
exdecisto draw
themajorityof cire
savingscustomers.To delineate this area,

onemustlookat factors
whichinfluence
thecustomer's
decision
to save at a particular
association...
1.

The accessibility
of the varioussavingsand loan associations

to thecustomer's
home,shopping
area,andjob...
2.

The accessibility
and attractiveness
of the shoppingcenter
or concercialarca in or aroundwhich the savingsand loan
association
is located...
For the actual definition of the trade area, it is necessary

to usea nucberof broadindicators
of thesupplyanddewand

for savingsactivity.The supplyside includesall of the
existingor proposedinstitutions
offeringthe same or
substitutable
savingsservicesin ar.area. On the demand
side it is necessaryto use a numberof indicatorsof the
generallevelof economicactivity,such as totalretailsales,

-50

88-032 0 - 77 - 17

254

Appendix
B
savings
in tinedeposits,
and employent.Sincepeopleoften
save in a location convenient to their homes as well as where

theyshop or work,anotherusefulindicatorof demandis the.
numberof familieslivingin an arra.
Thus thesize of the savingsservicearea will vary with popu

lationdensity,
thepresence
of retailand employment
activity,
the transportation
system,and the size and locationof
competingfinancialinstitutions...
(Enphasisis author's.)

A(2) Preparation
ofhansof theService
Areaand thesurrounding
Communities
Maps are a veryimportantpart of the application.These 22205 should
sho: not only the servicearea of the proposedassociation,
but
shouldalso sho: the relationof the service.rea to a larger area...
(Euphasisis author's.)

In manyinstances,
especially
in largerurbanized
areasor susa's
boundaries
of the differentcensustractsare quite importa.i.

an•S!!S.A,
the service area of a savings and loan association will

norinally
consistofan 2391omeration
oi severalcensustracts. It

is quiteimportant
fortheevaluator
of an application
tokno
exactlywhere the boundaries
of thesetracislie in relationto the
siteof the proposedinstitution;...
(Enphasisis author's.)
B.

Proposed location.

C.. ProposedSavingsServiceArea.
C(1) Population
Trendsin the SavingsServiceArea,Citi, County and SNSA.
Thissectionshouldshowthe white, non-white,and Spanish-sumame

population
of theservicearea,
city,county
andSMS....Also
include
the ratioof customersto existingsavingsand loan association

offices
(including
branch
offices)
in thesavings
service
area.
(Fmphasisis author's.)
C(2) ResidentIncomelevels,MedianFamily and Per HouseholdIncome,
Iype of llousing
Occupancy,and FamilySize.
C(3) Delapidated,
Deteriorated,
and Abandoned
Housing.
A tableshouldbe preparedshovingthe totalnumberof housingunits
in the servicearea with all plumbingfacilitiesor lackingall

plumbing
f.cilities
for thetotalandtheminority
grouppopulacions.
(Emphasisis author's.)
C(2)
(b) RacialSegregation

Toshowthe
extentofracial
segregation
in theneighborhoods
ofthe
savings
serviceprvi,
dovelou
o tableshoving
racialmake-upby
census tract... (Iaphasis is oullior's.)

-51

255

Appendix B
C(2)(c)

blousing
Sponsors

( Thisparagraph
is focused
on sponsors
of low-andmoderate
incore
housing
andsponsors
of urbanrenewal
projects.)
C(3)

SavingsPotentialof the ServiceArea.
All of the items mentioned in Section C will have a tearing on the

currentor futuresavingspotentialof the savings servicearea...
(Emphasisis author's.)
Demonstrating
that there is, in fact,untappedsavingspotential
in the servicearea is one of themost crucialpiecesof evidence
that the applicationCust show. (Emphasisisauthor's.)
C(4)

Economic Base of Community.

Becausethe economicwell-beingof the entire community,and therefore

itssavings
potential,
willbe influenced
by changes
in thesources
of employment,
income,
ar.d
output,
analysis
of thesetrendsis an
importantpart
ofthe application...
D.

Local Savings.
D(2)

Savings Capital in All Financial Institutions in the Service Arca.

Local HoneFinance.

Generally,
a goodargument
canbemade thatloancustomerswill
be willin?
to travel farther than savings customers. A largerarea should,therefore,
be analyzedwhen discussing
the potentiallendingarea.

Localnortgage
carkets,
likesavings
markets,
are notisolated
fromnatiur.al
ones.

A declinein housingstartsnight be the resultof high interest
rates for home loansor of a declinein the local economy. For this reason

it is important
to mention
thetrends
outside
of thelocalarea...
An informalsurveyof locallendinginstitutions
is probab.ly
the bestway
to find out about

the irterestrates,

terms and loan-to-valuc

prevalentin the loan servicearea. (Emphasis
is author's.)

-52

racics

256

Appendix
C
m

Avondtise..

FEDERAL HOME LOAN BANK BOARD

APPLICATIONFOR PERMISSION TO ORGANIZE
A FEDERAL SAVINGS AND LOAN ASSOCIATION
Tothe

Federal Home

Loan Bank Board

Washington,
District
ofColumbia
THE UNDERSIGNED,citizens
oftheUnited
States
andofthecommunity

to beserved,
desirous
offormingalocalmutualthriftinstitutioninwhichp
may investtheirfunds,and inorderto providefor the financingofhomes, being

personsof goodcharacter
and responsiblity,
and believing
in thenecessityfor

suchaninstitutioninthecommunitytobeservedandinthe
reasonableprobability
ofitsusefulness
andsuccess
withoutunduc
injurytoproperlyconductedexisting
localtiri
t andhome-financinginstitutions,
DO RESPECTFULLY

MAKE

APPLICATION

to the Federal Home Loan

BankBoardforpermission
toorganize,
under
suchtermsandconditionsasthe
FederalHome Loan Bank Boardmayprescribe,
a Federal
Savings
andLoanAs
sociationto
be locatedat or inthe vicinityof.
of

in the .

-Stateof

Countyof
AND DO HEREBY
amount ofnot lessthan $

AGREE

TO RAISE INITIAL SAVINGS CAPITAL in the
from
initial
subscribers,or such

other
amount
fromsuchothernumberofsubscribers
asmaybedesignatedbythe
Federal
HomeLoanBankBoard,
undersuchconditionsasitmayprcscribe,
AND TO PLEDGE SHARE ACCOUNTS as guaranty
to the Association
against
operating
deficits
andlossesin excessof itsreserves
intheamountof
orsuchotheramountas
may bedesignatedbythe
Federal
Home
LoanBankBoard,undersuchconditions
asitmayprescribe,

AND

HEREBY

APPOINT

torepresentthe undersignedbeforetheFederal Home Loan

BankSoard,andto receive
allnotices,
correspondence,
anddocuments
relating
tothisapplication,
AND DO JOINTLY AND SEVERALLY

REPRESENT

AND WARRANTtothe

FederalHome Loan Bank Board,forthepurposeof inducing
theFederal
Home

LoanBankBoardtopermitthe
organizationofsaid
Federal
Savingsand
LoanAs
sociation
upontheterms and conditions
setforth
intheapplicationoruponsuch
otherterms and conditions
as may be requiredby the Federal Home Loan Bank

Board(andwiththeintentionthat
theFederal
Home LoanBankBoardshouldrely
uponthefollowing),
that:
THE UNDERSIGNED WILL NOT REPRESENT THEMSELVES as author

izedtoorganizesuchassociationuntilthisapplicationis
approvedand,
uponnoti
fication
that
theapplication
hasbeenapproved,
theywillproceedonlyinaccord
ancewith
theprovisions
oftheHome Owners'LoanActof1933,asamended,
Titic
IV oftheNational
Housing
Act,Federal
Home LoanBankAct,andwiththe
rules
andregulations
madethereundor;
TILEUNDERSIGNED ARE NOT ACTINGinthis
applicationas
representa
tiveof or on behalf
of anyperson,
partncrship,
association,
orcorporation
un
disclosedto theFederal Home Loan Bank Board;

NO CHARGE OR EXPENSE incurred
inconnectionwiththeorganization
oftheFederal
Savings
andLoanAssociationshall
bechargedtothe
Association;
THIEINTTIALSIIARECAPITAL to beraisedpursuanttorequirementof
the Federal Home Loan Bank Board willnotwiththeknowledge,bclictorconcur
renceoftheundersirncd
be obtainedbyborrowingonthesccurityofaccountsinthe

association;
NOW, THEREFORE:

-53

257

STATE OF.
COUNTY

•THE UNDERSIGNED,BEING DULY SWORN, DEPOSE AND SAY:
THAT WE ARE THE APPLICANTSinthis
Applicationfor
Permissionto
i
Organize
a Federalsavings
andloanassociation
in..
THAT

ALL OF THE STATEMENTS

AND REPRESENTATIONS

made in

thisApplicationfor
Permissionto
Organizo,
signedbyeachaffiant,
anddatedthe
19
and all evidence and data sub
.
day of
mitted
in support
thereofare
consistent
withthefacts
tothebestofour
informa
tionandbelief.

Typed Name.

Signature

Residence

Business

Address

Typed Name

Signature

Residence

Business Address

Typed Name

Signature

Residence

Business

TypedName

Signature

Residence

Business Address,

TypedName

Signature

Residence

BusinessAddress

Address

TypedName

Signature

Residence

Business Address

TypedName.

Signature.

Residence

Business Address

pypedName

Signature

Residence

Business Address,

Typed Name

Signaiure.

Residence

Business Address
etc.

(JURATPRESCRIBED
BY LAW OF STATE)

-54

258

Appendix
D
APPLICANT'S NAME, CITY STATE

FEDERAL MOME LOAN OANK SOARO
OFFICE OF INDUSTRY DEVELOPMENT

CHECKLIST OF SUPPORTING DOCUMENTS
FOR BRANCH OFFICE APPLICATION

DOCKET

KO.

INSTRUCTIONS:
Whenrequireddocumentationisassembled
inaccordancewithinstructions,place
na" X" markinCol.A.IIforany
reasonanyoftherequireddocumentationisomulted,
placean
" X" markinCol.D andmake
explanatorycommentsbelow.
CulumaC is
reservedforusebythe
Board'sSupervisory
Agent.
Positionthisformontopofalldocumcols,
whichsupportthissheel.
CHECK APPROPRIATE
COLUMN ANO
COMIENT
AS REQUIRED
REQUIRED

TION

ApplicationForra,
FUI.BO700
Exhibit
I.

A.Maps.
B.Proposed
Locatioc.
C. Proposed
Savings
Service
Aren
(Narrative
Detail).
1. Population.
2. Ilcsident
incomelevels,etc.

3.Savings
potential
ofpopulation.
1.Eristingofproposedmejoreconomicbase
ofcommunity.
D. LocalSavings.

1.Sevingsdepositsofback
ollices,etc.
2.Applicant'spresentsavingsvolume
isproposedservice
area.

E. LocalHome Financing.

1.Strengtholmortgagedemand.
2.Applicat'spresentmortgageloonvolumeinproposed
service aree.

ExhibitII.

A. Proposed
Brasch
Operations.
1.Descriprionofplans
for
ollicequarters.
2. Indepeodeat
ground-floor
and fullime.
3. Periodoftimeaccessory
foropening.
4. Home and breach oflicedata.

Exhibit
Ul.

A. Vaduelajary(Narrative
Sunceneot).

A. Additional
Pertinent
Information.

NOT

ITEMS
ACQUIRLO
DOCUMENTA.

ExhibitIV.

TH'SCC

INCOMPLETE
OR NOT
SUOMITTKO

con
AGENT'S

ATTACHCO

ICOMMENTI

USE

(A)

(B)

(C)

259

Appendix
E

FEDEPAL HOME LOAN BANK BOARD
APPLICANT INSTRUCTIONSFOR A BRANCH
OFFICE

In accordance
withtherequirements
in Section
545.14
of theRulesand
Regulations
fortheFederal
Savings
andLoanSystem,
eachupplication
by
a Federal associationfor permissionto establish a branch office shall
be supported
by information
to show: (1) there is a necessity for the

proposed
branchofficein the corpunity
to be servedby it (ExhibitI);
(2) thereis a reasonable
probability
of usefulness
and successof the
proposed
branch
(Exhibit
II);(3) the proposed
branchofficecan be estab
lished withoutur.due
injuryto properly
conducted
existing
localthrift
and hone-financing
institutions
(ExhibitIII);and(4) any additional

information
considered
pertinent
bytheapplicant
andnotspecifically
applicable
to any otherrequirement
(Exhibit
IV).
No application
shallbe considered
if the applicant
doesnot meetthe
eligibility
requirements
in FederalRegulation
545.14(b).

To expedite
theprocessing
ofan application
thesupporting
information
shouldinclude,
but not necessarily
be limitedto, the mattersoutlined
below,withparticular
emphasis
on trenddataconcerning
the proposed
branch service erea. LatestBureauof Censusdataand special
ecor.cmic
surveys,
badeprimarily
for theapplicant,
localindustries,
governmental
subdivisions
or agencies,
or educational
institutions
are extremely
useful.
A listof suggested
sourcesof deteis available
fromyourSupervisory
Agent.

Sübaitlicomplete
setsof information
to the Supervisory
Agentat your
Federal

Hone Loan Bank.

1. Application
Form,FHLBB-700.
2.

Checklist
of supportiog
documents
Form!HLEB-754

to be

used as a covering sheet for exhibit material which will
documents
aid in assemblingdocumentation. Supporting
should be identifiedin the bottom right hand corner of

cachpageaccording
to the paragraph
designations
usedin
these instructions.

EXHIBIT

NECESSITY FOR PROPOSED
BRANCH OFFICE

MAPS:
1.

General Specifications: Thisapplication
custbe accompanied
by two caps: (1) a statemap uponwhichis shownthe proposed

location
andtheproposed
service
area
(PSA);
and(2) a city,
county or local area cap upon which is shown the pruposed

location,
the PSA,applicents'
and otherexisting
or prounsed
thrirt institutionoffices, and significantcommercial facili
ties in or near the FSA.
A third, optional map of the city,
county or local arca ray be submitted showing the proposed

location,
the PSA and thelocation
of commercial
banks.

260

APPLICANT SPACH OFFICE INSTRUCTIONS
PAGE 2

SEPTEMBER,1972

Wacreavailable,
all mapssubmitted
mustbe original,
fullcolor
road type raps.

Homap(stato,
city,
county
orlocalarea)

shallbe largerthan36 inchesby 42 inches. In addition, city,
county or local area maps should have a scale of between one inch
to the mile and three

inches to the mile and such scale should

appearon the faceof the map.
The onlynotetions
(in addition
to whatis already
printedthereon)
thatare to appearon mapssubmitted
in support
of thisapplication
are the following:

2. Notations:

Proposed
Service
Area
(PSA)- should
beoutlined
by a
beavy bleck line.
Proposed Location

should

be marked with a black X and

vitha blackcirclearoundit.
(Black)
Applicent'sOfices
in or near the FSA should be marked
by black numbers with black circles around them.

OOO

(Black)

Other Institutions Any otherexisting
or proposed
thrift
.

institutions
in or nearthe ?SA shouldbe markedby red
numberswithred triarigles
aroundthem.

AAA

(Red)

CommercialFacilities

Sienificantcommercial facilities

in or nearthe PSA shouldbe markedby greennumbers
with
green squares

around them.

(Green)

Wherea thirdor optional
cep is subritted,
the proposed
location and the PSA should be marked on the map as set
forth above and the commercial banks should be marked by

blacknumberswithblackdiamonds
aroundthed.
3

(Black)

A key,listingthe namesof eachitemidentified
by one of
the abovesymbolis,
shouldbe provided
as an attachmeni
to
each sp

Proposed Location: Describe in narrative form the geographical

location
of the proposed
branchoffice.Includein the description
the character
or landusesin the immediate
vicinity
such as: strip
development;
shoppils
center(neighborhood
or regional number or
stores,principal
tenants,
squarefootageor retailspace,ureaof

draw,
retail
sales,
etc.);
office
buildings,
residential
neighborhood,
etc. If the prorosed
branchofficeis to be locatedin a shoppine

centernot yetin operation,
siverul detailsregarding
the status
-57

261

APPLICANTBRANCH OFFICE INSTRUCTIONS
PAGE 3

SEPTEMBER,
1972

of development,
aumberof storesand principal
tenants,
squarefootage
of retailspace,proposed
openingdateandotherinformation
you
believe may be pertinent.

Proposed
SavingsServiceArea: Describe in detail the general
comunitycharacteristics
of the proposed
savingsservicearea,and
showspecific
statistics
to supportyourapplication.
All phases of
community informationare to be set forth on a current basis and on
vhatyou believe
to be meaningful
trends. Additionaldata covering &

broederareamay alsobe quitehelpful.Sources

of the various

data

should be clearly stated.

Remember,
suchdatashould
relate
to thesaviogs
service
areaif possible
and otherdataforlargeror difierent
areasshouldbe clearlyidentified
and expleined.
· 1.
2.

Population
trends.
Resident
inconclevels,typeof housingoccupancy;
2.8.medianfamilyincome,per household
incomeand
predominant
rangeof income.
Savingspotential
of population
and/orevidence
of way
untapped savings potential.

1
4.

Existing
or proposed
majorcconomic
baseof community.

Local Savings:

1. Savings-type
depositdataor Pinancial
institutions
otherthen
Federally insured savings andloan associationsin the area. For

banksuse mostrecently
published
"CallReport".
2.

Volume
(numberand amount)of applicant's
presentsavingsaccounts
in the proposed
serviceareaincluding
percentto totalsavings.

Local Home Financing:
1.

Characterizethe strength or mortgage demand in the area using such
relevant economic data as:

(a) Volume
oftract
housing
andother
newsingle-Semily
dwellings
completed
and sold.

(0) Volume
ofnewmultiple
housing
units
completed
and
rented.

Volume
(number
andamourt)
ofapplicant's
present
cortgages
in the
proposed
serviceareaincluding
percent
to totalnort686e3.

-58

262

APPENDIX E.

Noticeof Filingof BranchOfficeApplication:

Notice
is hereby
giventhat,pursuant
to theprovisions
of $545.14
of
the rulesand regulations
for the FederalSavingsand Loan System,the
FederalSavingsand LoanAssociation, (city)
(st::e)
has filecan application
with the FederalHome Loan
BankBoardfor permission
to establish
a branchofficeat, or in the
immediate
vicinityof
(street address)
(city)
(state)
The application
hasbeen deliveredto the officeof
1

theSupervisory
Agentof thesaidBank,
located
at theFederal
Home
Loan Bank of

(city)

(street_address)

(city

Anyperson
may filecommunications,
including
briefs,
infavororin
protest
of saidapplication
at theaforesaid
office
of theSupervisory
Agentwithin
10 days(or within
30 daysif advice
is filedwithin
10
daysstatingthatmore timeis neededto furnishadditional
information)
afterthe dateof this publication.Four copies of any comunications
should be filed. The application
and all communications
in favoror

in protest
thereof
areavailable
forinspection
at theaforesaid
office
of the Supervisory
Agent.
FederalSavings
and Loan Association

Noticeof FilingApplication
for Change

Office Location

Notice
ishereby
given
that,
pursuant
totheprovisions
of8545.16
ofthe
Rulesand Regulations
for the FederalSavingsand Loan System,the
FederalSavingsand Loan Association, (city
(state)
has filedan application
for permission
to changethe
locationof its officewhichis now locatedat
(street address)
to or in the innediate vicinity of
(city)
(state)
>

(street address)

(city)

(state)

The application
has beendelivered
to the Officeof the Supervisory
Agent
of the said Board,locatedat the FederalHomeLoan Bank of (city)
Any personmay file communications,
(city)
(streetaddress)

including
briefs,
in favororin protest
of saidapplication
at theafore
saidoffice
of theSupervisory
Agentwithin
10 days( or within
30 days
if filedwithinthe first10 daysstatingthatmore time is neededto

Four
furnish
additionalinformation)
afterthedateof thispublication.

copiesof any communications
shouldbe filed. The application and all

communications
in favoror in protest
thereof
areavailable
forinspection
by anyperson
at theaforesaid
Office
of theSupervisory
Agent,
Federal Savings and
Loan Association

-59

263

APPENDIXG

Notice to Change a Designation of Home Office and Branch Office

(state)
FederalSavingsand Loan (city)
has filedan application
with the FederalHome Loan Bank Boardto
redesignate
its existinghome officeas a branchofficeand to redesignate
a new office as its home office. In orderto obtainsuch a new office,
it has alsofiledwithsaid Boardan application
for permission
to establish

a branch
office
which,
if approved,
willbe redesignated
as itshomeoffice.
The following
noticeis herebygivenpursuantto applicable
regulations:
(hereinsertnoticerequiredby 8545.14of this chapter)

-60

264

Mr. MARSTON.LikeMr. Embry'sstatement,
I'm surethatthere

willbenounanimousagreementonwhatwehavesaid.
Iwould
like

to pointout,Mr. Chairman,
thatthe boardhas demonstrated
its

interest
inproviding
soundmortgage
borrowing
opportunities
toa
wide range of consumers.

We haveour alternative
mortgage
instrument
research
study
goingon.We havecompleted
ourexaminer
training
program
on
nondiscrimination.
You'refamiliar
withthe work thattheboard

hasdonealongwithothers
on NHS programs
withitsdireot
and
indirect
benefits.
Therewasinthepaperthismorning
astatemento
therecent
accord
thatwe had withconstructive
civil
rights
groups.

Thereisalso
theexpeditious
handling
on thepartof
theboardto
allowsome savingsand
loanassociationsin
New Jerseyto buy a

bondissue,
andtheproceedsofthatissuewillbeusedi
areas
des

ignatedbythe
State
legislature
asunderserviced
areas.
Mr. Roessner
isveryfamiliar
withthatand I understand
he'sto be oneof your

witnessescoming
along.

Now,Mr.Chairman,
I do notwanttoimply
thatwe arecom

placent.
Further,
I understand
thatthereare some changesand some

amendmentscontemplated
tothis
bill
so Ihopethatour
testimony
willbe helpful
totheanalysis
of thisbill
and any forthcomin

amendments.
As I go intothe
commentsI hopethatoneoftheques

tions
thatthecommittee
andthestaff
will
keepinmindis:
Is thisin the bestinterestof the consumer-borrowersof StateslikeTexas
and California,
and is it in the bestinterest
of consumer-savers
in Statessuch
as Massachusetts,
Michigan,Florida,and Illinois?

Specifically,
there
aremanyambiguities
inthebill
whichwe be
lieve
shouldbe
cleared
up.Forexample,
whatcreditneeds
doesthe
billaddress?
Thoseof minority
groups,
allowing
themtoobtain
credit
freefromdiscrimination
practices?
Low andmoderateincom
groups,
middleincomegroups,
or perhaps
thecredit
needs
in
blightedareasor
deterioratingareas,orperhapsconsume
short
areas
orperhaps
thecredit
needsof
thehousingconstruc
industry
andthepurchasers
ofnewhomes?
Thus,thebill,
as stated
now,isunclear
as to what credit
needs

you're
tryingtohave
served,
atwhoseexpense;
whether
youintend
toomit60percentof
theNation'ssavingsandloanassocia
from
thebill;
and whatyouintend
forthesome2,400
savings
andloan
associationsthroughoutthe
United
Statesthathaveonlyonebr
or no branches.
Mr. Embry referred
tothis.

Second:
The written
testimony
covers
theboardapproval
pro

cedures.
I justwantto reiteratehere
thatwe do lookatthecredit

needs
of thecommunities.
We disagree
withthestatement
about
semiexclusive
franchises.
We believe
thatthereare benefits.
The

S.&&L.sthisyear,based
on ourflowoffundsprojections,ar
porting60
percent
ofthehomemortgage
market
inwhatweregard
as thebesthousedNationin the world.

Isthecharter
free?
I don't
thinkit's
free.
The savings
andloan
associations
arerestricted
as to thetypesof investments
theycan

make,
andtheimpact
ofFederal
income
taxes
ishigher
onsavings
andJoanassociations
thantheir
majorcompetitors.

265

Finally:
Is the chartersemiexclusive?
We don'tbelieve
so.We

believe
thattheboard's
record
stands
as procompetitive.
Atleast
this
iswhatmany of thesavings
and loanassociations
tell
us.Why

areyou
allowingallthesenew
branches?
Weareprocompetitive
in
termsofnewsavings
andloanassociation
charters
and branches.
We

arealsoactiveandbeginningtobeeffectiveinattractingn
sources

ofcapitaltothehousingmarket
frominvestors
whohavenotbeen

interested
heretofore
ininvesting
in mortgage
instruments.
Turningbriefly
toeconomics,I
thinkthere's
somemisunderstand

ing,
Mr.Chairman,
on wheresavings
comefrom.
Who arethesav
ers?Wheredo theylive?
Savers
aregenerally
higher
income,
not
richbuthigherincomepeople
and theyareolderpeople,
55 years

andolder
generally.
Borrowers,
on theother
hand,aremiddle
to
lowincomepeople
and tendto bemuch youngeroursonsand
daughters.

The majorityofthemarketareas
arerelativelyhomogenous
asto

demographics.
By that,Imean
theyarestratified
astoincome
in
general
andastoage.
Therefore,
Ithinkwe haveherea built-in
mismatch
astothesuppliers
ofcapitaland
thedemandofcapital
in mostneighborhoods.
Thisimplies
thatsubstantial
community
investmentisoftennot
feasibleand
often
may beill-advised.
Mr.Chairman,thebill
assumesthat
theprimary
service
areanec
essarily
coincides
withsomething
called
thecommunityand as the

songsaid,
itjust
ain't
necessarily
so.Convenience
toworkisof in
creasingimportance
totheconsumer
indepository
selection.
As tothe50percent
figure,
I don't
knowwhatrationale
wentbe
hindthisselection.
It's
aniceround
number,but
whatkindof geo
metric
design
will
beusedtoencompass
50 percent
ofdepositswill
often
differ
fromthatusedtoencompass
thecommunity.

Finally,
on economics,you
havethemultibranch
problem
andI
havejustmentionedthathalfthesavingsand
loanshaveone
branch
ornone.Therearemany associations
thathave20 or more.It will

makebranching
moredifficult.
The consumer
tells
usby hisorher
action
thathe orseelikes
branches,
and thereyou readconvenience
of location.

Finally,
under
thisbill,
how do newcommunities--how
do build
ingcommunities
satisfy
their
credit
needs?
So,inconclusion;
first:
Who hasthepriority?
The borrower-con

sumerorthesaver-consumer?
Remember,
thatone
community'sgain
isanother
community'sloss.
Second:
I understand—
I didn't
heara statement
norhaveI read
it,
butI understand
a witness
yesterday
indicated
how competition
worksin thelongrun,and he spokeof a testof how wellcredit
needsaremet bv allinstitutions.
In contrast,
thisbill
appears
to
turnto creditallocation.

Third:
And I think
oneof my personal
serious
concerns
isthat

itmighthavean effect
justopposite
tothatintended
and theintent
isgood,Mr. Chairman.
I havealways
lived
fairly
close
to thecity
centers
and do so herein Washington,
D.C. It may leadto the
closing
of offices
in theinner-city
areas.
It may leadsavings
and

loanassociations
nottoopenoffices
ininnercity
areas,
and itmay

leadtotheconcentration
of brancheseven more inthe more affluent
areasand suburbs.

266

Therefore,
weurgeyoutorely
on ortoreleasethemarket
forces,
tofocus
onallinstitutions
thatcan
anddo supply
mortgage
credit
and,mostimportantly,
to address
thespecial
problemsinmajor

blighted
anddeteriorating
areas
bylooking
tobroadly
basedGov
ernment-private
programsratherthanona few branches
of only
50 percent
of thesavings
and loanassociations.
Mr. Chairman,
thatconcludes
my summary and I'dbe happy to

trytoanswer
anyquestions
foryou.
I haveseveral
membersofthe

staff
withme who havegreat
expertise.
Senator
SARBANES.
When youtalkabouta mismatch,
how areyou

definingthe
neighborhood
yourefer
to?
Mr. MARStox.The neighborhood
isnota preciseterm
, Mr. Chair

man.If youwanttouse,
say,thenorthwest
section
asa neighbor
hoodorcapitol
hillasa
neighborhood
- Capital
Hillisprobably
a
littlesmalleras
a neighborhood.
It'snot
a precise
definition.I
guess
northwest
wouldbeasection
oftheDistrictand
Capitol
Hillwould
bejust
aneighborhood.
What I'msayingisthatin thenorthwest
I think,
as thestudies

haveshown,
theyhaveasurplus
offunds.

Senator
SARBANES.
Well,
youcontend
themarket
forces
wouldin
effectmove
inmoneyinan adequate
way,intotheservice
areas
of
theseinstitutions?

Mr.MARSTON.
Well,
I thinkyouhavetodefine
whatadequate
is
andyouhavetolook
atyouralternatives.
I thinkthemarket
forces

havebeenmoving
moneyintoan
area
suchasCapitol
Hill,which

I'm particularlyinterestedin,
ina way that
itdidnotmove
before.
Ithinkit
camefrom
anumberofsources.
I thinkpartof
itwasthe
proddingofthe
Congress.
Partofitwasthelearning
experience
thesavingsand
loanas
sociations
havehadherefromtheir
NHS experience.
Notonlydid
theyhaveaservicecorporation
thatmadeloans,butalso
thepeople
who ownedtheservice
corporation,
thesavings
and loans,
have
learned
how to make goodsoundloans
in theseareas.

The other
thingwasbeyond
thecontrol
ofthesavings
andloan

andthatwastherelaxingoftheusury
limit.
In1974,theusuryli
intheDistrictwas
8 percent.
In Virginia
andMarylandit
was10
percent.
Why lendmoneyintheDistrict?
Then,in 1974,
theyraised

therate
to10 percent
andthat'swhen
I gotmy loan,
10percent
money.But ifithadn't
beenforthat,
I couldn't
have gotten
any.

SoI guessmyanswer
isgenerally
yes.

Senator
SARBANES.Howdo
youexplain
theBaltimore
experienc
under yourrationale?

Mr. MARSTOX.Well,you probably
know thatwe thinkthatwe

holdout
Baltimore
asbeingoneofthebest
NHS areasinthe
coun

try.I'mnotawareof anythat's
doneany better.
Therehave been

somevery,verygood
ones.
We havetakenthreebus
loads
ofpeople
up there,includingpeople
fromtheHill
andotheragencies,
just
to
lookatit.
I thinkthereyouhad a greatcombinationofcity
govern.

mentwho wasconcerned.
Yourmayorupthereand
Bob Embry-1
think
heisa great
appointment.
He disagrees
withuson a lotof
things,but
heandthemayorandseveralothers
werethekey.
The
citywasinvolved.
They understand
theservices
have to be pro

267

vided.
They understand
theresponsibilities
and thenecessity
of
themunicipal
governmenttobepartoftheequation.
You hadsome
goodlenders
up there.
HowardScaggs,who
probablymanyof
you
know,Mr.Chairman,
anda numberofthe
lenderstook
a real
inter
estinthis.
Theydidn't
just
invest
themoneyoftheirsavers,
but
theygotinvolved
intheprocess.
Thethirdthing,in
Baltimore,was

that you

had an interested,
constructive
neighborhoodgroup.
When

wewereupthere,wewereintroduced
tothislady,
Matilda-perhaps
youhavemet her-sheheadsMatilda's
Marauders.
She and several

neighbors
go aroundbefore
trash
collection
day andif somebody
hasputtheirtrash
outonthesidewalktheygoup
andknockonthe
doorandsay,“
Trash
collection
istomorrow.
Putthis
inside.”That's
thekindofcommitment
fromtheneighbors
up there
thatI think
made thiswork. It was

combinationof three.

Senator
SARBANES.
Well,
thatallsounds
verynice,
butthefact
of thematter
isthattheinstitutions,
inordertogettheusurylimits

raisedin
Annapolis,whichtheycould
notdobecauseofthe
political
forces,
ineffect
said:
" Togetthis
we makea commitment
to put
money intothecityto have itavailable
forloansforhousing."

Matilda
andall
therestofitto
oneside,
that'sessentially
whatled
themtomakethedecision
andtheconsequence
of thatexperience
was thatitreally
was quitepositive
forthem.

Now,howareyougoing
toget
lending
institutions
tomakethat

kind of commitment
in communities
allacross
thecountry?
They

aredrawing
themoneyoutof there
and theyarenotputting
it
back in.

Mr.Marston.
Well,
theyaredrawing
itoutofthere
SenatorSARBANES.
Let me ask,if marketforces
are working

won't
theyputthemoneyclearlywhere
theycangetthegreatest

return ?

Mr.Marston.
Sure.
I think
theyshould.
Senator
SARBANES.
Don'ttheyhave
other
places
wheretheycould
putthemoneywhere
theywill
getan adequate
return?
We'renot
asking
themtolose
theirmoneyor
tolendit
outatno return,
but
wherethey
will
getan adequate
return.
Yetthepushwill
always
betogotothetopend
ofthespectrum
, will
itnot?
Mr.MARSTON. Ïes,sir.

SenatorSARBANES.
How do you getthem, then,to service
areas

fromwhichtheyaredrawingtheirmoney?
Theydo receive
advan
tages
by receiving
these
charters
andbeing
allowed
todo business;
don't
they?
I think
yourstatement
ineffectsays
theydo.
Mr.Marston.
Yes,they
getadvantages
andtheygive
advantages.
Senator
SARBANES.
How areyougoingto
getthemtorespondto
this
need?We'renotasking
themto goinandlose
money.
We're
asking
them_simply
to respond
toimportant
credit
needs
inthat

community.
Really,all
thelegislation
does
isrequire
themtoshow

whatthey
aredoinginthatareaintermsofseeking
these
various
regulatory
approvals.What'swrong
withthat?
Mr.Marston.
Well,partofitistheprocessthey
haveto go
through.
For example
intheState
of Illinois,
therearen't
many
branches.
Upuntil
3or4yearsagoit
wasanonbranching
State
for
savings
andloanassociations.
I havebeenintheStateofCalifornia

268

andinother
Statesaroundthecountrywheretherearemult
units.

So youjusthave
a blizzard
of paperwork
and asI understand
fromthis
administration,
that's
onethingtheywanttocutdown
on.I don't
think,
Mr. Chairman,
that
SenatorSARBANES.
Well,Mr. Lancesaidtheotherday when he

wasaskedthatquestion
about
zero-basedbudgeting.
He conceded
this
meantmorepaperwork,but
hesaidtheobjective
whichzero
basedbudgeting
was designed
toachieve
morethanoutweighed
the

additionalpaperwork.

Mr. MARSTON.
That's
a judgment.
Senator
SARBANES.
Thatmightbethecasehere;mightitnot?

Mr.MARSTON.
Yes,
sir.
Itcertainlycouldbe,but
I don'tthinkit'
abad thingto
havefinancial
institutions
going
forthebestyield.
ChairmanBurns'statement
and theexperience
of the commercial
banksisaboutlikethesavings
and loans.
They havebeenin a de

teriorating
capital
position.
Theirnetworthvis-a-vis
savings
and
assets
hasbeengoingdown.It's
notdangerous,
butit's
a problem
thatisofconcern.
It's
goingtobe interesting
to me toseetheCon

gress'
response
tohiscommentthatone ofthewayscommercial
banksincrease
their
equity
capital
versus
savings
wasoutof their
foreign
operations.
I thinkhisstatement
was itconstituted
about
halftheirearnings.

So going
forgoodyields
isbeneficial
because
savings
growth
is
basedonyourreserve
capabilities
andsavings
arewhatmortgage
loans are made of.

Now youaskspecifically
thenwhatabout
lending
inthese
areas.
thekindof areawhereI liveand Bob Embry lives,
thecityareas?
I thinktheapproach
tothatisto make thoseloansless
riskyand

that's
whatyouhavedoneinthatneighborhood
inBaltimore.
So,therefore,an
8-percentloan
ora9-percentloan
inoneplaceis
a gooddeal.
A 9-percent
loanwithanother
setof facts
isnota
good deal.

Theotherthing,
asI indicated,
underwriting
mortgageloans
SenatorSARBANES.Is that the distinction
that you think these

lendinginstitutionshavebeenmaking—
thatkindoffinedistinc
Mr.MARSTON. I thinkthat's
what they are

SenatorSARBANES.
How do you answer,
then,when thestudies

showinBaltimore
andother
places
thattheyhavesimply
redlined
outextended
neighborhoods,
many of whichareashealthy,
ifnot
morehealthy,
thansuburbanareas
inwhichtheycontinueto
loan.
They justmake a kindofa blanket
judgmentaboutthis.
Mr.MARSTON,Senator,
that's
theconventional
wisdom.

Senator
SARBANES.
Andit'sborneoutby
studies.
Mr. MARSTON.Which studies?

Senator
SARBANES.
Certainly
intheBaltimore
situation.
Mr.Marston.Ihave
notseenthestudy
andI'dbehappytotake
a lookatit.
I don't
deny,
however,
youwantto define
it—andI
thinkaccording
to theLibrary
of Congress
research
peoplethe
definitions
arenotverygoodthatweuseforredlining.
There's
a
difference
between
redlining
anddisinvestment.
I agree
withthem
onthat.
And youknow,really
I don'tthink
we're
debatingon
that.

269

Ithinkwhatwe'retryingtodo
istodeterminehowcan
wekeep
upthe progressthat
peoplearemaking—how
canwekeepitgoing
andkeepfinancialinstitutions
frommakingunsound
loans.
Senator
SARBANES.
No.Ithinkthequestion
you havetoansweris

howdoyougetaninstitutionthatdraws
itssavingsoutofanentire

metropolitanareato,in
turn,putthem
ininsomereasonable
way,

instead
of directingthem
all-let's
assumeforthemoment to the

outlyingareaswhere
thereturn
isslightlyhigher.
How do youad

dressthatproblem
?
Mr. MARSTON.My general
feeling
is,first,you'venot
addressed

this.
Youhavenotspelledoutthemechanismsinthebillan
Ithink
the

Senator
SARBANES.
Doyouthinkit'saproblemthatneedsaddre
ing,orisyourresponse
toitthatsomehowor other
themarket
will answer it?

Mr. Marston.
Well,
I don't
think
it'san
either/or
proposition.
I thinkit's
a problem
thatneeds
addressing
andI think
Senator
SARBANES.
Would youresolve
itby market
forces
only?

Mr. MARSTON.
Basically,
butnotonlyby market
forces,
asI
Senator
SARBANES.
If you're
goingto resolve
it basically
by

indicatedearlier.

marketforces,
why do we resrictthe
operation
of themarket
in
termsofwho cancomeintoitandin alltheotherrespects
which
givethose
who obtain
yourapprovals
an advantage?
Mr. MARSTON.Well,asI tried
toindicate,
Senator,
we havewhat

we believe
isa procompetitive
attitude.
Rememberthatallwe do
ischarter
andsupervise
theFederal
savings
andloanassociations
and we provide
insurance
formember State-chartered
institutions,
butthereareothers.
Therearecommercial
banks.
Therearecredit
unions.
There aremutualsavings
banksin about19 States.
There

arehockshops.
Therearemany,many sources
of credit.
Credit
doesnotflowjust
from savings
and loanassociations.
SenatorSARBANES.
SenatorSparkman.

Senator
SPARKMAN.
Mr.Chairman,
I'm goingtohaveto go to

anotherengagement.

I justwanttoaskthisquestion.
I don't
getit.
I'veread
a great
dealinyourstatement.
It's
a rather
longstatement.
We arecon
sideringS.406
introduced
by Chairman
Proxmire.
Do youfavor
or
oppose
thatlegislation
orisyour
attitudethat
it'snot
needed?
Mr. MARSTON.I favortheintentof
thebill,
butI thinkthereare

toomanyambiguitiesandquestionsin
itasitstands.
I donotfavor
itnow,and
wewouldbepleasedto
workwiththecommittee
asyou
knowthatwe haveinthepastto
trytoseeifthere's
something
thatcouldbevalidand
worthwhile
outofit.

Senator
SPARKMAN.You thinkthere's
goodin thebill
to the
extent
thatitcanbeamended?
Or wouldyourather
just
throwit
asideand make a new start?

Mr.MARSTON.Well,there
isonething
intherethat
we canuse.
As partof ourbranch
procedures
as we outline
in thetestimony,
welookattheneed,
theprobability
of usefulness
andsuccess,
and
generally
atwhether
or notitwill
do undueinjury
to properly
con

ducted
thriftinstitutions.
Thosearethethree
regulatory
require

88-032 0.77

270

mentsforbranching.
Thereisonethatwe coulduseand thatis—we

oftenwill
notallow
a branch
forsupervisory
reasons,
butthe
appli
cantcantakeustocourt.
We wouldfeel
ina betterposition
ifwe

had some clear
legislative
authority
to include
as a supervisory

objection
evidence
of discrimination.
Inotherwords,
we coulduse
our approval
process
as a sanction
against
institutions
whichare
discriminating
As I indicated
earlier,
we have had seminars.
We have trained

allofourexaminersin
thisgeneralarea.
Wehavebroughtpeople
fromtheoutside
tohelpusdo
thisand
this
wouldbe
helpfultous
So that's
onespecific
thingto whichI cansay,yes,
theapproachof
the billmakes sense.

Senator
SPARKMAN.
Well,I'mgoingto havetoleave,
butwhy
wouldn't
itbea goodthing
tohaveyourstaff
memberswork
with
thestaff
membersof thiscommittee,particularly
incollaborati
withSenatorProxmireand hisindividual
staffmembers,
and see

ifwe can't
workoutsomething?
I believe
allofus recognize
that
there's
somegoodthatcan be doneinthisfield.
Mr. MARSTOX. Yes,sir.

Senator
SPARKMAN.
Butthethingwe've
gotto workoutisthe
best
way toreach
thatpoint.
Mr. MARSTON.
That'sright.
Itjust
seemsto me we spendhalf
ourtimedown there
working
withtheSenate
staff
and we'dbe
pleased
tocontinue
todo so.

Senator
SPARKMAN.
Well,
that's
a pretty
goodway to work.

Thank youverymuch.

Mr. MARSTOX.Thank you,Senator.

Senator
SARBANES.
I thinkwe're
outtoincrease
thepercentage
of
that time.

SenatorLugar.

Senator
LUGAR.Mr.Chairman,thank
you.

Mr.Marston,
itseemstomethat
yourtestimony
maybe toa

lesser
extent
thanthatof Mr. Embry and I readahead thenext

testimony—
that
theproblems
defining
credit
forlow-income
neigh
borhoods
aredifficult
and honest
judgments
mightbe made asto

whatisoccurringthere.
Atthesame
time,many
peoplewhowoul
like
tofixuptheirhouses,
and buy propertiesin
inner
cities,
are
discouraged
fromdoingthis.
Mr. MARSTON.Yes,sir.

Senator
LUGAR.
So itseemsto me undeniably
thateachwitness
and allmembersofthecommittee
are,
andfromSenator
Spark
man's
question
I gather
thathe's
concerned
withthatproblem
asI

havebeen
duringthe
last
10years,
tryingto
find
moneyforinner

cityIndianapolis.

I suppose
whatI'mconcerned
about,
first
ofall,
isthatthebasis
forthisbill
appears
to be thatbecause
someFederal
advantages
havebeenconferred
upon bankswhichyou represent
todayor
savingsandloansorothercreditinstitutionsthatwew
thatthisis
alegitimate
reason
forthe
Federal
Governmenttomove
in and increase
regulation
of theindustry.
Thisbill
wouldsub
stantially
increase
reportingrequirements,
trace
the inflow
and
outflowof
savings
andthenbeyondthat—
and thisbecomes
more

271

vagueasthewitnesses
Ithinkarepointingout—havingfoundthis
information,
whattheFederal
Government
requiresfrom
those
findings.

Now itseems
tome that
tactfully
you're
saying—
butifyou're

not,please
correct
me--that
although
a needexists
here,
by and
largewe're
goingtohavetothinkofother
mechanisms
inwhich
theFederalGovernmentcan
workina morebroadly-based
financial
community
todirect
fundsasopposed
towhatyouhavecharacter

izedas a mismatch
ofmoneysthat
comeintoparticular
branches
orinstitutions
within
aninner-city
neighborhood
orevenabroader

censustract
areaor howeverwe woulddefine
it.What I thinkwe
shallfind—atleast
we foundthisinIndianapolis—
isthatafter
we

hadfoundall
thedepositsin
various
censustract
areas,
inmanyof
those
areasthedeposits
werenotvery
great.
Ifonewere
tomake
specific
allocation
tothose
neighborhoods,
theneighborhoods
would
have beensubstantially
shortchanged.

What clearly
had tocomeaboutwassubstantial
revenues
from
thesuburbs,
ifwe weretolookstrictly
atbranches,
because
branches
arebeingplaced
whereafluent
people
mightdeposit
their
moneyor

atleastpeoplewhoaregoingto
savemoney—
inthiscase,sometimes
peoplewho are55 and 60 and 65 beyondthechild-rearing
agesave

moremoney.
ThisiswhyI begin
tohavesomeskepticism
aboutthe
particular
thrustof thisbill.

If we'regoingto
havea strict
allocation,try
toexpose
how much

moneyiscoming
into
inner-city,how
muchisbeing
deposited
or

loaned
andsoforth,we'renot
likely
tohitthebasic
problem,
which
isthecapital
shortageor
loan
shortage
inthese
areas.
Now is my reasoning
reasonably
consistent
with your own

wouldyoulike
tospeakforyourself
on this?
Mr. MARSTON.
I thinkyouhavestated
our position
beautifully.
As I recall,
you're
a former
mayorofIndianapolis
andI think
we
havejustopened
an NHS—we'reworking
on openingan NHS

office
in Indianapolis,
and I'm delighted
forIndianapolis,
but my

son,who isdirector
of metropolitan
development
downin Evans
ville,isquiteunhappy
withme thatyou've
gotit.
I thinkyou'reexactly
correct
that
there
isno balance—
andthat's
whatI tried
tosayinmy opening
statementbetween
thesupply
ofsavingsand
thedemandforcredit.
Therearecertain
neighbor
hoodsthat
havemoresavingsthanthey
canuseandthere
areother
areasthatdon't.
You mentioned
thebenefits.
I thinkthesavings

and loanassociations
haveconferred
greatbenefits
back to the
areas
whichtheyserve.This
wastheoriginal
intent
ofCongressin
setting
up thissystem.
The U.S.league
estimates
attheend of the

yeartheyhad80 million
savings
accounts.
That's
one perhouse
hold.
Theymustbedoing
something
rightand
theyaremaking
60
percent
of thehome mortgage
loans.
I thinkthat'sa
realbenefit
to

thecountry.

The purpose
of branching
isto getdeposits.
You don't
need

branches
ingeneral
togenerate
mortgage
loans.
Youhavesalesmen
goingout
talkingto
therealtors
andbuilders
togetloans.
Finally,
I justgotthison the21stfromPresident
Carter,
and
whatPresident
Carterisdoingisreconstituting
a committee
that

272

President
Fordsetup.Thisisa copyofa memo tosomeof his
cabinetpeoplesayingthathewantstoform
a workingpolicygrou
on urbanand regional
development.
The purposeof
thegroup
wouldbe toconduct
a comprehensive
review
of allFederalpro
gramswhichimpacton urbanand regional
areasto seekthe per

spectives
of Stateandlocal
officials
concerningthe
role
oftheFed
eral
Government
inurbanandregional
development
andtosubmit
appropriateadministrative
andlegislativerecommendations
As you know,asthemayor—andI haveheardSenator
Garn say
it-hewasn't
themayorof SaltLakeCity;he was thelocal
repre
sentative
of the FederalGovernment.So I thinkPresident
Carter,

by this,
believes
asPresident
Forddid,
thatwe really
don't
have
muchofahandle
onhowthesethingswork.
Ihopethat
agreeswith
yourstatement.
Itwasmyintentiontoagree.

SenatorLUGAR.Letme
askyouthis,and
askforyourcomment
again,
although
I thinkyou covered
thisfairly
well,
but you
answered
in response
to SenatorSarbanes
thethoughtthatbanks

really
oughtto
lookforsafeloansessentially.
Theyought
totryto
maximizeearnings.
Theyoughtto
allowmarket
forcesto
governit.
Indeed,when Chairman Burns testified
beforethiscommitteea

couple
weeksago,he testified
thatby and large
thebankingsystem
wasbetter
fulfilling
thisobjective.
Now, on the onehand,thereare members of thiscommitteewho

critized
thebanking
system
forhavingso many failures.
Charts
wereplaced
in front
of usindicatinghow
many failures
had oc
curred
and indicating
thatthere
weregraveweaknesses.
Well,
in
fact,
whatI thinkyou're
suggesting
isoneway to avoidbank
failure
andcertainlythe
lackofstewardshipthis
implies,is
to make

sounder
loans
andtohavemoreprofitablebanks.
And withthat,
I
agree.

I think
thething
I wouldlike
to askyounow is,
evenifthis
legislation
doesnotreally
meetthe
problem
verywell—and
I'm be

ginningtohave
someskepticism
astowhetherit
does—and
granted

thatoneofthiscommittee'sresponsibilitiesisovers
confidenceourbanking
system
canengender,
whataretheappro
priate.mechanismsthat
youhavementioned
inyourtestimony.
You
saythebest
methodwouldbeto
devise
meansbywhichall
financia
institutions,
regardless
of wheretheyarelocated,
wouldbe moti
vatedtochannel
fundsintoolder
and less
affluent
neighborhoods
in

needofrevitalization.
Rather
thanthrowing
a wetblanketentire
on S.406today,
canyougiveusanydirectionas
toa constructi
way thatwecanbegintomeettheproblem
inthemannerin which
you have suggested
here?

Mr.Marston.
I think
there
areseveral
ways.
We'reworkingon
ashared
risk
bill
now.I sayweare.Wehavebeen
approached
on
thatastothepossibility
ofinsuringloans
inthematurecities.
One

ofourreservations
isthat
I believethat
there
aregoodloans
tobe
made,butanyway,
thatisonespecific
example.
Asecondexampleisdoingwhatthe
Boardisdoing,
andIbelieve
theother
regulatory
agencies,
butournumberonegoalishousing

We continually
talk
about
this
problem.
We sponsored
theNHS

projects.
Therearegreat
falloutsfromthat.
Peoplearelearningn
tojust
lookandfocuson new housing
developments,
whicharevery

273

important,
you know—there's
agoalfornew housing—there
are
peopleout
ofwork—andsotheFederal
Governmenthas
tosetthe

goalsthattheyseethatfit.
Thosearethetwoorthreethatcomet

mind.

Senator
LUGAR.Thosearehelpful.
It justseemstome thatthis

argumentwillcontinue,whetheritbethevehicleof
S.406orsome
thingelse,until
there
really
aresomemorevisible,
constructiveat
tempts
hereoruntil
a betterrecord
ismadeofwhatisoccurring.
Ido recognizethatanditwillnotbeadequate
simplyto
cast
doubt
onthis
particularvehicle
ortoindicatethat
weareall
sympathetic

totheproblem
.AndIsupposemyhopewouldbe,as
SenatorSpark
man had askedearlier,
thatas you have ways or thoseassociated

withyouhavewaystoworkwiththis
committee
on moreappro
priate
vehicles,
thismay be important
so thatwe do not comeout

withhaphazard
legislation
downthetrail
andfail
to meetour
objectiveandraisehopesthataresimplynotgoingtobe
Mr.MARSTON.
Senator,the
Boardhas
reallyplenarypowerswith
theFederalsavingsandloans
andhasquite
a bitofinfluence
with
theState
chartered.
We findthatourjawboningon
certainissues,

thetalks
we give,theobvious
supportwegiveI mentioned
going
uptoSenatorSarbanes'area
whenwe puttogether
three
busloads,
three
separatetrips,
uptoseewhatthese
peoplehavebeen
doingin
Baltimore.
Thiskindof action
on our part,
alongwiththe non

discriminationprogramsthat
wehaveconductedthat
thecommittee
isfamiliarwith-we discussed
thiswith members of thiscommittee

andothers—Ithinkthesearepositivestepsthatshouldcont

Senator
LUGAR.
I agree,
andshould
bebetter
publicized
perhaps

sothatmorepersonsknowwhat
you're
doingandmightbestimu

latedto do likewise.
Thank you.

SenatorSARBANES.
Mr.Marston,
areyousuggestingthat
someof

thedifficulties
which financial
institutions
haveexperienced
in terms

of failures
and otherdifficult
straits
in whichtheyfindthemselves

aretheconsequence
ofhomemortgage
investments
thattheyhave
made?

Mr. MARSTON.No,sir.

Senator
SARBANES.
Whataretheytheconsequenceof?

Mr.MARSTON.
Themainproblemsof
savingsandloanassociati

asI indicated,
isthedeteriorating
capital
ratio,
their
networthto
savings.
One of theproblems
thereisthattheeffective
Federal
in

cometaxasagroupon
savings
andloanassociations
is30 percent.
Senator
SARBANES.
No.Let's
taketheinstitutions
thatChairman

Burnsistalking
about
thatarehavingall
these
financial
problems.

Imean,noneofthose—in
fact,
theymightbe
better
offifthey

followed
thepurposes
whichthisbill
isseeking
to achieve
than
theircurrentpractices,
mighttheynot?
Mr. MARSTON.
Well,theymight,butI wouldnot—whatever

Chairman
BurnssaysasfarasI'mconcerned
about
commercial
banks,
I really
wouldn't
criticize
that.I
wouldjust
sayinreading
hisstatementto
theHouseBankingCommittee
a weekorso ago,
heindicatedthatoneofthereasonsfortheimprovementin
commer
cialbanksearnings
wastheir
return
onforeigninvestments.
Senator
SARBANES.
Yes,buttheonesthatarein
troublehavebeen
obviously
investing
inhighly
speculative
ventures,
havetheynot?

274

Havetheynotbeeninvesting
abroad
inlesser
developed
countries
withrespect
tooiltankers,
real
estate
investment
trusts?
Mr.MARStox.
That'spartof
it,
I suppose.
Oneofthegreat
prob

lemswithallinstitutionsis
eitherdishonest
or incompetent
manage

ment,
andI think
thatwastheproblem
down in San Diegoand
perhaps
theonewithFranklin.

SenatorSARBAVES.Isn'ttherea tremendousattraction
for any

institutiontoseekthat
investmentwhich
will
return
themhopefully
theveryhighest
return
? Inother
words,you
playforthebigstake
instead
ofthesteady
safestakes?
Mr. MARSTON,Notsavings
andloans.

Senator
SARBANES.
Well,
savings
and loansoperate
undersome
restrictions
and,of course,
I'mtryingto separate
outnow the

argument
you'remixing
oforganizationsbecause
yougo backand
forthbetweenthe commercial
banksand the savingsand loans.

Thesavingsand
loans
can't
getinto
someofthese
things.
Theyare
prohibited
fromdoingso.
Mr. Marston.
That's
right.
One of theplaces
thecommercial
banks gotintotheirREITs and thatwould involverealestate,
but

thosewerenotin general
SenatorSARBAVES.
I justwantto getat theargumentthatsug

gests
thatthedifficulties
of commercial
banksin particular,
asa
consequenceof
their
investments,is
inanywavrelated
tothepur
posesofthisbill,
because
veryclearly
theirdifficulties
have come

froman entirely
differentkind
of useof their
money.
Isn't
that

correct?

Mr. Marstox.
Yes.I'm sorry.
I didn't
mean to implythat.
I

simplymeantto saythatearnings
areveryimportant
to financial
institutions,
tosavers
and to borrowers.
That's
allI meantto say.
Senator
SARBANES.You spentaconsiderable
partof your state

menttalking
about
thevarious
S.& L.sthathave
opened
up under
minority
auspices.

Mr. MARSTON. Yes.

Senator
SARBANES.
And,ofcourse,
I commendthat
development
On page 36 you say:
In 1971 there were 40 minorityassociations
with FSLIC insurance.In 1976

the number had increased
to 73,and the totalassetshave grown from $400
millionto $958 million.

Whatarethetotal
assetsof
all
ofthepertinent
S.& L.s?

Mr.MARSTOX.Insured
S.& L.srunroughly
$400billion.
SenatorSARBAXES.
So the minority
associations
thatwe'retalk
ing about are at $1 billion?

Mr. MARSTOX. Yes.

Senator
SARBAYES.
Well,that's
a quarter
of one percent;
isthat
right?

Nr. VARSTON.Soundsright,
yes.
SenatorSARBLVES.Then your nextsentence
says:
We believe
thatthechartering
and branching
policies
of theBoarddescribed
aboveprovidea more practical
and sound basisfor encouraging
services
of
particular
marketing
areasthanthe penalty
approachof S.406.

Mr. MARSTOX.I'msorry,
Mr. Chairman

275

Senator
SARBANES.
Well,
why don't
youjust
refer
toyourstate
mentonpage36,thelastfullparagraph,thefirst
sentence
there.
Mr. Marston,
ifitwouldbemore convenient,
thecommittee
cer
tainly
hasnoobjection
tothegentlemen
who arewithyouassuming
seatswith you.

Mr.MARSTOX.Allright.
ThisisMr.Ege.He'sheadofourlegisla

tive
division,
anattorney;
andthis
isMr.Kaplan,
director
ofour
office
of economic
research;
and Mr. Warwick who isheadof our
officeofhousingandurbanaffairs.
SenatorSARBANES.
Well,gentlemen,
welcome.
Now how can we
go on in thatsentence,
in viewof thefact
thatwe're
talking
about
a quarter
of onepercent
of thetotal
business?
Nr. MARSTON.
Well,Mr. Chairman,abouta yearago in the
SenateAppropriations
CommitteehearingChairmanProxmire
askedabouttheproblembookthatwe had and we toldhim very
franklythatminorityrunsavingsandloansmadeup
aninordinately

large
number,
higher
percentage
thanusual
of theproblem
book
categories
1 and 2,andwe described
ourefforts,
and Mr. Warwick
cango intothat.
SenatorSARBAXES.
I don'tthinkthe thrustof my question
is

getting
across.
I think
there's
an area
thatwe're
tryingto
address
ourselves
toandthat
istogiveminority
groups
an opportunity
to
participate
in theeconomic
system.Therefore,
to encouragethis
trend,
and as welcomeasitmay be,thepointisthatitrepresents
a

tinyportion
ofthetotal
industry
and,therefore,youcan't
lookfor
thesolution
to thequestion
ofcredit
beingavailable
in commu
nities
allacross
thecountry
tothistrend,
whichdeals
withonlya
tinysegmentofwhatwe'retalking
about.

Nr.Marstox.
You'reabsolutelyright.
SenatorSARBANES.
If you'regoing
to dealwith the problemi,

you're
still
back with how do theotherS. & L.'s,
which have $399

billion
ofthe$400billion
intotal
assets-how
do theyfunction
and
operate?

Mr. Marston.
Right.
Well,
Mr.Chairman,
youareexactly
cor
rect.
Ifyoureliedonlyon
theminority
savingsandloans
tosatisfy
those
need“,
you wouldbe exactly
correct.
Itturnsoutin Washing

ton,
D.C.,
thatmanymembersofthe
community,black
members
of
thecommunity,donotsavewiththesavingsandloanassociat
by a blackpresident.
They don'ttrust
blacks
to keeptheirmoney
safe.
That'swhat
thepresidenthas
toldme.Many ofthepeoplethen

areservicedby
largely
white-run
institutions.
Senator
SARBANES.Whatdo
youthink
ofthatattitude?
Mr.Marstox.
Well,
this
iswhy I told
theminority
savings
and
loans
attheir
convention
herethat
I think
theyhavethe
problems,
that
minority
S.& L.'s
areimportant
becausethey
aredeveloping
minority
management,they
areshowing
tothepeople
oftheir
com
munities
thattheycan,in fact,
be responsible
money managers.
Furthermore,
I toldthem thattheirmarketing
areas,
bothas to

source
of savings
andtoloans,
aretooconcentrated.
Independence
Federal
hereinthecityhasonelittle
branchoverhereon C orD
Street,
buttheybranched
overto Connecticut
Avenueto tap the

moreaffluent
areas.
For minorities
it's
goingtobe a slowprocess.
We areencouraging
it.You areexactly
correct.
But theother
people
areserved
by thoserun by majority-by
whites.

276

Mr.KAPLAx.
Senator,
letmejustexpandon thatifI mightfor
a moment.When we studied
theproblems,
theoperating
problems

ofminority
institutions,wediscoveredthat
suchproblemsfall
into
threemajorareas.
The first
I wouldlist
asthedifficulty
of finding
experienced,
trained
managersto
runassociations.
The secondprob

lemisthatitisdifficult
foranybody
to start
anew institution
starting
up a new institution
is difficult.
Small institutions
have

uniqueproblemsthat
area function
of their
size.
And the third
area,
as already
has beenalluded
to,isthatin the marketareas
where theseinstitutions
have been located,
the savingsbusiness
is

really
inadequatetosupportgrowthin
credit
needs.
Thus,we come
backtowhatmy pointis,namely,thatwe
can't
look
toinstitution
branches
in theinner-city
areasas beingableto tap an adequate

supply
ofsavings.
Thus,weareseeing,
asMr. Marston
said,the
branching
backinto
other
areas
of thecity
wherethesavingsbase
is stronger.

Thephenomenon
that
I am tryingto
pointout
isthecredit
allo
cation
aspect
ofthebillas
opposed
toproviding
someincentives.
Senator
SARBANES.
Well,
thepoint
isthataswelcomeas
thein
crease
inminority
institutionsmay
beforotherreasons,
itdoesnot
begin
togetattheproblem
ofwhether
moneyisgoingto
beavail

able,becausethe
amountofmoney
thatyou'retalkingabout
just
atinypartofthetotalpicture.
So,toquoteallof
this
inyourstate
mentand thenend up,ineffect,
looking
atthatasa way of trying

todeal
withthisproblem
doesnot
makesense.The
institutionst

control
the$399
billion
inassets
aregoingto
havetohavepolicie

thatmake thecredit
available.

Mr.KAPLAN.
Senator,
letmeapproach
ita differentway.I
think
thepositivestatementwe
havebeen
tryingtomake
isthatthere
are
different
approaches
tomeeting
differentkinds
ofcredit
needs,
and
partof our difficulty
is thatthe different
kindsof credit
needs

haven'tbeenclearlyspelledoutinthebill.
Ithinkwe'resayingth

withregard
tocreditneeds
thataren't
beingmetfordiscriminator

practices
this
agency
isprepared
totakevery
strong
action
with
regard
tobranch
approvals.
Withregard
tocredit
needs
thatreally

focuson majorblighted
areasor withextremely
low-incomefam

ilies,
we havetolookto broadly
basedGovernment
programs.
Where we havestable
butdeteriorating
neighborhoods,there
a
different
solution
- we'refinding
the Neighborhood
HousingServ

icesapproachworkswell
inthese
cases.

Again,
I thinkwe'retalking
aboutdifferent
solutions
to different
kindsofcredit
needsrather
thanignoringthe
factthatthese
differ

encesexist.

Mr. MARSTOX.Mr. Chairman,
may Mr. Warwickadd something

there?
He reviews
allminorityapplications
amonghismany other
duties?

Mr. WARWICK.Well,in response
to theSenator's
question
a mo
mentago,I wassimplygoingtosuggest
thatI don't
thinkwe in

cludedthose
stories
about
several
new minority
ownedoroperated

associationstosaythat
minorityassociationsbythemselveswo
ableto meetthese
kindsof credit
needs.
Rather,
I thinktheywere
offered
asexamplesoftheway
in whichthebankboardencourage

entry
intothisrestricted
areaofthesavings
andloanbusinessto
meetneedsthat
aren't
otherwise
beingmet;and
unmetcreditneed

277

aremosteasilydefined
ininstanceswhere
we're
dealing
withminor
ityassociations.

However,
theyneednotnecessarily
be minority.
TheBoardre
cently
reviewed
an application
fromsomeplace
inLouisiana
by an
applicant
groupitmay beintegrated
butcertainly
not predomi
nantly
minority-that
proposed
to meetthecredit
needsof
older
areasaround
amajoruniversity,
I believe.
We had another
appli
cation
recently,
thisone did happento be minority,
butitwas a

Spanish-speaking
groupinNewMexicoin a community
thatwas
served
bya single
branch
ofan existing
institution
andthecredit
needsin thatcommunitywere verypoorlyservedby—not poorly

served,butinadequatelyserved
bytheinstitutionthatwasthere.
The point
oflistingtheseminority
associations
isnotthatthese
institutions
withabout$1 billion
worth of assets,
can somehow meet

a nationwide
problemby themselves;
but ratherto suggest
that
entry
intothismarketisa
viable
way forthesystemtomeetcertain
existingcreditneeds.
Senator
SARBANES.
Well,ofcourse,iftheycan'tmeet
a nationwide
problem,then
we havetolookelsewhere,and
we havetolookatthe

policy
ofthebalanceofthe
institutionswhich
totally
dominate
this
particular
areaofeconomic
activity.
Mr. MARSTOX.Mr. Chairman,
theydon't.
They havea highper

centage,butthereareotherpeople
who areinthemortgagemarket
and,again,
youhavetoask—thecommittee
and theCongress
hasto

ask'itself,if
you're
goingto putthemoneythere,
who are you
goingtotakeit
awayfrom?
Senator
SARBAXES.
Well,who
wouldyoubetakingit
awayfrom
?
Mr.MARSTON.
Youwouldbetakingit
awayfrompeoplewho
are
gettingitnowandthat'soneofthetradeoffs.

Senator
SARBANES.
How do you know? Allthiswouldrequire
is
thattheyin effect
indicate—what
do yourequire
of them withre
spect
to indicating
what their
lending
policies
are?
Mr. Marstox.We askwhat kindof loanstheyaremaking.We

askabout
their
penetration,
wherearethesources
oftheloans.
We
havethemmakea findingas
totheprobability
of usefulness
and
success
inthearea,aretheygoingto
putitintoexistinghousing
or
newconstruction,dependingonthebranch.
Senator
SARBANES.
Mr.Marston,
whatdo you understand
the

missionofyouragencytobeifithasone?

Mr.MARSTox.
To doeverything
wecanto provideas
steady
as
possible
and aseconomically
as possible
flowof housing
fundsto
themortgagemarket.

Senator
SARBANES.
I'mgoing
toendmy questioning
withthis
comment:Theactunderwhichyouarechartered
initsoriginal
title—and
I thinkyoualloughttogo backandthinka bitabout
this
because
thiswasitsoriginal
purpose,
and how faryouhave
comefromitis,
I think,
rather
interesting

An Acttoprovideemergency
relief
withrespect
tohomemortgage
indebted
ness,
to refinance
home mortgages,
to extendrelief
to the owners of homes
occupied
by them and who are unableto amortizetheirdebt elsewhere,
to
amendtheFederalHome Loan Bank Acttoincrease
the marketforobligations
to the United Statesand for other purposes..

Now youhadanobjectivewhenyou
startedoutthatreally
looked
tothepeoplewho
aretryingto
getcredit
andhomesandwanted
to
becomehomeowners.

278

Mr. MARSTON.That soundsliketheHome OwnersLoan Corp.,
and theywentoutof business
in-intheearlyfifties.
That's
how

thething
started.
Thenthere's
another
actandI havetoaskthe
lawyersaboutit.

Senator
SARBANES.
But thatwas theoriginal
purpose.
Mr. MARSTON.But thatwasan emergency
situation.
SenatorSARBANES.
Well,I understand
that.You don'tfeelwe
haveanemergencynowwithrespecttocreditforourNation?

Mr.Marston.
Well,wearegettingintosemantics.
There'sa
prob

lem. I don'tknow whetherit's
an emergency.

Senator
SARBANES.
Well,
whatI quoted
fromisright
outof your
currentoperatingmanuals.
Mr. MARSTON.But the pointis,
there's
alsothenational
actand,

remember,
Senator,
thattheCongress
changed
in1970by recogniz

ingthevalidityand
thevalue
tothepeopleofthe
country
ofthe

secondary
mortgage
market,
itmovesmoneyfromcapital
surplus
areasto capital
shortareas,
Congress
created
theFederalHome

LoanMortgage
Corporation.
Things
havechanged
andwe recog

nize
this.
We recognize
thatperhaps
by emphasizing
toour asso
ciations
thatthereare
goodloans
tobemadeinmaturecities,
asI
keepputting
it,
thatmay reduce
orincrease
thecostof mortgage
funds out in the suburbs.

Senator
SARBANES.
Well,
ofalltheconstituents
youhave,
which
oneissortof primary,do
you think,
inyourconcern?

Mr.MARSTON.
Well,
I just_Iguess
I'll
havetoanswer
thatfor
therecord.
I don't
know.That's
a goodquestion,
Senator,
it's
diffi

cultto answer.

Senator
SARBANES.
Well,
it's
something
I think
youallought
to

thinkabout.Well,thankyou.

Mr.Roessner,we'rehappytohave
youherewithusthismornin
andwe arelooking
forward
tohearing
yourtestimony
andyoucan

proceed
in anymanner
youchoose,
either
toread
itortosum

marize it.

STATEMENT OF GILBERTROESSNER,PRESIDENT,CITY FEDERAL
SAVINGS AND LOAN ASSOCIATION,
NATIONAL SAVINGS AND
LOAN LEAGUE, ACCOMPANIED BY HARDING WILLIAMS,GEN
ERAL

COUNSEL

Mr.ROESSNER.
Thank you,Mr. Chairman.

Thestatement
itself
isverybrief.
It's
not10,000
words.
On the
other
hand,we do havecopies
andI submit
themfortherecord
I willsummarizethestatement.

Senator
SARBAXES.
Well,
without
objection,
thestatement
will
be

includedin the recordas submitted.

Mr. ROESSNER.
My name isGilbert
Roessner.
I am president
of
CityFederal
Savingsand Loan Association
of Elizabeth,
N.J.,and
pastpresident
of theNational
Savings
and Loan League.

I am appearing
on behalf
oftheNational
League,a
nationwid
trade
organization
forsavings
and loanassociations.
With meat

thetable
isMr. HardingWilliams,
general
counsel
of theNational
League.

[Complete
statement
follows:]

279
PREPARED STATEMENT OF GILBERT G. ROESSNER ON BEHALF OF THE NATIONAL
SAVINGS

AND

LOAN

LEAGUE

Mr. Chairman and members of the Committee,my name is GilbertG.
Roessner.
I am President
of CityFederalSavingsand Loan Association
of
Elizabeth,
New Jersey and Past Presidentof the NationalSavings and Loan
League.

I am appearingonbehalf
of the National
League,
a nationwide
trade

organizationforsavingsandloanassociations.

The NationalLeagueappreciates
theconcernswhich
prompted
theintroduc

tion
ofS.406.
Granting
ofa Federal
orStatecharter
authorizing
thecreation
of a savings and loan association
does indeed confer an obligationof high

public
truston thegrantees
of thatcharter.
Mr. Chairman,it seemsto me thatthereare two basicissues
here.First,
are savingsand loan associations
and otherfinancial
institutions
meeting

their
responsibilities
mandatedby charter?
Second,
willthislegislation
im
proveupon the operationsof thesefinancial
institutions
toward meeting
theseobligations?
AlthoughI do not feelthatI shouldspeakon behalfof
othertypesof financial
institutions,
permitme to address
eachof theseissues
in turn as they relateto the savingsand loan industry.

The primaryobligation
of savingsand loanassociations,
particularly
those

under
Federal
charter
byCongress
in1933,is
tofosterhome
ownership.
We

believe
thatsavingsand loan associations
have fulfilled
thisobligation.
As
thedatain TableI demonstrate,
Federally-insured
savingsand loanassocia
tions
finance
almosthalfof the non-farmresidential
mortgagedebtoutstand
inginthe U.S.They havefinanced
between65 % and 70% ofsuchloansduring
thepasttwo yearsalone.
Of the industry's
$395 billion
in assets,
over80 %
areinvestedin mortgageloans.

As is shown in ChartI attached
to thisStatement,
the savingsand loan
industry
istheprincipal
and overwhelming
sourceoffundsinhome mortgages.
Since
1974,netlendingactivitybysavingsand
loansinthehomemortgagearea
tas climbed from a recession
low of $14 billion
to an annualizedrate of over
$35 billion
in 1976, an all-timehigh by any intermediaryat any time. By

comparison,
theflowof fundsintohome mortgages
bycommercial
banks,
mutual
savings
banks,
andlife
insurance
companies
israther
small.
Itisnoteworthy,
Mr.Chairman,that
byregulation
savings
andloanassocia
tionsare limitedin making residential
mortgage loans to areas within 100

miles
of the principal
office.
Lendingactivity
beyondtheselimits
is permitted,

although
restricted
through
thepurchase
and saleof participations.
Of a morespecific
nature,
thesubject
of"inner-city"
lending
hasreceived
a great
dealof attention
in recent
years.
As theCommittee
may be aware,
savings
and loan associations
and otherdepository
lendinginstitutions
are

activein
a variety
of programs
aroundthecountry
relating
tolow-andmod
erate-income
housing.
Among these
istheNeighborhood
Housing
Service
pro

gram
. Recentfigures
from the Urban Redevelopment
Task Forceshow that

over
250savingsand
loanassociations
currently
contribute
toNHS operating
budgetsin over 25 cities.

The National
Leaguecurrently
is surveying
itsmembership
to compile
furtherdetailon
theinvolvementofits
membersinto
low-andmoderate-income
housing
programs,
bothsubsidized
and unsubsidized.
Our initial
responses
from
this
surveyindicate
thatsavingsand loanassociations
are quiteactive
in a

variety
ofother
inner-city
projects
inaddition
toNHS,involvingclose
coopera

tion
among many groupswithinthecommunity.

In summation on thispoint,Mr. Chairman, let me say that:
1. The savingsand loan industryhas and continuesto meet itschartered
commitment to housing;

2. The savingsand loanindustry
is continuing
to emphasizeincreased
lendingin inner-city
areas through a number of subsidizedand unsubsi
dized programs;
3. Unlike otherfinancial
institutions,
savingsand loan associations
lend

theirfunds
within
theUnited
States,primarily
forresidential
mortgages,

and primarily
in thosestates
wheretheymaintaintheirprincipal
office.
Permitme now to turnto the secondarea,that is:“Will S. 406 improve upon

theoperation
of financial
institutions
in meetingtheirchartered
obligations?"

Again
speaking
on behalfof
thesavings
and loanindustry,
I wouldargue
thatthe proposedlegislation,
as is,would proveto be more harmfulthan
beneficial.

280
Permit me to elaborate:

1. Allfinancial
institutions
(and indeedany organization)
receiving
special

charter
and privileges
fromthe public
sector
havean obligation
totheir
communities
and to the public.
For thatreason,
we endorsethe concept
that
the public
sector
shouldseekmore dataand information
as to how wellthese
chartered
commitmentsare beingmet and honored.
But I believe
thatwhat

isneededisexecutive
and administrative
action,
not statutory
mandates.

Chairman,the authority
alreadyexists
for administrative
action
towardthesoliciting
and obtaining
of the type of information
which would
be required
by S.406.Examination
ofFHLBB Form 700“Facility
Application"
whichmust be completed
by applicants
fornew facilities,
requiresthe
follow
inginformation
underSection
B of thatform:
a.“Describe
the social-economic
characteristics
of the marketarea popula.
tion(levelof population,
medianincome,familysize,
etc.),
and discuss
how
thesecharacteritics
indicate
theneedfora savings
and loanfacility
withthe
typeand extentof services
beingproposed.
b.“Describe
thetypeand extentof financial
services
presently
beingoffered

Indeed,

withinthe
primarymarketareaand explain
how theopening
of theoffice
would be beneficial
to theconsumersin theareaand wouldnotundulyinjure
any otherexisting
thrift
and home financing
institution.”

Clearly,
Mr. Chairmanand membersof the Committee,
thiswording
is
broadenoughtoobtain
whatevermarket
dataisnecessary
forthepurposes
envisioned
inS.406.Mostdatacould
besolicited
through
theproper
regulator

agencies
if it were not alreadypublicinformation.
The savingsand loan
industry
is willing
to cooperate
in any way, but we feel,
Mr. Chairman,that
Ifpublic
benefits
are to be gained,
thenthereshouldbe public
costand effort
sharingin acquiring
thisinformation.
Regardless,
statutory
authority
is not
called for.

2. I strongly
feel,
Mr. Chairman,thatlegislation
of the natureof S. 408
would resultin the discouragement
of capital
flows.Becausethe effect
of

this
legislation
wouldbe to promotebranching
and expansion
offinancia

institutions
intothoseareaswhichhave a highsavings
capital
base,itwould

encourage
lending
in capital-surplus
areasandwoulddiscourage
lendingin
capital-short
areas.The effect
of thiswould be to discriminate
against
the

poor,
theyoung,
and theeconomically
underdeveloped
areasof thevarious
statesand regions.In the United States,only 34% of savers at savingsand

loan associations
have home mortgages.
Saver3tend to have above average
incomesand aboveaverageeducation.
Forty-eight
percent
ofassociation
savers
areovertheageof55 and70% oflargesavings
accounts
($5,000
+) comefrom
the older savers.Clearly,savers and borrowers are not the same and any

legislation
which encourages
lendingpatterns
based upon existing
savings
capital
baseswould createtremendousmarket discrepancies
and wouldbe
discriminatory
indeed.
I cannotbelieve
thatthisis the intent
of S. 406,yet
thiswouldbe theeffect.
Mr. Chairman,we haveseentheimpactoflegislatio
and regulation
whichrestricts
capital
flowsand branching
activity
on an inter
statebasis.
Thus, terms on conventional
home mortgagesare significant
different
in different
areasof thecountry.
For example,
theeffective
mortgage
rateon new homesin HoustonandLos Angeles
in Decemberof1976was9.3%
compared to an effective
rateof 8.5% for new home mortgagesinthe New York

New Jersey
region,
a difference
ofabout
80 basis
points.Ifrestrictionsd

existon lending
and branching
on an inter-statelevel,
capital
marketswould
work more efficiently
and we wouldnothavethesituationwhere
home buyers
In the Los Angeles
and Houstonareasare havingto pay nearlyone percentage
pointmore on theirhome loansthan thoseinthe New York-New Jerseyregion.
Another way to put this,Mr. Chairman, is that due to artificial
barriers
to
capitalmarkets,home buyers in Los Angelesand Houston are having to sub

sidize
home buyersin New York and New Jersey.
I submitthata similarsort
of inequitable
phenomenonwould occuron a more localized
basisas a con
sequence of legislation
such as S. 406.

3. Finally,
it seems to me thatsome recognition
shouldbe giventothe

factthatbranching
istiedto theconvenience
of thesaver.
Extension
of
mnortgage
credit
is not as localized
a phenomenonfromthestandpoint
ofcon

venience
asissavings.
One doesnotgo ineveryday oreveryweektoobtain
a mortgage,
yetsavings
isconducted
on a frequent
periodic
basis,
by theday
or the week.For thatreason,
a strongconsideration
towardbranching
policy

281
shouldbe fortheconvenience
of thesaverand forthe provision
of services
to
the customer. With the current restriction
of intereston checking accounts

and the limitation
on therateof interest
payableon savings
deposits,
the in
terestof the saver,who is just as much a consumer as the borrower,is too

frequently
ignored.

In the way ofsummation
then,
Mr.Chairman,
I wouldlike
toreiterate
the
following
keypoints
concerning
S.406andtheissues
surrounding
it:
1. Financialinstitutions
have an obligation
to theircommunities within the

limits
of financial
soundness.
Responsibility
of financial
institutions
is to
borrowersand saversalike.
A charter
to go brokeis no charter
at all.
2. We agree thatadditional
data and information
are neededto monitor
the activities
of financial
institutions
but statutory
requirement
would be the
wrong

way

to go, at this time.

a. First,
the authority
forsoliciting
thisdata presently
exists.
b. Considerableinformationof the nature envisionedunder S. 406 is

alreadypublic
information.

c.Becausethis
datawouldpresumably
convey
public
benefits,
we would
encouragepublic
sharingof thecostsassociated
withobtaining
any addi
tional information and data.

3. Finally,Mr. Chairman, I believethat the road to finacial fairness must

be paved with lessregulation,
and fewerartificial
barriers
and costs.
Data
gathering
and analysis
fine--weendorse
theconcepts
surrounding
suchinforma
tiongathering
as posedin S.406 and arequitewilling
tosupport
it.But to the
extent that such actionsare used to create artificial
barriersand restrict

market flows,
thenhistory
has shown timeand againthattheseactions
only
createinequities
and unnecessary
costswithoutmitigating
the problemsand
providing
the solutions
for whichtheywereintended.
Thank you,and I willbe happy to answerany questions
which the Com
mitteemay have.
TABLE 1.-NONFARM RESIDENTIAL
MORTGAGEDEBT OUTSTANDING1
(Dollarsin
billions)
Mortgageloansofinsuredsavingsandloans
Annual
increase
Year

Total

Annual
increase

1967
1968
1969
1970
1971

$291.2

$18.0

312.1
335.1
358.2

20.9
23.0
23.1

398.7

1972

455.4
509.8
550.8
592.0
1 658.0

40.5
56.7

1973.
1974
1975.

1976

54.4
41.0

41.2
66.0

Total
$117.8
126.8
136.0
146.0
169.6

200.9
226.2
243.5
272.5

316.3

Percentof
column
40.5
40.6
40.6
40.7
42.5
44.1
44.7

44.2
46.0
48. 1

Percentof
columnAmount
$7.3
9.0
9.2

10.0
23.6
31.3
25.3
17.3
29.0

43.8

40.6
43.0
40.0
43.2
58.3

55.2
46.5
42.2
70.3
66.4

Partially
estimated.
Source:
BoardofGovernorsofthe
Federal
ReserveSystem,and
Federal
HomeLoanBankBoard.

TABLEII.-Annualincreasesofmortgagedebtheldby
Federalagencies1
Amount

Year:
1969.
1970.
1971
1972.
1973.
1974,
1975.
1976

*Includes:
GNMAanditsmortgagepools,
FNMA, FHLMC,and FederalLand
Banks.
Source:
BoardofGovernorsof
Federal
Reserve
System.

(billions)

$6.0
7. 2
8. 1
8. 2
10. 2
7. 4
18. 5
15. 0

t
r
a
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2
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283

Mr. ROESSNER.
Mr. Chairman,
letme justaddapointhereinre

sponse
toquestionsyou
wereaskingof
Chairman
Narston.
I'dlike
totakeexception
toChairman
Marston's
response.
We do notseek

loansby
yield
alone.
There's
a tradeoffbetween
thecharter
obliga

tionstoprovideeconomicalhomefinancingandto
encouragethrift

andprofitability.
In thecase
ofmyown institution,
whichhas
$1.2
billion
ofassets,
thelargest
intheState
of New Jersey,75
percent
ofourmortgage
portfolio
isinvested
intheState
of New Jersey.
We havemadethis tradeoff.

In sheer
economic
termsandin response
tosomeof thepoints
you made earlier,
sir,
we wouldhavetherefore
invested
allof our

moneyoutside
theStateof
New Jersey.
I submit,
thatthesavings

and loaninstitutions
in thisNationareresponding
to a greatextent

tothewillof
Congress
inthegrantingof
thosecharters.
We think,
of course,
thatmarkets
wouldbe better
served
by
minimizing
barriers
rather
thanbuilding
barriers.

Finally,again
reinforcing
heresome
of thepoints
madeearlier,
youmustunderstand
thatbranching
istied
totheconvenience
of
thesaver.
Extension
ofmortgage
creditis
notaslocalized
a phe
nomenonfrom thestandpoint
of convenience
as istheactivity
of

saving.
Onecertainly
doesnotgoinevery
dayorevery
weekto
obtain
a mortgage
andyetsavings
areconducted
on a frequent
periodic
basisbydayand by week.By way ofsummation
there,

Mr. Chairman,
I'dliketo reiterate
thefollowing
key points
con

cerning
S. 406 andtheissues
surrounding
it.I repeat,
financial
institutions
do in facthave an obligation
to theircommunities,

withinthe
limitsof
financial
soundness.Responsibility
offinancial
institutions
isto borrowers
and savers
alike.Acharter
to go broke
is no charterat all.

We agreethatadditional
dataand information
areneeded
to
monitortheactivities
offinancial
institutions
butstatutory
require
mentwouldbethe
wrongwaytogoatthistime.

First:
Theauthority
forsolicitingthisdata
presently
exists.
Con

siderable
information
of the natureenvisioned
underS. 406 is al

readypublic
information.
Because
this
datawould
presumably
con

veypublic
benefits,
we would
encourage
public
sharing
ofthecosts

associated
withobtaining
anyadditionalinformation
and data.
Finally,Mr.
Chairman,
Ibelieve
thattheroadtofinancial
fair
ness
mustbe pavedwithless
regulation
and fewerartificial
barriers

andcosts.
Datagathering
andanalysis,fine—
we endorse
thecon

cepts
surrounding
suchinformation
gathering
asposed
inS.406
and arequitewilling
to supportit.But tothe extent
thatsuch
actions
are usedtocreateartificial
barriers
and restrict
market

flows,then
history
hasshown
timeandagain
thatthese
actionsonly
create
inequitiesand
unnecessary
costs
without
mitigatingthe
prob
lemsand providing
thesolutions
forwhichtheywereintended.
Mr. Chairman,
onelastpointI'dliketo add fortherecord
and

foryourinformation
andforSenator
Williams'
information
that

wasmentioned
by Chairman
Marston.
The New Jersey
Mortgage
Finance
Agencyis
launching
a new programandhas negotiated
theprivateplacementof
$100million
ofbondsof
whichCityFed
eralSavings,
theinstitution
whichI head,
hassubscribed
to $50

284

million,halfofthe
issue.
Weareclosingthat
transaction
nextweek
on March 29.

The programrequires
thattheproceeds
of thatbondissue
be

loanedonresidential
mortgages
inspecific
neighborhoods
as de

scribed
by mapsand boundaries.
It'saspecificantiredlini
bill
Thatmoneymustbeloaned
tomortgage
borrowers
inthose
neigh

borhoodsinparticularcitiesintheState.

On theotherhand,
theprogram
isstructured
insucha waythat
it'sasoundinvestment
forthebondholdersin
that85percentoft
loans
shall
beinsured
by theFederal
Housing
Administration
and
theVeterans’
Administration.
Certain
reserverequirements
are pro

vided
forthe
conventional
lendingthat
will
bedone.
We endorse
this
asa responsible
and positive
program
toserve

thelegitimate
credit
needsof allof ourcitizens.
That's
what we're

chartered
todo.Thereisno simple
solution,Mr.
Chairman.
It's
a
multifacetedproblem
and tocompartmentalize
it,ifyou will,
as
thisbill
woulddo,thesavingandtheborrowing
needsof the com

munity,
wesubmitwould
becounterproductive
ratherthan
produc

tive.
Thankyou verymuch.

Senator
SARBANES.
Mr.Roessner,
I justwanttomakethiscom
ment,
and Ifirst
ofallagree
withyour
observations
that
it's
nota
simple
solution.
Iwant tothankyouforwhatI consider
tobean
extremely
thoughtful
statement,
and Imust saythatI think
it

reflectsagreater
sensitivityto
thepublic
interestand
tothecon

cernsthathavemotivated
thislegislation
and otheractivities
on

yourpart,
cominghereasa private
citizen
representing
theindus
try,
thanwaspreviously
reflected
by Chairman
Marston.
I'mnot
goingtoexpect
you tocommenton this—
thatwaspreviously
re
flected
by ChairmanMarston,
who is a public
official
and whose
primeconcernisthepublicinterest.Ijustmakethata
Ithinkyouhaveshownagreatdeal
ofsensitivity
totheproblem
I may notagree
withyouinevery
respect,but
atleast
wecanhave
a discussion
withsome understandingofwhat
thesituation
is.

Itakeitthatyou
don'treallyobject
tofurnishingat
least
agood

deal
ofthekindofinformation
that
this
legislation
seeks.
Isthat

correct?

Mr. ROESSNER.
No.We endorse
theobjectives
of thebill.

Senator
SARBANES.
Well,
ofcourse,
theregulatory
agencies
could

havebeenrequiring
andseeking
this
information
now,butthey

have not done it.

Mr.Roessner.
Mr.Chairman,I
appreciateyour
comments
with

respect
to our testimony
and whileI shouldtakethefifth
with
respect
to thecommentsaboutthechairman,
I must say thatmy

own institution
has64 branches.
We havefiled
applicationsbe

theFederal
Home LoanBankBoardmany,manytimes.
I must
say,sir,thatthey
doasuperbjob.
Theygetmost
oftheinformat

thatI believe
thisbillrequires.

Thefact
is,
however,
that
within
recent
years—and
byrecent,
I

meanperhaps
thelast
8to10 years--the
savings
andloanindustr

in my judgment,has finally
awakened to the factthatconvenience

isa critical
consideration
inthemind ofthesaverand the commer

285

cialbanking
industry
was out-stripping
us.They arestill
out
branchingusbysomethinglike3-to-i.
So thatI applaud
whattheBoardhasdonetoencourage
our
industry
to branch,
to provide
convenience
in addition
to rate,
be

causeasthechairmanpointed
out,
ittakes
those
savers
to make
those
loans.
You do notgetbothfromthesameneighborhoods
in
equalvolumeand reallymuch
of thedatawithrespect
tothechar

acteristics
oftheneighborhood,
thekindofloans
wealready
have
intheprimary
tradeareas,arenow
requiredby
theBoard.
Asamatterof
fact,
sir,in
ourwritten
testimony,wemake
refer
encetothe
applicationitself
whichisstandard
withtheBoardin
whichtheyspecifytheinforinationtheapplicant
mustfile.

I'msayingthat
while
perhaps
there
hasbeen
an emphasis
upon

conveniencein
garneringsavings
within
thelast
5 to10years,
per
hapsagreateremphasisshouldnowbeplaced
uponwhether
ornot

the legitimate
sound credit
needsof theareaswe ervearebeing
filled.I
do notarguewiththat.

I submit,onthe
other
hand,that
by statute
isnottheway todo
it.We think
this
agency
hasbeenresponsible.
We think
it's
done
anoutstandingjob.
Wethinkitwill.
Ithinkit'sbeenbound
tohelp
becauseCongressinshowingthiskindofinterest.

I recitethe
program
in New Jersey.
We aresensitive
tothese
things.
We want to do it.We muststill
make a profit,
though,
Senator.

Senator
SARBANES.
Well,
of course,
thelegislation
haslanguage

that's
specifically
designed
to protect
youonthat
latter
concern.

I mean,the
legislationrecognizes
thatyou're
goingto applyeco
nomiccriteria
tothese
loansand
doesn't
seektodenyyouthat.
Mr. ROESSNER.
Senator,
may I make another
pointhere
whichyou

may be awareof and perhaps
you're
not?The statute
thatau

thorizes
theFederal
Home Loan Bank Boardto approveor grant
charters
to Federalassociations
is not at allspecific.
It'svery gen

eral.
Theirrighttograntsuchbrancheshasbeentested
inthecourts.

It'sgone allthe
way up totheSupremeCourtI

believe
onmore

thanone occasion.
Theoriginal
testcasewas one in New Jersey.

The courts
foundthattheBoardin facthasauthority
to grant
branches
because
underthestatute
theyarerequired
tofollow
the
bestpracticesof
properlyconductedlocal
thriftandhome
financing

institutionsto
getavariety
ofpracticesaround
theNation,
ofboth
mutualsavingsbanks
and savings
and loanassociations.

So theBoardhasfollowed
thosepractices,
butthat's
a broad
authoritytheyhave.
Now,withinthat
context
of suchbroadauthority
wesubmitin
ourstatement
thattogetsospecific
intermsof details
by statute

would
becounterproductive.
Youmaynotagree
with
thatbut
that

isourconsideredjudgment.

SenatorSARBANES.
I understand
thatpoint.
I thinktheconcern

isthattheBoard,
incarrying
outthatgeneralmandate,
hasne

glected,
orvirtuallyneglected,one
aspect
ofthetotal
picture
that's

extremelyimportant.

88-032 O.

77 . 19

286

Yousayinyourstatement,
andI share
thatview,
on page2,the
primary
obligations
of savings
and loanassociations,
particularl
thoseunderFederalcharterby
Congressin
1933,
istofoster
home

ownership,
andIthinkthat'sreallythethrust
ofwhatwe're
trying
togetat,andparticularly
theproblem
of certain
areas
justbeing
blanketed
outintermsofbeingthe
recipientsof
funds.
I understand
yourpointon page6 aboutthecapital
flows
and
whereyourmoneycomes
fromandwhereitgoestoandthatgets

into
aquestion
ofhow youdefine
thecommunity
you're
talking
about.
If itweredefined
as a metropolitan
area,
itwouldseem to

me thatinformation
on lending
practices
whichshowedthatan
institution,in
effect,
drewfromthelocal
area,
butthenonlyput
moneybackintheperiphery,
eventhoughin thearea's
middle
theremight
beequally
goodventures
available,
isnotmeetingthe
kindof mandateitoughtto haveunderitscharter.
You don't
really
quarrel
withthatI don't
think.

Mr.ROESSNER.
I don'tquarrel
withtheessence
ofit.
Iquarrel
withthefact
thatthat'sbeingignored.
I think
theFederalHome
Loan Bank BoardandI thinkthe
savings
andloanindustry
is

being
very
responsiveto
thiswhole
need.
Unfortunately,we
are

carrying

Senator
SARBANES.
Do youthinkother
lending
institutions
are

beingasresponsive
astheFederal
Savings
and Loans?

Mr.ROESSNER.
No,sir;
I do not.
Thelife
insurance
companies,

forexample,
inthis
Nation
havepractically
abandoned
theresi

dentialmortgage
credit.Now
I don'twant
topullourchestnutso
ofthefire
bybringingthem
in,butaswe
discussthis
issue
thefact l

iswe arecarryinga
veryheavyburden.

Senator
SARBANEs.
We didit,too;so don't
worrythatyou're
putting
themintothefire.

Mr.ROESSNER.
Theyarebigboys.
Theyhandle
themselves
very

well.

SenatorSARBANES.SenatorWilliams.

Senator
WILLIAMS.
Thank you,Mr. Chairman.

I'm gladI came in for the conclusion.
Of courseI willreadMr.

Roessner's
full
statement
later.
I appreciatethat
theNational
Sav
ingsandLoanLeague
doessupportin
principlethe
objectivesher
andIgatherthatisnotonlyyourpersonal
position
butthepositio
oftheleagueandyou'respeakingfortheleague?
Mr. ROESSNER.Yes,sir.

Senator
WILLIAMS.And
Iknowthat
inpracticeyou,
asthechief
executive
officerofoneof
thelargest
savings
andloan
institutio
in New Jersey,
practice
whatyousay youbelieve
in principle
in
our State.

Do youfindthattheprinciple
isapplied
by membersofthe
leagueequally
acrossthecountryor
isthisa
spottything?

Mr. ROESSNER.
Senator
Williams,
it's
really
quite
broad.
Obvi

ously,
an institution
inasmall,relatively
isolatedcommunitymig
bedevoidofanyoftheseproblems.Tosomeextentit
dependsupon

whereoneis
located,butthereareillustrationsalla

astowhatthesavings
andloanindustry
istrying
todo withinthe
boundaries
of soundness
to address
themselves
tothisneed.

287

As I saidtoSenator
Sarbanes,
of course,
it's
a complexproblem
.

Therearenosimple
solutions.
Ithinkwemust attack
iton many
fronts.
Therearemanywaystodo this.
In New Jerseyagain,
our
mortgage
finance
agency
hastried
several
programs.
Theloansto
lenders
programsin
whichwe participated
wheretheagency
bor
rowedthemoney,madeloanstoustoin turnlendtoparticular
typesofborrowersinparticularcities,
theygaveusanadditional25
basis
points
ifwe lendin particular
cities
toencourage
throughthe
carrottechniqueloansin
those
cities.
We responded.
Thatwasdone.

Theagencyfeltitwasn'tdoneenough,ifyouwill,incertai
locationsthey
contend
theloanswere
notmade.
Theyweremadein
Newark,forexample,
intheValesburg
section
instead
of thecen
tral
ward.
Nowunderthenew
programthat
I referredto,the
loans
aregoingtohaveto bemade in thecentral
ward,if,infact,
such

demand exists.

Butsuchloans
aregoing
tobemadeprimarily
on an FHA/VA

insured
basis
because
theinstitutions
still
havea mandateto func
tionon a sound basis.
There arerisks.

Senator
WILLIAMS.
I wasparticularly
pleased
tohearofyour
subscription
tothenewissuethat'scomingoutnext
week,
that$100
million.How
muchhousingis
anticipated
fromthat?
Mr. ROESSNER.
Senator,
ifyou divide
the$100million
intoabout

an average,
unfortunately,
of $40,000,
I thinkthat's
2,500
loans.
Somebodyhadbettercheckmyarithmetic.

Senator
WILLIAMS.That's
oneoftheproblemsthat
we face,
of
course,
and notin thiscontextparticularly,
butthenew single
family
residential
isn't
reachingthe
income
levels
asI seeitofthe
lower-middleincome.

Mr.ROESSNER.Senator
Williams,you're
awareparticularly
inour
State,
in New Jersey,
theveryeconomics
ofthesituation
issuch
thatveryhighpercentage,
perhaps
85 percent
of thepeople
are
priced
outoftheresidentialmortgage
market.
The taxburden
is
part of this.

Senator
WILLIAMS.
And that$40,000
average
isdivided,
pretty
much— thefirst
bigchunkisthelanditself;
isthatright?
Mr. ROESSNER.
Yes.Of course,
because
these
loansmustbe made

in particular
neighborhoods
ofolder
citiesin
ourState,
itwill
be

primarilyexistingconstruction,resaleofexisting
economics
wouldn't
support
new construction
in any significant
volume.

Senator
WILLIAMs.
If youdon't
minda little
ad foryourasso

ciation
in New Jersey
Mr. ROESSNER.Never.

Senator
WILLIAMS.
My hometownwentthrough
thecritical
pe
riodof thelatesixties
and had many problems.
It still
does.The

showplace
isnoton MainStreetit's
notcalled
Main Street
but
it'sour
secondary
mainstreet
inPlainfield,
N.J.-is
CityFederal's
newbuilding
by EdwardDurrell
Stone.
I guess
it's
beenthere
10
years now.

Mr.ROESSNER.
Senator,
Plainfield
isanother
interesting
illustra
tion.
Thecity,unfortunately,
wasknownnationally
forsomeof
the
problems
thatdeveloped
inthesixties.
Chairman
Marston
should

288

takecredit
forthisand hispredecessors.
The neighborhood
housing
service
in Plainfield
was one of the first
in thisseries
of NHS ac

tivities,
a broad-based
community
program,
initiated
by theFed

eralHome
LoanBankBoard,supported
andfunded
inpartbythe

local
savings
and loanassociation.
We aremakingprogress,
not
dramatic,
but we areouttheretrying.

ield
Senator
WILLIAMS.
I agree.
And Plainfieldhappenstobe
onecity
where235
housing
showeda lotof promise
until
thatsortofdried
upforother
reasons.
Mr. ROESSNER.Yes,sir.

Senator
WILLIAMS.
Thankyouverymuch.We areproudofyou
foryourstatement.

Senator
SARBANES.
Mr.Roessner,
I justwanttothankyouagain
fora verythoughtful
statement
and presentation
and a greatdea
ofsensitivity
totheproblem.
I thinkit'sprobably
safetosaythat
ifall
thechiefexecutivesof
lending
institutions
acrossthe
country
had as much concern
and sensitivity
asyou haveevidenced
this

morning,wemightnothavequite
theproblem
thatwe
havebefor

us.Thankyou.
Mr. ROESSXER.
Thank you.That's
verygenerous
of you,Senator.

Senator
SABRANES.
Thankyou.The committee
stands
adjourned
[Whereupon,
at12:50
p.in.,
thehearing
wasadjourned.]

COMMUNITY

CREDIT

FRIDAY, MARCH

NEEDS

25, 1977

U.S. SENATE,

COMMITTEEONBANKING,HOUSINGANDURBANAFFAIRS,

Washington,
D.C.
Thecommitteemetat10:05a.m.inroom5302ofthe
DirksenSenate

Office
Building,
Senator
William
Proxmire,
(chairman
ofthecom
mittee)presiding.

Present:
Senators
Proxmire,Sparkman,and
Garn.
The CHAIRMAN. The committee willcome to order.

Ourfirstwitness
this
morning
isMr.ToddCooke,
president
of

thePhiladelphia
SavingFund Society.

I understand
youhavea plane
tocatch,
and youhavetoleave
hereby10:30
orso.Therefore,we
aregoing
toputyouon by your
selfto testify
as theinitial
witness
and thenwe willhavea few

questions
foryouandthenwe will
proceedto
theother
witnesses.
STATEMENT OF M. TODD COOKE, PRESIDENT, THE PHILADELPHIA
SAVING FUND

SOCIETY

Mr.COOKE.
I appreciate
that,
Senator,
andI'msorry
I can't
stay

fortheentire
morning.

I am presidentof
thePhiladelphia
Saving
FundSociety,
famil

iarly
knownas PSFS, withcurrent
deposits
of$4.4billion,
and
assets
of$4.8.
PSFS isthelargest
savings
bankinthecountry,
as
wellastheoldest.
PSFSisalso,byawidemargin,thelargestmort
gageinvestor
located
intheCommonwealth
ofPennsylvania.
Dur
ing1976,
forexample,
PSFSsettled
$560milliontomortgageloans.
I am happytohavetheopportunity
this
morning
ofpresenting
my viewson theCommunity
Reinvestment
Actof1977.
Thisbill
woulddirectthe
Federal
financial
supervisory
agencies
toexercise
their
authority,
forexample,
when conducting
periodic
examina
tions
or considering
applications
fornew branc
es,to encourage
financial
institutions
tomeetthecredit,
aswell
asthedepositneeds
ofthecommunitiesthey
serve.

Ishallbriefly
state
my position
withrespectto
thebill
as a
whole
andseveral
ofitsprovisions
and thenmakea few general
comments.

One:A financial
institution,in
my judgment,
clearly
hasapri
maryand
continuingresponsibilitytothecommunity
inwhichitis
authorized
tooperate.
Thisisanunderlying
premise
ofthebill
in
whichI heartily
concur.

(289)

290

Two:Thisresponsibilitycannotbelimitedsimplytohe
thecommunity'sdeposit
needs,
butmust,
asa matter
of economic
logic,
extend
alsotoitscredit
needs.

Three:
Accordingly,
I takenoexceptiontothebill'sdirect
that

thesupervisory
agencies
usetheir
chartering,examining,
supervis

ingand regulating
authority
to encourage
financial
institution
whichmayhavebeen
laxinthisregard,tomeetthesetwin
responsi

bilities.

Turning
tothe
detailed
requirements
ofthebill,
I must
express

two reservations
as follows:

One:The requirement-section
4(1)
(c)—thatfinancial
institu

tions,
aspart
oftheir
application
fora newbranchofficefacil

indicate
theproportionof
consumer
deposits
deriving
from the
communitywhich
willbereinvested
inthecommunityisimpractic
Whilearoughpercentage
couldbe targeted
foraspecific
date,
it
wouldbealittlebetterthanaguess,
andgiventhe
virtual
certainty
ofshifts
inconsumer
deposit
flows
andcredit
demands,
wouldhave
little
validity
forsubsequent
periods.
Theseshifts
resultfrom
a
multiplicityof
factors,
ranging
fromthelocal
totheglobal,
which

simply
cannot,
withanyplausibility,be
reducedto
projections
for

a community
ora neighborhood
within
a large
city.
Accordingly,
I wouldurgethedeletion
ofthis
sectionandsugges
thatdetermination
ofcompliance
beleft
totheadministrative
dis

cretion
ofthesupervisoryagencies.

As a less
significant
commentI wouldalso
suggest
thatthelan
guageofsection
4(3)berevisedtomake
itclear
thatthesuper
visory
agencies'
obligation
to holdhearings
ispermissive,
rather
thanmandatory.

I understand
thatlastyeartheFDIC considered
866applica
tions
toopennew banking
offices
or deposit
facilities.
Clearly,
it
would be an intolerable
administrative
burdenwere the FDIC, and

theother
supervisory
agencies,
required
to holda public
hearing
andreceive
testimony
oneachsuchapplication.

Withyourindulgence,
I will
nowmakeafewgeneral
comments.

First,
Iwould like
toemphasize
thatmutual
savingsbanks
havea

longand distinguished
history
ofserving
thecommunities
in which

theyarelocated.
Meeting
thecredit
anddeposit
needs
oftheindi
vidual
andthefamily
isoneimportant
way thatmutual
savings
bankshavedischargedthisresponsibility.
In addition,
theyhavealso,
through
bondinvestment,
financed
waterplants,police
stations,
schools,
andnumerous
othermunicipal

facilities
andimprovements.
Theyhaveprovidedthefundstob
thechurches,
hospitals,
colleges,
and universities
and othervolun
taryinstitutions
whicharesucha vital
partof ourcommunities.

In addition,
theyhaveencouraged
their
trustees
and officers
to
provide,
in their
individual
capacities,
theleadership
and support
formajorcommunityendeavors.
In my testimony,I
cite
a fewexamples
in theexperience
ofmy
own institution.
Iwillnotreadthatportion
of my testimony.
I
wanttobringit,
however,
toyourattention
that
PSFS wasinstru
mental
in spearheading
in 1975thePhiladelphia
mortgage
plan.
Thishasthecooperation
ofevery
bank,
commercial,
andmutual
in

291

Philadelphia,
andissuccessfully
providing
mortgage
financingon
competitive
market
termsto
creditworthy
familieswho
wishto buy

propertiesinolderurbanneighborhoods.
WhatI would
liketo
suggest
toyourattention
isthatmutual
savingsbanks
havealreadyand
historically
acceptedtheir
broad
responsibilities
tothe community.
TheCommunityReinvestment
Act addressesitself
toonlya smallportion
of whatsavings
banks
alreadyaredoing.

Two finalcommentswhich
I trust
will
notbeconsidered
gratui

tous. Financial
institutions
have a social
rolewhich,as the previous

paragraphssuggest,savingsbankshavehistoricallyd
distinction.
Thesocial
role
isintertwined
withthesavings
bank's
vitaleconomic
roleas a financial
intermediary.
Thereisalwaysa

danger,whenever
legislation
of thistypeisenacted,
thatitwill
compromisethis
latterrole.
The economicroleof financial
intermediaries
continues
to be the

historiconeofeffectingthe
transferof
funds
fromareasofcapital
surplus—
bethey
functionalorgeographic,
tothose
ofcapital
short
age. Permitting
socially
desirableconstraints
to overbalance
this
vital
economicrole
willcripplefinancial
institutions
andtheir
abil
itytofunction
effectively
inthepublic
interest
ineither
capacity.
Finally,I
mustregister
concern
thattheCommunityReinvest

mentAct,ifpassed,
mightprovokethe
Federalsupervisoryagenc

to a frenzy
ofrulemakingand
regulations
whichcouldprovebur

densome
tothefinancialinstitutionsinvolved,without
providing

any realoffsetting
benefit
tothepublic.
PSFS hasjustcompleted

preparing
thereports,
forthelasthalfof 1976,
required
by the
Home Mortgage
Disclosure
Actof1975.
The PSFS report
runs32
pages,
and,according
to theestimates
of ourcomptroller,
costs
$83,000
to produce.
I am notnecessarily
questioningthe
valueof
the datawhichfinancial
institutions
areobliged
toproduce
under

theterms
oftheHomeMortgage
Disclosure
Act,but
simply
point

ingoutthateach
suchact,
andevenmoreimportant,
theregulations
and reporting
requirements
deriving
fromeachsuchact,divert
significantresourcesfromthebank'sprincipalactivitie
further
tothemountain
ofpaperwork
andincrease
significantly
thecost
of
doingbusiness.

Accordingly,
I wouldhopethatthe billmight,
as previously
suggested,grantconsiderableadministrative
discretion
tothesuper
visory
agencies,
sothattheywouldnotfeel
obligated
todevelop
an

elaborate
structureof
regulations
inachieving
thebill's
objectives.

Mr. COOKE.Mr. Chairman,
I wouldbe gladto answerany ques
tionsyou
may have.
[Complete
statementof
Mr. Cookefollows:]
PREPAREDSTATEMENTOF M. Topp COOKE,PRESIDENT,
THE PHILADELPHIA SAVING FUND SOCIETY

My name isM. Todd Cooke.I am President
of The Philadelphia
SavingFund
Society,
familiarly
known as PSFS, with current
(2/28/77)deposits
of $4.4
billionand assetsof $1.8 billion.
PSFS

is the largestsavings bank in the

country,
as wellas the oldest.
PSFS is also,
by a wide margin,thelargest
mortgage
investor
located
in theCommonwealthofPennsylvania.
During1976,
forexample,
PSFSsettled$560millioninmortgageloans.

292
I am happyto havetheopportunity
thismorningof presenting
my viewson
the Community Reinvestment Act of 1977.This billwould directthe Federal
financial
supervisoryagenciesto exercisetheirauthority,
for example, when

conducting
periodicexaminations
or considering
applications
fornewbranches,
to encourage financial
institutions
to meet the creditas well as the deposit
needs of the communitiesthey serve.
I shallbrieflystate my positionwith respectto the billas a whole and

several
of itsprovisions
and then make a few general
comments,following
whichI willbe happytorespondto any questions
you may have.
1. A financial
institution,
in my judgment,
clearly
has a primaryand con

tinuing
responsibility
to thecommunity
in whichitisauthorized
to operate.
Thisis an underlying
premise
of the bill
in whichI heartily
concur.

2. This responsibility
cannot be limitedsimply to helping meet the com

munity's
deposit
needs,but must,as a matterof economiclogic,
extendalso
to itscreditneeds.

3.Accordingly,
I takeno exception
tothebill's
directive
thatthesupervisors

agencies
usetheir
chartering,
examining,supervising
and regulatingauthori
to encourage
financial
institutions,
which may have beenlax in thisregard,
to meet thesetwin responsibilities.

Turning
to thedetailed
requirements
of thebill,
I mustexpress
two

reservations
as follows:

1. The requirement
(Section4)(1)(C) thatfinancial
institutions,
as part

oftheir
application
foranew branchoffice
facility,
indicate
theproportion
of
consumer depositsderivingfrom the community which will be reinvestedin

thecommunity
isimpractical.
Whilea roughpercentage
couldbe targeted
fora specificdate,
itwouldhe little
better
thana guess,
and giventhe virtual
certaintyof shiftsin consumer depositflows and creditdemands, would have
little
validityfor subsequentperiods.
These shiftsresultfrom a multiplicity

offactors,
ranging
from thelocaltotheglobal,
which simply
cannot,
withany
plausibility,
be reduced
to projectionsforacommunityoraneighborhood
within
a largecity.
Accordingly,
I wouldurgethedeletion
of thissection
and suggest
that determination
of compliancebe leftto the administrative
discretion
of the

supervisory
agencies.
2.I wouldalsosuggest
thatthelanguageof Section
4(3) be revised
to make
itclearthatthesupervisory
agencies'
obligation
to holdhearings
is permissive
ratherthan mandatory.
Last year,I understand
thatthe FDIC, forexample,
considered
866 applications
to open new bankingoffices
or “deposit
facilities”
Clearly,
it would be an intolerable
administrative
burdenwere the FDIC,
and the othersupervisory
agencies,
required
to hold a publichearingand
receive
testimony
on each such application.
With your indulgence,
I willnow make a few generalcomments.First,
I wouldliketo emphasizethatmutualsavingsbanks have a long and dis
tinguished
history
of servingthe communitiesin which they are located.
Meetingthe creditand depositneedsof the individual
and the familyis
one important
way thatmutualsavingsbankshave discharged
thisresponsi

bility.
In addition,
theyhavealso,
through
bondinvestment,financed
water
plants,
police
stations,
schools
and numerousothermunicipal
facilitiesan
improvements.
Theyhaveprovided
thefundstobuild
thechurches,
hospitals
colleges
and universities
and othervoluntary
institutions
which are sucha
vitalpart of our communities.
In addition,
they have encouraged
their

trustees
and officers
to provide,
in theirindividualcapacities,
theleadership

and supportfor major communityendeavors,
such as the UnitedWay, and
majorcommunityinstitutions,
suchas hospitals
and colleges.
To mentiononlya few examplesfrom theexperience
of my own institution
P’SFSfinanced
thefirst
residential
urbanrenewalundertaking
in thecountry,
the FriendsNeighborhood
Guildrehabilitation
project
in Philadelphia's
East
Poplar area.PSFS alsowas instrumental,
both in terms of providingleader

ship and financing,
in relocating
Philadelphia's
producemarket from the
Dock Street
area,thusclearing
the way forthe highlysuccessful
restoration
and rejuvenationof the historic
SocietyHillarea.PSFS

has also,for many

years,taken a special
interest
in variousprogramsdesignedto encourage
homeownershipand rehabilitation
in olderurban neighborhoods.
Recently,

PSFS was oneofthree
financial
institutions
whichspearheaded
thedevelop
ment and operation
of the Philadelphia
MortgagePlan.This program,which

293

now hastheactivesupport
and participation
ofeverybank-commercial
and

mutual,in Philadelphia,
is successfully
providing
mortgagefinancing,
on
competitive
marketterms,
tocreditworthy
families
who wishtobuy properties
inolderurbanneighborhoods.
Inaddition,
PSFShas a longhistory
ofproviding

financing
formany ofthePhiladelphia
area's
churches,
hospitals,
colleges,

universities
and specialized
voluntary
institutions.
I am, therefore,
suggesting
that mutualsavingsbankshave alreadyaccepted
theirbroadresponsibilities

to the community.
The CommunityReinvestment
Act addresses
itself
only
to a smallportionof what savingsbanks alreadyare doing.
Two final
comments:Financial
institutions
have a social
rolewhich,as the

previous
paragraphs
suggest,
savings
bankshavehistorically
discharged
with
distinction.
The socialroleis intertwined
with the savingsbank'svital

economic
roleasa financial
intermediary.
Thereisalways
a danger,
whenever
legislation
ofthis
typeisenacted,
thatitwill
compromise
thislatter
role.
The economicroleof financial
intermediaries
continues
to be thehistoric
one
of effecting
the transfer
of funds from areasof capital
surplus—
be they

functional
or geographic,
to thoseof capital
shortage.
Permitting
socially
desirable
constraints
to overbalance
thisvital
economicrolewillcripple
finan.

cialinstitutionsand
their
ability
tofunction
effectively
inthepublic
interest

in eithercapacity.

Finally,
I am concerned
thattheCommunityReinvestment
Act,ifpassed,
might provoketheFederalsupervisory
agencies
to a frenzyof rule-makingand
regulations
whichcouldproveburdensome
to thefinancial
institutions
involved,
withoutproviding
any realbenefit
to thepublic.
PSFS has justcompleted
preparing
thereports,
forthelasthalfof1976,
required
by theHome Mortgage

Disclosure
Actof1975.
The PSFS report
runs32pages,
and,according
tothe
estimates
of our Comptroller,
costs$83,000
to produce.
I am not necessarily
questioning
the valueof the data which financial
institutions
are obliged
to
produceunderthe terms of the Home MortgageDisclosure
Act,but simply
pointingout that each such Act,and even more important,
the regulations
and reporting
requirements
deriving
from eachsuch Act, divertsignificant
resources
from the bank'sprincipal
activities,
add further
to the mountainof

paperwork
andincrease
significantly
thecostof doingbusiness.
Accordingly,
I would hope thatthe billmight,
as previously
suggested,
grantconsiderable
administrative
discretion
to the supervisory
agencies
so thattheywould not

feelobligated
to develop
an elaborate
structure
of regulations
in achieving
the bill's
objectives.
This concludes
my testimony.
I shallbe happy to answerquestions,
if you
wish.

The CHAIRMAN.
Thankyouverymuch fora constructive
state
ment.
I agree
withvirtuallyeverythingyou
say.
I havequestions
foryou.
There isno question
thatthe bill
islimited
and limited
in its
effect.
Itiscertainly
limited
in thebenefits
itisgoingto bringfor

housingand
community
development.
And itisnotdesigned
todo
everything
by any meansat all.
It isalsoonlya smallportion
of
what thesavings
and loanand otherinstitutions
do now withre

spect
tocommunity
assistance.
I agree
also
thatthis
bill
should
notbedesigned
toimpedecap
ital
flowfromcapitalsurplusareasto
capital
deficitareas.
We do
notwanttodo that.
Thatisnottheintention
of thebill.
We should

doallwecanto
prevent
thateffect.
Iamveryimpressed
byyourassertion,
whichiscertainlysensible,
thatthis
legislation
should
nothavetheeffect
of imposing
addi
tional
regulation
andreport
writing.
What we had inmindiswhen
institutions
wish to branch,
thatthey now have to comply with

providing
information,
andthis
wouldsimply
change
tosomeex
tentthe
kindofinformation
thattheywouldsupply.
Wedonothaveanynotionthat
wewouldimposea
bigpaperwork

burden here.

294

Letme askyou,
yousayyousupport
thethrust
ofthebill.
You
support
itsobjective.
Youthinkitisdesirable.
Butyouhavesome
problem
withtheproposedmechanism
insection4.
Whatadministrative
enforcement
in yourviewshould
we sub
stitute
forwhatwe providehere?
We had testimonyon
thefirst
dayof hearings,
on Wednesday,
fromMr.Nader,
sayingthat
the
billwastoothless;itneededmoreforceandeffectifit
anything.
Mr.COOKE.
Thethrustofmycomment,
Senator
Proxmire,
would
betourgethatthebill
focusattention
on a financial
institution
overall
response
tothecreditneeds
ofthecommunity
defined
in
termsoftheoverallareaservedby
thefinancial
institution,
and not
in termsof eachindividual
branch
and thecommunitythat
the
branchserves.

Perhapscould
Ielaborateby
anexampleof
whattroublesme.
The CHAIRMAN. Yes,sir.

Mr.Cooke.
Wehave anofficein
an oldersectionof
Philadelphia

Itisin my judgment
precisely
thekindof neighborhoodth
requires
thecontinuing
attention
offinancial
institutions.
It needs
mortgageinvestment.
This particular
office,
our Logan office,
has

lost
aquarter
ofa million
dollars
indeposits
overthelast
2-year
period.The
residents
of thatcommunity
aredissaving.The
logic
thatcouldbe inferred
from thebill
isthatsuchdissaving
should

alsobe
accompaniedby
disinvestment.
I recognize
clearly
thatthatis
notthethrust
ofthebill.
In fact,
I wouldlike
topoint
outinthatparticularcommunity
my institu
tion,over
roughlythesameperiodthatdepositsdroppedby

aquarterofa
million
dollars,has
invested
$1.8million
inresidential
mortgages.

)

The point
I am trying
tomakeisifyourestrict
theanalysis
to
limited
communities
served
by specific
branches,
I'm afraid
the

conclusions
drawn may be erroneous.
The CHAIRMAN.Thatisan excellent
point.
It wouldbe ridiculous

in my viewfora regulating
bodyto indicate
thatbecause
the
deposits
had dropped,therefore
the investment
of the bank in the

communitywoulddrop.
It may be thattheinvestment
of thecom

munityis outrageously
deficient
to beginwith.
If thedeposits

dropped,
theyshould
haveincreased
thembefore
andtheyshould

in thiscase.

Thatsuggests
thatwe should
lookatthelanguage
and tryto
strengthen
it.

Inyourexperience
on thereceiving
endoftheregulatory
policy,
havetheregulators
everdisplayed
anysensitivity
to whether
you
areadequatelyservingcommunitycreditneeds?
Havetheyeveraske
youaboutthatorrequestedofyouoraskedyoufortherecord?

Mr. COOKE.
I wouldhavetosaythayhave
not,to my personal
knowledge.
Whether
theyhavemadesuchinquiries
ofotheroffice
in the bank,I cannotsay.

TheCHAIRMAX.
Doyouknowofasavingsbankthat
failed
toget
branchapproval
becausethey
werefailing
toserve
credit
needs?
Mr. COOKE. I do not.

295

The CHAIRMAN.
Do financial
institutions
inyourviewhavean
obligationtoservethecreditneedsoftheirlocalities?
I takeitfrom
your statementthat
youthinktheydo.

Mr. COOKE.
Inmy judgment
theymostassuredly
do.
The CHAIRMAN.
Yourinstitutions
tooktheleadin providing
Philadelphia
residents
withmoreloans
in what wereviewedasred

lineareas.You
area community
leader
and a banker
thatcares
about hiscity.

What should
public
policy
dotoencourage
other
lendersto
dis

playtheinitiativeyouhaveshown?
Oristhis
a voluntary
thingfor
Tenders,
to encourage
growthin thecommunity
or not through

their efforts?

Mr. COOKE.The bill
we areconsidering
wouldtendto encourage

financial
institutions
toshoulder
these
responsibilities
wherethey

havenotbeendoing
so.Government
canalso
besupportive
toa

program
like
thePhiladelphia
mortgage
plan,which
isentirely,
a

privateprogram.
Butitcan
besustainedand
supportedveryhelp

fullyby governmentalactions,
particularly
municipal
actionswhich
wouldbedirected
toshoring
up adjacent
areas,
to increasingthe
levelofmunicipalservices,orperhapssimply
torestoringmunicipal
servicestoalevel
inan oldercommunity
comparable
tothatalready

beingprovided
ina newercommunity.
The CHAIRMAN.Why in your view are some institutions
less

sensitive
thanyours
hasbeenincommunity
needs,
in providing
credit
forcommunities?

Mr.Cooke.Thatisadifficultquestion,
Senator
Proxmire.
Perhaps
Philadelphia
withitsQuakertradition
has some greater
concern

forthecommunity
needs.
Ithinkalsoitis
fair
tosaythatwe in
Philadelphiatoday
benefit
froma fairlylongtraditionofbusine

and community
leaders
working
together
on thewholefairly
harmoniously.
The CHAIRMAN.Senator
Sparkman?
SenatorSPARKMAN. Mr. Chairman.

Of course,
I havenotbeenhereduring
allofthetestimony,
but
haveyouexpressed
yourself—
I havetriedto
readyourstatement,

but I didnothavea chanceto readallof it.We areconsidering
S. 406;thatiscorrect,
isitnot?
Mr. COOKE. Yes.

Senator
SPARKMAN.
Haveyousaidyeaornayon
thebill?
Mr. COOKE.I believe,
Senator,
Ihave saidthatingeneral
I
wouldendorse
thebill,
subject
tosomereservations
whichI have
outlinedonpages2
and3ofmytestimony.
Themostserious
reservationrelatesto
section
(4)(1)(c).

Senator
SPARKMAX.Whatisthatparticular
section?
Mr. CookE.Thatisthe section
whichwould require
financial

institutions
as partoftheir
applicationfor
a new branch
office

facility
to specifically
indicate,
presumably
by some percentage
figure,the
amountofdepositsderiving
fromthecommunity
tobe
servedby thenew office
whichtheinstitutions
wouldpropose
to
reinvest
inthecommunity.

Tomethateffort,thatspecificity
isimpractical.

296

TheCHAIRMAN.
Thankyouvery
much,
Mr.Cooke.I
thank
you

foryoursupport
of thelegislation
and yourwarning
thatyou
wantustoworditin suchaway thatwedon'tdeprive
assistanc
to areasthat need it.

Now,I wouldliketo haveMr. RonaldGrzywinski,
chairman
of the executivecommitteeof South Shore NationalBank of

Chicago;
andMr.Milligan,
whoisatthetableasournextwitne
asa panel.
STATEMENTSOF RONALD GRZYWINSKI, CHAIRMAN OF THE EXEC
UTIVECOMMITTEE, SOUTH SHORENATIONALBANK
OFCHICAGO,

AND A.A. MILLIGAN,PRESIDENT-ELECT,
AMERICAN BANKERS
ASSOCIATION

The CHAIRMAN.
I will
askMr.Grzywinski
toleadoffandthen
Mr.Milliganandthenwewillquestionbothgentlemen.
Go ahead.

Mr.GRZYWINSKI.
Iwillsummarizea
littleofthewrittentest
Ipresentedandadd
alittletoit.
It seemsover
the15years
orsothatI havebeeninthebanking
business
thata bankerhasthreeresponsibilities.

·Thefirstofthoseistoprotectthesavingsthatareen
care.

The secondone
istoearna reasonable
return
forhisshareholders

andthethirdoneistosupport
andencouragethe
economic
develop
mentofhiscommunity.
The communityinthecasefora banksuchasSouthShoremight

beinourimmediateneighborhood.
Forlargerbanks
itmightbeanentiremetropolitanarea
perhaps
forsomeofthemajormoneycenterbanks,perhapstheec
entireUnited States.

Itseemstomethattheavailableevidenceshowsth

banking
industry
hasdonea verygoodjobon thefirst
two.We
havecertainly
had bankfailures
inthepastcoupleof
years,
but
generally
thebanking
industry
hasdonea good jobin thepast
fourdecades
protecting
thesavings
thatareentrusted
toitscare.

Thedata
also
shows
that
banking
asanindustry
has,overth

years,
earned
a veryreasonable
rateof return
oninvested
capital

I think,
moreandmore,
asthe
data
becomes
available
asa resul

of various
kindsof disclosure
ordinances
attheStateand Federal

levels
and inthecities,
itisbecoming
clear
thatperhaps
fora

varietyofreasons
thebankingindustryis
notdoingasgood
ajob

asmight be donein supporting
and encouragingthe
economic
development
initsprimary
service
area,
itscommunity.

Thereareseveralreasons.One:
Thatthemanagersandtheo

of banksaremeasured
andrewarded
primarily
on theprofit
per

formance
oftheir
banks.
Thatistheprimary
measurement
stick

It istheeasiest
measurement
stick
and itisalsothe bestreward
system
.

Second:Wehavecreated
inthiscountry
abodyofpublic
policy

thatcontributes
totheearnings
of banks.
Many of those
policie
werecreated
toserve
other
purposes,
especially
during
thethirtie

297

But,ineffectthere
area numberofsuchpolicies
thataffect
the
bottom
line
ofbankearnings
statements.
Ceilings
on interest
rates
isoneexample.
Itisanexample
where,
ifthoserates
werefloating,
banks
wouldprobably
payhigher
interest
rates
thanthey
presently
payand,intheshortterm,therewouldbe some reductionin
bank

earnings.

Depositorinsurance
isanother.
Whileitispaid
forby banks,one
couldargue
thatithasprobably
made thepublic
lessawareof the

capital-to-assetratiosofmanyofourfinancialinstitut
I wouldguess
thatifwe didnothaveFDIC and FSLIC in

surance,
thepublicmightbemoreawareofthe20-to-1,25-t
to-capitalratiosthatprevailatsomebanksandmightm
tohavetheratiosreducedto10-to-1.

Thefocus
ofthis
particular
legislationrestricting
entry
into
the
marketplace
isa benefit
thatisconferredby
public
policy
andthat

contributes
totheearnings
of banks.
If thebankingindustry
were

ableto openbranches
theway thegascompanies
usedto open
branches,
competition
mightbe more severe,
and weargue that

earningswouldbesignificantlylower.
Thepurposeofgoingthrou

this
litany
is to point
outthatin myjudgment,
because
of the
publicpolicies,itseemstomethatthepublichasacallonre
financialinstitutionstodothosethingsthatareinthepub

andthat
again,
thebanking
industry
seems
generally
unwilling
to

do by itself.

I thinkourownexperience,
while
itisearly
and limited,
has

pointed
outthat
a financial
institution
canbethevehicle,
perhaps
themeans,
torestore
economicvitality
toa particular
community.
Probably
youknow we wereable
toputtogether
an investor
group

31/2
yearsagothatpurchased
theSouthShoreNational
Bank.The

bankhadbeenstarted
in1939andgrewthrough1968,
itspeak.
The SouthShoreNational
Bankand itsneighborhood
beganto
experience
racial
changein thesixties.
The SouthShoreNational
Bank in 1968had $80million
inassets.

Thereafter,
itbeganto lose
those
assets.
Itsdeposits
beganto
experience
deposit
attrition.
After
sometimethebankapplied
for
permission
totheComptroller
of theCurrency
to relocate
outof
theneighborhood
to a new location
in downtownChicago.

Fortunately,
thepeople
who lived
in SouthShoreatthattime
wereabletogetcompetent,
professional
assistance,and
theywere
able
tocontestthatmove;
andthey
succeeded
ingetting
a favorable
decision
fromtheComptroller
thatrequired
theSouth
ShoreNa
tional
Banktostayin
SouthShore.
The Comptroller
said
itwasan
unprecedented
decision
for thatoffice.

We wereabletopurchase
thebank8 monthslater,
Since
thattimewehavebeentrying
touseitasa development
bankfortheneighborhood.
That means workingwithinthebody

oftheregulations.
We havetried
toconsciously
makean effort
to
usethebank's
resources—
thecreditpowerofthebank
—andreinvest
themin ourneighborhood.

To date,
through
thepast
312years
we havereinvested
about
$8
million
ora third
ofourtotalloan
portfolio
in SouthShore.
Itis
invested
in various
ways.
WhileI think
itistooearly
tosaythat

298

theSouthShoreneighborhood
hasturned
around,
there
arevery

clearindicationsthatitismovingintherightdire

Singlefamilypropertyvaluesinthepast
18monthshaveincreas
byatleast50percent
andinsomeareas,
by morethan50 perecnt,
andithasbecome
an extremelytight
market.
Therearea numberof people
becoming
interested,
including
a
majorsavings
and loanservice
corporation
thathasstarted
todo

multifamily
rehabilitation,
and a numberof other
partiesare
comingintotheneighborhood
looking
at therental
housing
stock
andworkingto
redevelop
it.

We havebeenworkingwithotherpeoplewho
areinterested
in

rebuildingthe
commercial
district.
Ifonetalked
tovariouspeop

in theneighborhood,
onewouldfindthatthere
isa generalspiri

that
thesituation
intheneighborhood
hasturned
around
andis

beginning
to movein theright
direction,
although
there
isstill
muchtodo.Wedidallofthisworkprettymuchby
ourselves.
Thecontributionby
thesavings
andloanservice
corporation
was

an important
contribution.

Butduringthetime
weweredoingthis,
twoofthelargestbanks

in Illinois,
the two largest
bankshave had about$25 million
in

deposits
fromourneighborhood.
Weknow this
because
thecity
of
Chicago
haspassed
adisclosure
ordinance
thatrequires
banks,
if
theywant toreceive
cityfunds,
to disclose
notonlytheloansbut

thedepositsthey
haveandthesourceofthose
deposits—
thosebanks
haveover$25
million
andaremajor
sources
ofcompetition
— ifone
excludesstatementedloansagainstchargecards,itap
haveonlyreinvested
$500,000
inourneighborhood.
Thereisdataon otherneighborhoods
in Chicago,
whichwouli
tendtoshowthesamethingin
theotherareas.
So,Ihavevariousconversationswithbankers

The CHAIRMAX.Did you say$500,000?
Mr. GRZYWINSKI.
Yes.The figures
are$25.3million.
Totalloans,

$5.6million.
We estimate
that90percent
ofthe$5.6million
isin
charge
cardloans,
whichwouldleave
a netof$500,000.
It comes
to2percent,
ifI'mnotmistaken.
Anyway,the
variousconversat

Ihavehadwithbankersatlargerbankshaveindicat
I think,
two things.

One: That many of the banksseethemselves
as retail
savings
banks,
butaswholesalelendingbanks.

Theydon't
seeanyincentiveor
anyneedforgettinginvolved
in

lendingintheneighborhood.Theyrecognizethat
andtheirmarke

ing policies
areall gearedtowardattracting
personal
savings

accounts.
They know aswellas,I'msure,
membersofthiscommittee

know,that
thatis
thefastest
growing
sector
ofbankdeposits
and
has been for some time.

Second:
WhereI havetalked
tomiddlemanagement
people
in

inlarger
banksthathavebranches—we
haveno branching
in

Illinois-it
seemsthatin many cases,
there
isno communicatio

between
people
responsibleat
thestafflevel
forproviding
urban

servicesandthepeoplewhohavebranchlineresponsibi
Wherethecredit
decisions
arebeingmade,thereisrelativel
little
communication.
I thinkallofthishas
ledme to whatmyown

299

experience
hasbeen
andtoanunfortunateconclusion.
Threeor

four yearsago,
Iwasmoreoptimisticthatbankersmightworkmo
aggressively
intakinggreaterinitiative
inrebuildingneighborhoods
and communities.

The unfortunateconclusion
I havecometoisthatbankmanagers

may be well-intentioned
on thatissue,
butthesimple
factof the

matteristhatthesystem
rewards
earnings,
anddevelopment
or

reinvestment
in neighborhood
isan additional
short-term
cost.

If any bankdecides
to do thatby itself,
itis,in effect,
self
imposinga taxonitsearnings.
Therefore,
whatisneeded
isa uni
versally
applied
system
ofincentives
and/or
sanctions
toencourage
development.

I saythat,
unfortunately,
because
likemostpeople,
I don't
like
any more legislationorregulationthan
we havetohave.

It seemsas
though
nothing
muchisgoing
tohappen,
ifwe don't
do something

S.406isa modest,
butimportant,beginning
inthis
regard.
It

should be enacted.

However,
I think
itshould
be strengthened
in theareaof the
authority
anddirectionto
examine
current
performance
inexisting

serviceareas.Otherwise,
I think
there
isa possibility,
perhaps
a

probability,
thatthelegislation
willbe counterproductive.
Itis
generallyviewed
thatfacilities
areopened
onlyinaffluentmarkets.
Itwouldnotdomuchfortheolderareas
whicharegeneratinglarge
proportions
ofthesavings
inbanksand whichneedmostreinvest
ment.

Therearefive
areas
wherethecommittee
may wishto consider
strengtheningthebill.
Thefirst—and
itmightwellbe
donethrough

regulation
rather
thanlegislation
—istodoabetterjob
ofdefining

the primarysavings
service
area.Questions
of definition
hereare

important.
Anapplicant
bank,
a bankapplying
fora new deposit
facility,should
prepare
an economic
impactanalysis
that
showsthe
creditneedsofthearea
andhow thosecredit
needs
aregoing
tobe
met.

I'm concerned
herethattheremay be a numberof banks,inde

pendentbanks,perhaps
banks
thathavesmall
branching
networks
thatmightbedoing
a verygoodjobin
theirprimaryeconomic
area.
andtheymightwellbelocated
inveryattractivegrowthareas.
And
thereisa tendency
in this
country—where
bigness
perseisable
totakeadvantageofgrowthopportunities—
tofavor
largerfinancial
institutions.

TheCHAIRMAN.
I hesitate
tointerrupt
butcouldyousummarize
ifpossible
ina few minutes.
Mr. GRZYWINSKI.But I thinkwe need to show where the credit

needsare
andhow those
creditneedsare
goingto
bemet.
Third:
As we sawintheSouthShoresituation,
wherethecom

munitygroup
wasattemptingtofight,
itwasabletogetprofessional

resources.
Generally,
there
isanimbalance
inanypublichearing
becausean
applicantbank
isable
tomustermany
moreprofessional
resources
andtheconsumer
and community
groups
aregenerally

dependent
on voluntary
assistance.

300

I thinkherethebill
couldbe improvedby giving
standingtoa

municipal
government
in ahearing,
butmore importantly,b
havingasystem
wherethere
isfinancing
andsupportforapubli
advocate
within
theagencies
who wouldbelooking
atthepublic
point
of viewonthevarious
branch
applications.
Fourth,
I think
itisnecessary
thatwhatever
reporting
require
mentsthere
arebedoneby census
tracts.
Contraryto
Mr.Cooke's
position,
we haveseenwhere,within
service
areas,
thereare
enormousdisparities.
Only by getting
down to censustracts
can

youseewherethedeposits
comefromand wheretheloanneeds

exist.

Finally:
Thereshould
bepublic
hearingson
thedrafting
regula
tion.

Thereshouldbeopportunity
after
theregulations
aredrafted
thatin eachof thevarious
regulatory
regions
there
shouldbe
hearings
on these
regulations
toseeiftheyareconsistent
withthe
legislative
intent.
The final
point
isthatdevelopment
requires
initiative.
It doesnot

happenjustbyopeningyour
frontdoors
andsaying,“
Yes,
I will
makeloans
inthis
neighborhood.”
It won't
happen.
Therehas
to
beinitiativeon
thepartof either
thelending
institution
or what
evervehicle
isgoingtoberesponsible.
I think
therehasto
bethewill
and motivation
tofindtheway
forthat,
whichishardto do,butisnecessary.

Thiswouldhelpcreate
away forserious
initiative
and more

balancedeconomicdevelopment.

The CHAIRMAN.Thankyou fora fine
statement.

Mr.Milligan,youare
Presidentofthe
BankofA.LevyofOxnard,
Calif.,
andpresident-elect
oftheAmerican
Bankers
Association.
You cango ahead.

[Complete
presentationsof
Ronald
Grzywinski
andA. A.Milli

ganfollow:)

PREPAREDSTATEMENTOF RONALD GRZYWINSKI,CHAIRMAN OFTHEEXECUTIVE

COMMITTEE,
THESOUTHSHORENATIONALBANK OFCHICAGO

Neighborhoods
aredyingin cities
throughout
America.
Good housing
turnsto
slums,profitable
businesses
leaveor go bankrupt,
schoolsdeteriorate,
and
crimeincreases.
Workingon theirown,the victims
of thisprocess—
businesses,

churches,
schools,
and thepeople—are
powerless
tostopit.Soonwholeneigh
borhoods
areabandoned,
left
to dieof spiraling
neighborhood
deterioratio
and the tax base of our cities
continuesto erode.

Thecauses
ofneighborhood
deteriorationare
many andvaried.
Theyinvolve
thepsychology
ofclass
and ethnic
prejudice,
thepressures
ofrapid
racialand
socio-economic
transition,
and the problemof aging housingstock.At a

critical
point
credit
isshutoff,
andthecommunityloses
thecapacity
toshape
its future.

Neighborhood
deterioration
oftenbeginswhen members of a different
racial
or ethnicgroup,
seeking
a better
life,
move intoan oldneighborhood.
Generally
thenew residents
do nothaveas sounda financial
baseastheformerresidents.

Deterioration
canalsooccurmoreslowly
asa community
ages.
Astheprocess

continues,
theties
thatbindtheneighborhood
aresevered.
Soontheestablished
shopkeepers
move,communityorganizations
dissolve,
thecrimeratebeginsto
climb,
therental
properties
and theschools
decline.
Thereafter,
thecommunity
steadilydeteriorates.

From a distance,
thetaskofcommunity
redevelopment
seemscomplex
and
expensive.
Social,
political,
and economicfactorsappearinterwoven
ina
mazeofcauseandeffect.
Even thepointandmeansofentryaredisguised.

301
Closeup,the task becomesone of feasible
projects.
In nearlyeverycom
munity acrossthe nation,there alreadyexistsan institution
that,becauseof

itsspecial
characteristics,
can serveas a pivotal
pointin the fightagainst
spiraling
neighborhood
deterioration.
Such an organization
is the federally
regulatedfinancial
institution.

It isa known and generally
trusted
institution.
It is a knowinginstitution.
It knows more about the localeconomy
than any otherinstitution.
It can make credit
judgements,
identify
local
economicproblems,
searchforsolutions,
and developconstructive
proposals
for publicand privateaction.

The rules,
regulations,
procedures,and
operatingprecedents
forfinancial

institutions
arein placeand do nothaveto be created
anew.
It controls
a poolof credit,
one of the threeprerequisites
(alongwith
capital
and know how) forany development
work.

As businesses,
financial
institutions
are orientedto a pragmatic,project

by-project
program
ofdevelopment
whichincorporates
measureable
stand
ards of performance.

Becausethey are highlyregulated,
the managersof development
in a

banking
contextare
constrained
to operate
withina systemof checks

and balances
whichhelpsto assurea prudentapplication
of resources.
Federallyregulated
financial
institutions,
however,are essentially
profit

motivated.
As such,
theynecessarily
choose
investment
policies
to assure
the
highestreturnconsistentwithprudentrisk.
As Mr.RobertBloom,
Acting
Comp
trolleroftheCurrency,haspointedout,“acenturyofexperience
(hasshown)
that
the profit
motiveservesthe public
interest
bestin encouraging
bankersto

seekout everyavailable
opportunity
forprudentand economically
sensible
investment
ofdepositors'
funds."
This motivation
has producedmixed results.
Seeingthemselves
as powerless
victims
of a process
of deterioration,
bankers

appear,onthe
onehand,
to withdraw
savings
fromcapital-rich
neighborhoods

in need of reinvestment
to rehabilitate
agingfixedassets
and,on the other,
to depositthem in new but capital-poor
neighborhoods
which promisea
longereconomiclife.
The new Administration
and theCongress
facean unprecedentedchallenge

findwaystoapplythe
virtues
ofourprofit-motivatedmarketeconomy
tosolve

the problemsof economicand social
deterioration
in thosepartsof thenation
which have losttheircompetitive
edge.This must be done withoutadding
unbearablecosts
tothepublictreasury
and without
creating
new bureaucracies
thatcan impedetheflowof public
resources
to areasof need.S.406,theCom
munity Reinvestment
Act of 1977,is a modeststepin thisdirection.
It will

raise
the consciousness
of managers
and regulators
of financial
institutions
abouttheirobligation
to meetmore effectively
thecredit
needsofthelocalities
they are charteredto serve.

Unfortunately,
the Actdoesnotgofarenough.
Itdoesnotcreateasystemof
incentives
and sanctions
adequateto induceregulated
financial
institutions
toinvestcapital,
credit,
and talent
resources
in deprived
areaseitheron a

scalecommensurate
withtheneedsof
thenation
oraccordingto
thecapacities
ofsuchinstitutions.
S.406 usesonlyone ofthe privileges
granted
toregulated
financial
institutions
throughpublicpolicy,
thatis,restricted
entryintothe

marketplace,
to encourage
banksandsavings
institutions
tomeetlegitimate
and prudentcredit
needs.
As a first
step,
however,
itshould
be enacted.As
SenatorProxmirestated
in hisexcellentintroduction
to the Billin the Con
gressional
Record of January 24,1977,it is time to act on the realization
that
"the publicsectorcannot
finance
allcapitalneeds,"
that“private
financial

institutions
arethemain sourceofcapital
fordomestic
economicdevelopment,'

and that "investmentby financial
institutions
in theircommunities need not

involve
imprudentrisks.”
In addition
to suggesting
specific
amendment to S. 406,I willcomment on

onesection
thatdeserves
carefulscrutiny.
Sec.
4(1)
(D) requires
an applicant
financial
institution
to“demonstrate
how (it)ismeeting
thecredit
needsof
theprimarysavings
service
areasin whichitor itssubsidiaries
have already

beencharteredto do business.”
Without sufficient
direction
as wellas authority
to examine in depth the reinvestmentbehavior of a financial
institution
in

those
communities
from whichit already
attracts
a largeportion
ofthe
available
savingdeposits,
the Billis an insignificant
gesture.
As we have

seen,financial
institutions
branch most aggressively
into newer communities

88-032 O.

77 - 20

302

thatpromise
rapidgrowthrates.
They seemto counton thereluctance
of

depositors
to change established
depository
relationships,
and they defer
apeningfacilities
in oldercommunitieswhich,althoughthereis adequate

marketpenetration,havethe
greatest
needofreinvestment.
Therefore,
ifthis

• bill
intends
to stimulate
large-scale
reinvestment
in needycommunities,
itmust
insure,
as a precondition
to openingany new depositfacility,
a comprehensive
reviewof a financial
institution's
reinvestment
policies
in allcommunities
from which it attracts
significant
deposits.

To achieveS. 406'sobjective
of localreinvestment,
thisCommitteemay

wanttoconsider
thefollowing
amendments:
1. Add a morespecific
definition
ofthe“primary
savings
service
area"in

whichfinancial
institutions
have beenchartered.
The definition
shouldinclude
forexample,any area in which a financial
institution
now attracts
approx.
imately15% of the known savingsdeposits.
( This may requireamending the
Home Mortgage DisclosureAct of 1975 to includedisclosureof sources of

deposits
by censustract.)
2. Requireany applicant
of a new deposit
facility
to preparean economic
impactanalysis:
Currentregulations
offer
the largefinancial
institutions
the

greatest
opportunitiesto
expandtheir
deposit
facility
network.
In many parts

of the nat
thishas led to steadily
increasing
concentration
of banking
resources
withouta corresponding
commitmentto communitycreditneeds.
(For example,
the two largest
banksin Illinois
control
approximately
24.6%
of alldomesticfunds on deposit
in the state,
withoutbenefit
of branches.

Together they now withdraw $25.3 millionin depositsfrom the South Shore

neighborhood
of Chicago,
but theyhave reinvested
only$5.6million
in loans,
of which approximately
90 % are thoughtto be bank card credits
at annual
interest
ratesofapproximately
18%.) An economic
impactanalysis
would help
to preventfurther
concentration
of bankingresources.
Such a reportwould
havetooutlinethe
creditdeficiencies
of theservice
areaand arguepersuasivels
thatthecredit
needscan onlybe met throughopeninga deposit
facility.
The
provision
would accomplish
two objectives:
insurethatany new institution
entering
theservice
areahas designed
a strategy
to meetexisting
credit
needs;
and protect
from the glutonyof bigness
per se thoseinstitutions
that have
beendoinga responsible
job in a particular
service
area.
3.Includespecific
safeguards
to the public
interest:
While the Billwould
encourage"community,
consumer,or similarorganizations
to present
testi
mony at hearingson
applicationsfordepositfacilitieson
how welltheapplicant
has met
creditneeds,”
we shouldrecognize
thatsuch organizations
are
oftenvolunteer
staffed.
They cannotsummon the talent
resources
a wellcap

italized
financial
institution
will
musterto
present
and defend
itsapplicatio
Such a situation
can onlyresult
in an imbalanced
adversary
relationship
with
the public
inadequately
represented.
Two amendmentsto theBillcouldrectify

thispotential
(probable)
inequity.

a.Statethatofficial
representatives
of themunicipal
government
areentitled
to testify
at suchhearings.
(As the financing
ofmunicipalservicesbecomes

increasingly
difficult
in moreoftheolder
cities,
local
officials
should
takea
growinginterestin
thereinvestmentpolicies
offinancialinstitutionsand
should
be ableto callupon the resources
neededto analyzefullythe reinvestment
performance
of financial
institutions.)

b.Require
applicants
fordepositfacilities
toprovide
sufficient
financial
sup
portfora PublicAdvocate
bothto work withintheappropriate
Federal
financial
supervisory
agency
and torepresent
thepublic's
interestat
allbear

ings.
(Such an office
in New Jerseyrecently
resulted
in the PublicUtilities
Commission not only rejecting
New JerseyBell'sbid for a $150.2millionrate

increase,
but actually
ordering
a $1 million
rollback
forlow use customers.
“ A keyfeaturein the Jerseyplanis a requirement
thatany utility
filinga
ratepetition
must pay one-tenth
of one percent
of itsoperating
revenues
for
thepreceding
yearto supportthechallenge,
thusenabling
thePublicAdvocate
to hire qualified
consultantson a par with the expert witnessesthat utilities
always muster to supporttheirrate cases.”New York Times editorial.)

4. Amend the first
lineof Sec.4(4) to read,"requiring
periodic
reports
by
census tract from regulatedfinancialinstitutions."
This would avoid the

problemof wide economicdisparities
thatcan existwithina givensavings
service area.

303
5. Includea provision
in Sec.6 for public
hearings
in each regulatory
dis
trict after publication
of the draft regulationsbut priorto implementation.

This would insurethatcommunity,consumer,
and similar
organizations
have
an opportunity
to comment on theregulations.
Also,
correct
the typographical
error, “one hundred and eightdays" to read “one hundred and eightydays."

Neighborhoodsare
thebasicunitofournational
community.
The Community
ReinvestmentAct of 1977 attemptsto dealwith a specific
geographic
area
defined as a primary savings servicearea. This area should in fact be
identifiedas a neighborhood.If the Billis enacted,conflicts
will inevitably

arise over what constitutes
such a primarysavingsservice
area.Further
inore it seems clearthat thisand other committees will be lookingat neigh

borhoodswith greater
frequency.
Therefore,
the SenateBanking Committee
might want to introduce
legislation
requiring
the appropriate
Federalagency
to defineStandardNeighborhood
Statistical
Areas throughoutthe nation.
Such definition
would simplify
the process
of dealing
with neighborhoods.

MONEY

MATTERS

(By Judith Barnard)

Waterbeganseeping
into
theelegant
SouthShoreVilla
condominiumduring
the night of October 21, 1976.Within a few minutes,the city water depart

ment had beencalled
and a crew leftthestation
at 79thand Ashlandtodrive
in to South Shore.Before they got to the Villa,the cracked water main that

had allowed
theseepage
burst,
andfive
million
gallons
ofwaterexploded
into
69th Streetat South Shore Drive.

The street
was suckedintoa 60-foot
lake;carsfloated
on itssurface.
As

the earthwashed
away,thesouthwalloftheVillacrumbled,
opening
living
rooms, bedrooms,
and kitchens
to thenightair.
The waterdepartment
crew had to shutoffsixvalves
to stoptheflow
; each
took 20 minutes.
When theyhad finished,
and thesoundof rushingwaterhad
died away, television
crews,news photographers,
and residents
liningthe
collapsed
street
tookstockof thedamage.
It was a terrific
disaster
forthe publichighdrama and no one hurt or
killed.
But forthosewho knew what the Villameant symbolically,
theflood
had wounded an entire
neighborhood.
That regalbuilding
had beengivenup
as a prospective
slum by itsmortgageholder,
Talman Federal.
The community
of South Shorehad beendeclared
a disaster
area,soonto becomeone large
slum, by urbanologist
Pierrede Visé,by a majority
of itsformerwhiteresi
dents,and by themoney merchants
of Chicago.
But the 39-unit
Villahad beenreclaimed,
renewed.
It was soldat a hefty
profit
to a developer,
and itsresidents
formed a strong,
activecondominium

association.
Itwas bothan example
anda symbolofwhatSouthShorecould

achievein itshomes and businesses—
ifthestreets
held,
and ifthecommunity
didn'tbecomediscouraged.
And ifthecommitmentheldfirmamong the people
behindthe Villarenovation,
behindthe effort
to turnSouth Shorearound
the staffof the South Shore NationalBank.

At itspeak,the SouthShore National
Bank had assetsof $80 million
-a
stablebank in a stable,
prosperous
whitecommunity with a lakefront,
an
enclaveof mansions,
blocksof modesthomes,and solidthree-story
walkups,
high-rises,
designer
shopsalong71stStreet,
churches,
synagogs,
schools,
proxim
ity to the Loop and the University
of Chicago,
and a heterogeneous
popula
tionof 80,000.
What happenedin SouthShoreisn't
a uniquestoryany more- but what's
happening now is unique.It may even carry hope for other deteriorating

urbanareaswhereallthose
involved
claim
- andbelieve
theyarevictims
of
forcesbeyond theircontrol.

SouthShore“wentblack.”
Withina few years,
thepopulation
in thearea
boundedby Jackson
Park(67thStreet),
StonyIsland,
83rdStreet,
and the
lake shiftedfrom 99 percentwhite to 85 percentblack.The white residents
who stayedeitherhad substantial
investmentsin mansions in the section
called
the Jackson Park Highlands,or an investmentof anotherkind; a commitment
to integration
and a belief,
or hope, that they could keep South Shore from
going the way of neighboringWoodlawn.

304
The forces
thataccompany,
and accelerate,
thedeterioration
of an areaare
complexand,seenin isolation,
baffling.
But theyhave a pattern,
and South
Shore'sinthe1950sand1960swentsomethinglikethis:
The pressurefor good housing for blackswas enormous. Where they could,

blacksburstout of theirovercrowded,
deteriorating
neighborhoods
intoareas
with betterhousing,
lowercrime rates,
better
schools,
and breathing
space.
The demand pushedprices
up; landlords
raisedapartmentrents,
and blacks,
paidthem.Otherlandlords
followed
suit,
and whitefami
having fe options,
lies,
who did have options,
moved to neighborhoods
where rentswere lower.
At thispoint,
two thingshappened.
Landlordsassumedthatblackswould
ruinthearea,so many saw no sensein spending
good money on maintenance
or on screening
applicants
or on enforcing
densityrestrictions.
Maintenance
became minimal; rents went up; many black families,to make payments,
shared apartments with cousinsor friends.And owners watched their self

fulfilling
prophecies
be fulfilled.
own
By "milking”
theirbuildings
(alsocalled
“managingfordemolition"),
ers pocketedmoney they would have spent on maintenanceand taxes.In that
way they could recoverthe purchase priceof a buildingin three years.The

Cityof Chicagoallowsa "graceperiod"
of ten yearsof nonpaymentof taxes
beforeit takes over a building;so the owners, theirnames often buried in
land trusts,
had plentyof time to walk away from buildings
that by then were
worthless.
Single-family
homes were treatedmuch the same way. Black familiesthat
could not get conventionalmortgages (the area,by this time, had been red
linedby most banks and savingsand loan institutions),
got FHA-insured mort.

gages.And when theycouldn't
keepup payments(FHA screening
procedures
are minimal),
and the mortgageswere foreclosed,
thosehouseshad to stand
empty for one year(a peculiar
FHA regulation)
beforenew owners could
take over.By that time,the houses had become playgrounds,
strippedof their

fixtures
and damaged by cold,rain,and wind.More,neighbors
had stopped
fixing
up their
homes because
thesorespotsdepressed
valueson theblock.
“Disinvestment"means the consciousdecisionby financialinstitutions
to

keepinvestment
money out of a community.It applies
to banksin the com.
munity as wellas thosedowntown. At about the time the colorof South Shore

beganchanging,
the ownersof the South ShoreNational
Bank decidedthey
couldn't
cope withthe new residents.
Bankinghabits
were different,
thepeople
were different
from those with whom the bank had been comfortable.Many
familiarcustomers were leaving and taking their depositselsewhere.The
bank had made its own decisionto disinvest,
which in effectmeant creating
conditionsthat would speed the outfiowof deposits.
The lobby got dirtyand
wasn't cleanedup, tellers
weren'treplacedwhen they left,
and peoplehad to
stand in linefor as long as an hour to open a new account.The minimum
deposit requiredfor high-interest
accounts was greaterthan in downtown

banks,services
were minimal,
and mortgages
were refused.
In 1972,the bank
lent$59,000in South Shore mortgagesfor the entireyear: two homes.
As a policy,it worked. Assets dropped from $80 millionto $46 million,
depositsto $41 million.
Businesswas so bad, the owners said,they had to get

out.They had buyerswho wantedto move thebank to theStandardOilBuild
ing.They filed
an application
to move.

Looking
overitsshoulder
at Woodlawn,
theSouthShore
Commission,
a
community
organization
begunin
the1950s,
fought
themove.
Theytestifie
before
theComptroller
of theCurrency
thattherewasn't
a goodreason
for
thebanktomove,thatthemovewoulddo irreparabledamageto
South
Shore.
And for the first
time,the Comptroller
of the Currencyturneddown such
an application,
stating
thatthe bank “has failed
to show persuasive
reason

at thistimeforabandoning
itspresent
servicearea
and leaving
theSouth
Shorecommunity
without
a strong,
established,
and adequately
capitalize

commercial
bank.”

Sometimes
events
coincide
asifby plan.
At thesametimethattheowners
of theSouthShoreNational
Bank werelooking
fora way outof a community
theyno longerunderstood,
a groupof people
in Hyde Park was looking
fora

banktobuy.
Onemember
ofthegroupwasthe
former
presidentof
theHyde

Park Bank and TrustCompany,Ron Grzywinski
(Griz-win-'ski),
who had

justcompleted
a two-year
fellowship
at the AdlaiStevenson
Institute,
where

305
he worked up a modelfora development
bank thatcouldhelpa community
reversethe spiralof deterioration.

Grzywinski
named hismodelthe Neighborhood
Development
Corporation;
itwould be a holding
company thatwould buy a bank and eventually
form
subsidiaries,
both for profitand nonprofit,
to act as a catalystand a base of
supportfor neighborhoodrehabilitation
and development.

He had talkedit out with the peoplewho would helphim put the model
intoaction:Mary Houghton and Milton Davis,who, as directors
of the Hyde

ParkBank'surbandevelopment
division,
had created
thesuccessful
minority
business-loan
program.
In another of thosefortuitous
conjunctions
of events,in August 1972,at the

same time Grzywinski
was looking
overthe SouthShoreNational
Bank,the
FederalReserveBoard ruledthat bank holdingcompaniescouldmake "in.
vestments in corporationsor projectsdesigned primarilyto promote com

munitywelfare,
such as the economicrehabilitation
and development
of low
incomeareas."
The ruling
went on:“ Bank holding
companiespossess
a unique
combination
of financial
and managerial
resources
making them particularly
suitedfor a meaningfuland substantial
rolein remedying our socialills."

It was a trumpet
sounding
thecharge.
Grzywinski
tookhismodel,
thenew

Fed ruling,
and hisown considerable
charm,and went calling
on foundations,
wealthyindividuals,
and churchgroups,
looking
forfourmillion
dollars.
He wasn'tpreaching
thekingdomof heavenas a rewardforgood worksin

SouthShore;he was makinga business
pitch
forinvestments
thathe ex
pected,
butcouldnotpromise,
wouldpay dividends
ifinvestors
wouldagreeto
defertheirearnings
until
thenew ownerscouldreverse
the outflow
ofdeposits
and attract
new money from withinand outside
SouthShore.
At no time,verbally
or in hiswritten
proposals,
didhe conceal
therolethat
he and hisfellowofficers
intended
the bank to playin makingan experiment

thathadn't
beenmade inanyother
deterioratingneighborhood
inthecountry:
"Whilethepolicy
ofthecorporation
istomakeloans
andinvestments
only
in situationswhich
itbelieves
offer
a reasonable
expectationof
return
tothe
corporation,
itwillnot attemptto maximizesuchreturnat theexpenseofits
primarygoalof developing
the neighborhood
for the benefit
of itsresidents.

Moreover,
the corporation
expectsto
conduct
or contract
forresearch
and
studies
to providetechnical
assistance
and to make grantsrelated
to neigh

borhooddevelopment.
Whiletheeffect
ofsuchexpenditures
maybetoimprove
theneighborhood,
theymay alsoreducethe returns,
ifany,tothe participants

in thecorporation.”
(From theOffering
Circular
oftheIllinois
Neighborhood
DepartmentCorporation:
italics
added.)
It was hardlya conventional
approach
: what followedwas even lessso.

The OfferingCircularreiteratedthe dangers the new owners might face

hostility
fromthecommunity,
lackof sufficientoutside
investments
to maintain
momentum, absenceof any modelson which to base theirexperiment,
the
dangerof the bank'sgoingunder beforethe decaycouldbe reversed.
Then
thecircular
added,almostcasually,
thatif the bank became profitable
and
succeded in itscommercial and residential
development goals,its ultimate

goal would be "to sellto residents
of the neighborhood
the equityin the
corporation,
or alternatively
in the bank.”

But the radical
punchlinewas onlyone linein 47 pagesof hard business

andbanking
sense,withthe
comfortingword“profit”
appearingfrequently,and
itwas presented
by Grzywinski
withhisspecial
blendof youth
(he is40),
energy,
and experience
as a bank president
in Hyde Park and in Lockport,
Hlinois.
Between the first
offering
(1973–74)and the second(beginning
in
1975)nearlythreemillion
dollars
was committed.
And Ron Grzywinski
bought

a bank.

“Thefirst
day,”Mary Houghtonsays,
"nothing
was different
at thebank
exceptthat threenew peoplecame to work."
They went to work on August 23, 1973—Ron

Grzywinski,chairman of the

board,
MaryHoughton,vicepresident,
and MiltonDavis,
president.
Mary

Iloughton,
tall,
with an open,engagingsmile,
walks with a longstride
bent
forwardas ifhurryingto seearoundthe nextcorner.
She isforthright
and
accessible--hallmarks
of the entire
staff,
by designas wellas by inclination.

They came to a bank wheretheirpredecessors
had beendistrusted,
even

despised
by many blackresidents,
a bank thathad been run by whitemales

306
who had triedtheir damnest to get out of South Shore. Now here was a
new bunch taking over; was the fact that Houghton was female and Davis

was blackand Grzywinski
"cared”about peopleenough to convinceSouth
Shore that thingshad reallychanged?
Not for a long time.“ The populationwas nervous about the bank," says
Calvin Bradford (of the CircleCampus Collegeof Urban Sciences),
who has

beenstudying
theSouthShorecommunity.
“They tookonelookatthesepeople
who came in saying,'We're going to remake your neighborhood,'
and their
firstreactionwas to say,'The hellyou are.'No one knew whether they were

bankersor some new kind of communitygroup.Did they want to make a
splashand thenlente.
or a fatprofit
and thenleave,
or didtheyreally
have
somethingnew in mind?"

There is one testedway to reachintoa communityand convincepeople
you're
forreal:Grzywinski
and Davisdid what independent
precinct
workers
in Chicagohave donefor years;theyhad a coffee
campaign.
They startedin the lobby of the bank. Grzywinski young and roseate,
Davis

short,
stocky,
dark,with a quietsmileand an even quieter
voice,
almosta
murmur.(Oddly,allthreeof them, Grzywinski,
Davis and Houghton,speak
in low tones,
sometimesmumbling,asiftheradical
things
theyhave to say
radical
for bankers-are better
saidslidinglyand
thenput intoaction.)
Davisand Grzywinski
stoodin thelobbyof thebankoffering
coffee,
asking
questions—
What do you want from the bank? What do you want for South

Shore?
What services
areimportant
toyou?--and
talking
aboutthemselves
at
the same time.

Then they went to living
rooms.recreation
centers—
wherererthey could

wanglean invitation.
Sometimes
onlythreepeople
came tolisten;
at other
times,up to a dozen.But information
travels,
and one special
pieceof in
formation
got around:With the new ownership,
no resident
of South Shore
couldbe turneddown fora loanunless
Grzywinski,
Davis,
or Houghtonagreed.
The daysoflow-echelon
summary refusals
were over.
"What they'dhad,”said
Houghton,
“was some stuffy
bankertalking
to a street-wise
black.
They just
talkedpasteachother.
Eventually
theystoppedtalking
altogether."
" Of course,
we do turndown applications,”
Grzywinskisays.
"We should
takemore risks.but
our interestisin
surviving.”
" The pointis,”adds Houghton,
“thatmany loanscan be made lessriskyif
someonetriesto put a packageof protections
together.
That'sone of our
main

roles."

But thecoffee
campaignwasn'tonlyaboutloans;
itwas alsoaboutdeposits,
urgingSouthShoreresidents
to"plantyourmoney closeto home,"to deposit
theirdollarswhere the dollarswould stay,in the form of loans,mortgages,
and investments.

Eightythousandpeople
livein SouthShore,witha total
of more than$110
millionin theirbank accounts,most of which are in largedowntown banks.

In 1974,the ChicagoDisclosure
Ordinance
required
thosebankswantingto
qualifyas depositories
for cityfunds to disclose
the amount of theirsavings
depositsand home loans in every census tractin the city.Some of the dis
closures:

In 1974,Continental
Bank made 92 percent
ofitsloansinsuburbs,
eight
per
centin thecity,
of which59 percent
were made in the NorthSideGoldCoast
and three percentdowntown.

HarrisTrust
and Savings
made95 percent
ofitsloans
insuburbs,
andfive

percentin the city,of which 49 percentwere made in the Gold Coast.

First
Nationalmade
76 percentof
itsloans
insuburbs,24
percent
inthe

city,of which 46 percentwere made in the Gold Coast.

In 1974,six bankinginstitutions
(Continental,
LaSalle,
FirstNational,
Exchange,
Central,
AmericanNational)
with$144million
in savings
deposits
from thecommunities
of Logan Square,Austin,
Roseland,
West Englewond,
and South Shore,returned
to thosecommunities
one-half
cent on thedollar
in home

loans.

To theargumentthatno onein theseredlined
communities
askedformort

gagesorqualified,the
officers
oftheSouthShorebankresponded
withskepti
cismin 1973and 1974.
In 1976,theyresponded
withfigureson
home mortgages
they made in South Shore in that year alone:52 loans made for a little
over

one million
dollars.
At theend of the year,onlytwo were delinquent.

307
While the eveningswere given over to downing coffeeand talkingup the

new policies,
thedayswereoccupied
withraising
a sinking
bank.
In the12
months beforethe new owners took over,$6.3millionsin depositshad been
withdrawn.Customer fraud and delinquentpersonalloans were rampant, and
reportingsystems were poor.

Ittook 26 monthsfor the new ownersto reportto theirshareholders
that
"in1975,the South Shore National
Bank restored
profitability
to itsopera
tions
and,forthefirst
timein sevenyears,
experienced
substantial
growthin
ordinary
deposits."
(By the end of 1976,Grzywinski
was beginning
to talkaboutthe possibility
ofpayingdividends
toshareholders,
as eachquarter'sprofitswere
dramatically

higher
thanthose
ofthepreceding
quarter.
Hisgoal
istopaya standard
(for
banking)
return
oftentotwelve
percent
oninvested
capital,
whichwould,
he
says,
“make itverydifficult
forbankers
tosaythatprofitability
and develop

mentare mutually
exclusive.")
The new ownershad puta hostof new procedures
intopractice.
They hired
a number of highlyprofessional
bankingpeople,
and otherswhom Mary

Houghtoncalls
"compulsive,
flexiblepeople
who don'tnecessarily
have a
bankingbackground,
butare verygood at solving
problems."
They rewardedtellers
forspeedand accuracy
withthehighest
teller
salaries
in thecity,which,together
withtighter
procedures,
reducedteller
fraudand
carelessnessand eliminatedthe long lines that had infuriatedwould-be
depositors.

Interestrateswere made competitive
with thoseof downtown banks;
certificate-of-deposit
accountswere made available;
free-checking-with-savings
accounts
wereintroduced;
bankinghourswerelengthened
to sixp.m.on week
daysand,forthefirst
time,included
Saturdaymornings;
data processing
was
upgraded;
loancollection
procedures
were strengthened.
“ The Bread Rapper,"
a bimonthlynewsletter
in the formatof Illinois
Bell's
" Telebriefs,”
was in.
augurated
and sentto allchecking-account
customers;
itisbotha community
uewspaperand a regular
reportof bank activities.
And they redecoratedthe bank, insideand out.

" I was ashamed to say I worked there,”
Houghtonsays.“ It was grubby
and depressing.
I remembertherewas a signup frontabovethe teller
cages
thatsaid,“We no longergivedeposit
balanceinformation.'
It was filthy
and
covered
withfingerprints;
ithad beenthereforthreeyears."
They replaced
thebluetille
on theexterior
wallswithnew brickfacing;
the
lobbywascompletelyredonewith carpeting,
sofas,
brightlights,
graphics
of
thebank'snew logo,a walnutcounterfortellers,
ceiling-high
plants,
and a
dramaticburgundy-and-blue
colorscheme.
“Peoplehad beensayingthe bank must be in trouble”
Houghtonsays.“ Any
place
thatlookedas lousyas thisone did had to be in trouble.
Which was
anotherway of sayinghow bad thingswere in SouthShore.Then wefixed
up the placeand peoplebegan saying the bank must be doing real well,and

thatmeant South Shorewas doingbetter
becausenot onlywere we staying

here,
butwe looked
prosperous.
And ifwe believed
inSouthShore,
thatwas

bignews becausebankersalways know what'ssafeto believein,right?"

By the end of 1976,witha remodeledbank,a new drive-in
facility
recently
openedtwo blockswest on 71st Street,land clearedand construction
under
way for a much-needed parking lot acrossthe street,
and a lobby that was

becominga communitysocial
center,
the bank had 30,000deposit
accounts

totaling$47,844,300.
Itsassets
stood
at$54,500,580,
anditsprofit
fortheyear
was $420,000.
More important,it had financial
fingersin a number of South
Shorepies.
That afterall,was the main idea.The bank SalesBook, which is given to

potential
investors,
setsthissentence
aloneon one page:" To our knowledge,

INDC (Illinois
Neighborhood
Development
Corporation)
istheonly bank

holding
company organized
forthe primarypurposeof neighborhod
renewal.”

“Whatwehad todo,”Milton
Davissays,"wasputpeople
and their
money

together.”
He smiles:such a simple idea.He sitsin his small office
off the

mainlobby,
withjustenoughroom fora deskand two guestchairs;
hisdoor
isusually
open.For weeklymeetings
he goesupstairs,
pastthesmallalcove
offthe ballwhere Mary Houghton has her desk,and into the combined con

ference
room and Neighborhood
Development
Center.
(Untilrecently,
Ron

308

Grzywinski
used the conference
tableas hisdesk;finally,
afterthreeyears,
he has his own office:
a cubicleat the end ofthe upstairshall.)

At the weeklymeetingsof the variousbank committees,
peopleand their

moneyareputtogether—when
possible.
The various
committeesevaluate
per

sonal-andbusiness-loan
applications
from what couldbe the split-person

alityviewpointof banker and developer.
The drive behind these meetings is

to keepthesplit
from getting
too wide.
" A bankerisa judge,”
Grzywinski
says.
“ A developer
isan advocate.
There's
inevitabletensionbetween the two. We try to be as creativeas possiblein
keepingthe tensionto a minimum and being developersas much as possible.”

" Allmortgages,”
saysUniversity
of Chicagosociologist
RichardTaub, who
basused South Shoreas a living
laboratory
forthreeyears,
"shouldbe seen

as development
techniques.
Bankstraditionally
havebeenpassive;
instead,
they should go out and activelyseek peoplewho can become owners. There's

no other
way tocreate
a realsenseof
community,
totruly
develop
an area.”
Grzywinski
agrees;
itis basicto the way thebank viewssome mortgages

which,elsewhere,
mightbe perfectly
conventional
loans—
as tools
for the
development
of SouthShore.“Power runstoownership
in thiscountry.
If we

cangeta coreofstable,
home-owning
families,a
lotoftheotherproblems
that come with transient
populations
willbe eliminated.”
" And,adds Mary Houghton,“ to do thatwe use everyguaranteewe can
find—the MortgageGuaranteeInsurance
Corporation,
Federalinsurers,
good
collateral,anysolidhelpwecangettomakemortgagesothersmight
refuse."

The centerof
theseeffortsis
thenewlyformedNeighborhood
Development
Center,
headedby Mary Houghton,withfundraising
handledby Susan Daris.
The funds are raised from outside South Shore. Susan Davis has sent

letters
(signedby Ron Grzywinski)
to more than30,000people,
and has made
telephone
callsto hundredsof others,
askingfor savingsdeposits
of at least
$ 1,000
as a uniqueinvestment
in a community.
The approachis bothconventional
and offbeat.
First,
depositors
are assured
theywillreceive
thesame insurance
protection
and interest
paidby allbanks;
theyaren't
beingaskedto plungeintoriskywaters.
But SusanDavisalsotells
them thateach$1,000
theydeposit
produces
$500in credit
and $25 in annual
earnings,
whichgoesdirectly
intotherebuilding
of South Shore.
And the im.
portance
of thatkind of investment
to peopleoutside
the community(aside
from thechanceto do good withoutlosing
a penny)isthatiftheexperiment
works,ifa neighborhood
can be rehabilitatedandmade
livable
and attractive
to the wholecity,
not onlyis the citystrengthened,
but otherneighborhoods
can have hope thateventually
rehabilitation
may spreadas rapidly
as urban
blight
does now.

Thereare,
then,
"twokinds”
of moneycomingin tothebank:regular
de.
posits
from SouthShoreresidents
which,withbank investment
activity,
sup
portthe day-to-day
operations,
expansion,
and so on; and development
de
posits,
aimingat turning
SouthShorearound,whicharesolicited
from beyond
the area and dispensedby the NeighborhoodDevelopment Center.Says Mary

Houghton:" In most banks,rewardsare givenfor caution.
At South Shore
we'remore interested
in innovation
— not irresponsible,
but still
not the kind

ofcaution
exercised
elsewhere.
But evenwithinnovation,
there
areproposals
thatno oneinthebankwill
takea chance
on;those
aretheoneswegetin
thedevelopment
center.
We tryto findways to minimizetherisk,
thenoneof
us presentsthe application
to the loan committee as itsadvocate.And still
we

turndown about90 percent
of the small-business
loanapplications
we get."
Paul Carson,commercialloan officer,
adds,“ If allelsefails,
I ask the
applicants
ifthere's
a brother
or cousinor friendwho mightgoin withthem

andsharetherisk.
If theycan't
findanyone,we
havetogiveup."
The developmentcenterbegan with some dismal statistics:

In 1975,therewere 148 vacantstores
in South Shoretotaling
more than
200,000
squarefeet:20 percent
of allretail
spacein the area.Many of the
occupiedstoreslooked and oftenwere, marginal.

Therewas no central
shopping
area;onlycommercial
strips
withplentyof
fast-food
carry-outs
and wigshops,butno mix of storesfor
one-stop
shopping.

Asmuchas80percentof
SouthShore'ssalespotentialwenttoshoppin
outside the area.

309
"Our customers
were allgone,"
saysSeymour Seder,
in hiselegant
women's
shop in Flossmoor Commons. His old storeon 71st Streetstillhas the out.
linesof the name Seder above the front door." It wasn't that we wanted to

leave;
we had to leave.”
"Everyonefeels
likea victim,"
Ron Grzywinski
says.
“The banks,the store

cwners,
thepeople
who leave,
thepeople
who movein.Theydon't
talkabout

adjustingtonewconditions;theytalkabout'losing'aneighborhood."
" Bankers,"
saysMiltonDavis,“and many shopkeepers,
had nothing
in their
backgrounds
to givethem an understanding
of what was happeningto South
Shore."

Against
expectations,
theaverage
incomelevel
of SouthShoreresidents
was
no lower than ithad beenwhen the area was allwhite.But the spreadbe

camegreater:
about17 percent
of theresidents
earnmorethan$20,000
a
year;
about17percentare
on welfare
(a close
approximation,
by theway,of
the whole city); and “blackmoney” was seen by financial
and businesspeople

as lessdependable
than"whitemoney.”So shop ownersfled,
small-business

loans
weregenerally
unavailable,mortgages
andhome-improvement
loans
were
refused,
andtheweedsgrewhighalongtheIllinois
Central
tracks
thatsplit
71st Street down

the middle,

When the Neighborhood
Development
Centerwas formed,
more than13
percent
of SouthShore's
housing
unitswere
in trouble:476
buildingswith
3,892unitswerein abandonment,
taxdelinquency,
foreclosure,
or combina
tionsof these.And a buildingthat'sin troublehas company; it infectsthe

blocksin alldirections.
The biggest
problemin South Shore was thatthe
buildings
most in trouble
weren't
clustered
where theycouldbe isolated
for

drastic
one-shot
action;
theywerescattered
throughout
thecommunity,
each
infecting
itsown area.

Susan Davis'letters
and phone calls
for development
deposits
focusedon
thetwo problemsof SouthShore:deteriorated
commercial
strips
and housing
unitsin trouble.
And the money has come in,growingfrom the first
year's
deposits
of$863.000
to a total
at theend of 1976of$7,300,000.
But thatisn'tthe whole story.
When solicitation
costsand development

expenses
(staff
time,etc.)
aresubtracted,
development
incomedoesn't
ap
proach development
expense.In a monthly reportfrom the development
center,
Mary Houghtonlists
loansthat"furthered
the bank'sdevelopment
objectives
by extending
fundswithinSouthShorein innovative
ways."There
were loansto small businesses
and community groups,personal
education
loans,
home-improvement
loans,
and mortgages
(including
several
in theSouth
Shore Villa,
the showplaceof development
activity
in South Shore).There

werealsoone-time
projects
suchas thepreparation
ofa booklet
forbank
customerstitled
A Guideto BankingScrvicesa description
of bank service
charges,
interest
computation,
ways to maximizeearnings
and avoidcharges—

following
a trailblazed
by California
consumer
groups
pushing
forfulldis

closureof bank charges.

Allofthis
is"developmentexpense,”
which,
in 1976,
exceeded
development
incomeby approximately
$125,000
(money thatmightotherwise
havebeen
paid as dividendsto investors)inostlybecauseof an item called"stafftime."

It'sone of the biggest
and probably
the mostslippery
expenseforthebank,
becausewithoutlargeinfusions
of stafftime,development
wouldn't
happen.
“Bricksand mortararethe easiest,”
Grzywinski
says.Development
isas much
an attitude
as itis a rehabilitated
building.
And thattakesnot onlydollars,
but energy and time.

Early on,the new ownerswent to the South ShoreCommission,
the com.
munity organizationthat,though buffetedand drifting,
was the most intact
group in the area.Commission members and bank staffestablished
a resident

advisory
counciltowork
withthebankon policy
andtoactasa liaison
with

thecommunity.
It istheonlycitizen
advisory
boardto a commercial
bank in

the country.
"We don't replace the Commission,”says Bob Pickens,chairman of the
advisorycouncil.
“ But we have committeesthat work directly
with the bank

bank services,
commercial
development,
housing,
and marketing
and education.
We discusswith the bank whether certainbusinesseswouldbe a good addition

to the community,how the bank can helpresidents,
what peopleexpectand

310
needfrom the bank.We thoughtit would be a good ideato have classes
on
balancing
checkbooks,
and the bank had them. They were verysuccessful.
The
bank alsoprovides
spacefor us to meet,and research
and staff
time."
Thereitisagain:stafftime provided
on request
to everygroupformedor
in formation
in South Shore.Stafftimeis provided
to the Parkside
Project,
thoughafoundation
grantpaysthesalary
of theprojectdirector,
Jim Bringley.
Parkside(the northwestcornerof South Shore) isthearea'smost deteriorated

section.
Bringley
devotes
fulltimethere,
goingdoorto door,talking
to people
abouttheir
needs,
locatingowners,
identifyingthe
buildingsbeingmanaged
for

demolition,andthe
statusoftaxpayments.“Atfirstwereallyweren'
he says. “ But latelythat'schanged. In one month we made seven home

improvement
loans;we'veapplied
fora granttolandscape
threeemptylotsas
parks.And through Model Citiesand the Woodlawn Urban ProgressCenter,

CETA [Comprehensive
Educationand TrainingAct] workersscrapedand
painted
window frames.
Do youhave any ideaof theamazingdifference
fresh
paintedwindow frames make to the appearance
of a building?
And to the
attitude
of the peoplewho livethere,
and to the wholeblock
?
“ There are thingswe can do togetherwith the city.If we findfiveor six

people
tobuy abuilding
of12 or moreunits,
thecity
wouldgivea grantof
50 percentof
therehabmoney;thebank,
together
withother
financial
in.
stitutions
and insurance
companies,
wouldfinance
therest.We coulddo
wholeblocksat
oncethatway.
Wehavetomakelarge,
visiblechanges;
there's
no other way.”

"Ifyouinchyourway along,"
saysCalBradford
ofCircle
Campus,"build

ingsdiebehindyou as you go.”

Bank staff
timeisprovided
totheSouthShoreArtsAssociation,
a nonprofit
groupformedby residents
to operate
the Jeffery
Theatre.
To insureroom for
futureexpansion,
the bank has boughtthe building
next door,which houses
thetheatre.
The bank leases
thetheatre
to the ArtsAssociation
and helpsthe

groupplanrenovation
anddevelopprofitablemanagement
techniques.
Profits
when theycome willbe plowed
intoothercommunityprograms:
summer

concerts,
ballets,
plays,
artfairs.

Staff
timeisprovided
totheSouthShoreCenter
ontheLake,a nonprofit

group organized
to save the South Shore CountryClub from demolition.
Though in disrepair
from neglect
by theparkdistrict,
whichnow owns it,
the
clubis a natural
communitycenter,
and the Centeron the Lake,withbank
help,
is tryingto findways to keep thatmagnificent
whiteelephant
and its
65 acresavailableto the public.

Stafftimeis provided
to the South ShoreBlockClub Coalition
for United
Action
- residents
who organized
to renovate
and sella squareblockof aban
doned townhousesin the centerof South Shore.When the blockclub coalition
and those abandoned townhouses came togetherat the bank, the trumpet

callof the Fed rulingon bank holdingcompaniessoundedloud and clear
“to promote community welfare,
such as the economicrehabilitation
and
developmentof low-incomeareas.'As a direct
result,
the Jeffery
Development
Corporation,
a nonprofit
subsidiary
of the bank holding
company,was formed

and staffed
by bankpeople,
towork withcommunitygroupsspecifical
fora start,
withthe blockclubcoalition—to
rehabhousingunits.The bank
applied
to the ChicagoDepartmentof Urban Renewalfora grantto hirean
architect
and housingconsultant.
It promisedthe coalition
that it would

appraise
theunits
after
rehab,
write
the proposal
forinterim
financingof
the rehab project
on a revolving
fund basis
(as soon as thehouseswere
sold,the money would go back into the fund for use as interimfinancing
of

thenext project),
advertise
for buyers,
screenwould-be
purchasers,
and
providemortgages.

The bank alsopromised
to arrangefinancing
forneighborhood
homeowners

forimprovement
to their
property
(theinevitable
“ripple"
effect),
tocleanup
theneighborhood,
and to convert
an openspace(when a nearbybuilding
was
demolished)
to a playlot
or park.
But perhapsthe biggest
stepof allrequiring
staff
time in linewiththe
Fed rulingand the goalsof the bank, is the latestone: the formationofthe

South Shore Area DevelopmentCompany. The formallaunching
was ata
reception
at the SouthShoreCountryClub,with70 business
andprofessional
peopleand the guestof honor,Mitchell
Kobelinski,
director
of the Small

311

BusinessAdministration
(SBA). There were briefspeeches
and a slide
show
of a shoppingmallin Maryland,and theneveryonewent back to work,but
the occasionwas importantand the guestsknew it.South Shore is one of the

few communities(and the one most closely
watchedbecauseof the presence
of the bank) to have a nonprofit
localdevelopment
corporation
(LDC) or
ganized to borrow SBAmoney

and funnelittofor-profitbusinessesfor
construc

tion,
modernization,
or expansion.
Up to$500,000
perbusinessmay
beborrowed
at 6.625 percent
for up to 25 years.
The LDC willreceive
applications
and
screenthem withthe helpof the bank,then borrow90 percent
of the cost
of each project
from the SBA, investing
theothertenpercent
itself.
(The ten
percentcan be a pledgeof assets,
thoughusually
itwillbedollars.)
Merchants
may be askedto put up 90 percent
of theLDC's required
ten percent,
butthe
bank is looking for grants to fund the fullten percent requiredfor each
business.

Whilea few community
groups
haveformedan LDC without
much outside
support,
itisunlikely
thatthe
SouthShoreAreaDevelopment
Companywould
have come into being without the bank. The spur to the renewal of South
Shore has been the bank — thereis a straight
linefrom itsstaffto the South

Shore Commissionto theresident
advisory
council
to the localdevelopment
corporation.

(Paul Carson
says,“I talkto people
who usedtocomein forloansand
weren'teven listened
to.Now, when I go to meetings,
likethe chamber of
commerce,I hear peoplesay,"That's
my banker.'”)
Four yearsago,conventional
wisdom had itthatby 1976SouthShorewould
be a slum. An officer
of a downtown bank saysthatmajor banksand savings
and loanswere tryingto dump alltheirinvestments
in SouthShore.Talman

Federal,
for one,soldtheSouthShoreVilla
ata lossto a developer
who
remodeledit,converted
it to condominiums,
and made a profit
onit. Two
of the condominiummortgages
were made by Talman.
Some visible
examplesof thenew confidence
in SouthShore:

ElzieHigginbottom,
a vice-presidentof
Bairdand Warner,
has developed,
independently,
two largehigh-rises
in SouthShore,financingthe
rehabwork
through the Illinois
Housing DevelopmentAuthority.
He raisedrentsto
attract more stabletenants and screenedthose who applied.“We

have no

robberies,
no muggings;we don'tneed 24-hoursecurity.
We have a good
mix of tenants;
some unitsare subsidized
forelderly
residents
undersection
eightof FHA regulations,
but nobodyknows who theyare;there's
no stigma.
It'sbeen a profitable
venture
forme, largely
because
the bank isthereas an

anchorin
thecommunity.
Youputpeoplein
therightframeofmindbelieving
in a place and it's
amazingwhat theycan do."
“When a building
is renovated,”
says Ron Grzywinski,
“otherpeopleon
the blockmow theirlawns,paintwindow frames,plantflowers.
It happens
every time."

“But,”addsHigginbottom,
"partsofSouthShorewill needmore than
private
assistance
to stopthe cancer.
Middle-class
blacksare takinga 'wait
and-see'
attitude,
and the bad areasneed massivekindsof helpto convince
thosepeople
to move in.”

SaulKlibanow
isthedirectorof
Rescorp
(RenewalEffort
Service
Corpora

tion
), a development
company fundedby 57 savings
and loaninstitutions
in

Chicago.
Rescorp
hasrehabilitated
morethan150units
inlargebuildings
in
South Shoreand soon willbeginwork on another150. Klibanowsays,“We

wentin because
thebankwas a stabilizing,
commercially
sound factor.
And

we made a profitof $75,000.
The main thingis that we did a highly visible

cluster
of buildings.
PhaseTwo willbe thesame-several
large
buildingson

one or two blocks,each unit rehabbed,the exteriorssandblasted,and the

groundslandscaped.
Our job is to demonstrate
the potential
of an area that
we think willrespond to a stimulus.We give the stimulus;we constructan
environment."

The rehabdone by Rescorpwas financed
by the Illinois
HousingDevelop
two buildings.
Irv
as were ElzieHigginbottom's
Gerick,
the director
of IHDA, echoesKlibanow
: “We went intoSouthShore
because
thebank wasa sourceof private
capital
thatwouldstillbetherewhen
IHDA and Rescorpwere gone.And we feltthatthe combination
of IHDA
ment Authority(IHDA),

money and the bank's presence would influenceother developers.Nobody,

312
afterall,
has enoughfundsto savea wholecommunity.We lookforstrong
developers,
strongcontractors,
variousprotections
againstdefault,
and an
institution
likethebank.A project
has to make economic
senseto make social
sense;we'veputseedmoney in to show ourfaiththatSouthShorecan make
sense both ways.".

Once a month,on a Wednesdayafternoon
whenthebankis closed,
the
officersandstaffmeetat
Ron Grzywinski's
HydeParkhomefromthreein
the
afternoonthrough dinner.

"It's
really
a chanceforme to cook,"Grzywinski
says,but,thoughrelaxed,

thegroupspendsan intense
threehoursreading
and discussingreports
on
community
groups
liketheMetropolitan
AreaHousing
Alliance;bank
activ.
ities;
other
banksinChicago;
and theSouthShorecommunity.
As he cooksSwisschard
(picked
a few minutes
before
fromthebackyard
vegetable
garden
),slices
cucumbers(alsojustpicked),
and mixesup a salad
dressing,
Grzywinskianswersquestions
about the bank,especially,
"What
makes it different
from other banks?”

" Ifyou lookedat most bankstaffmeetings,
theywouldn'tlook
likethisone,"
he says,
foropeners.
Fifteen
to twentypeople
sitin a circle.
They rangein age
from earlytwenties
to overforty;
they're
aboutevenlydivided
betweenblack
and white.
Uncompetitive
among themselves,
eclectic,
withan airof defiance
in theirtalk of “otherbanks”(especially
attemptsto get branch-banking
legislation
passed),
theyare absorbed
in the continuing
problemsof the costs
of banking,
thecosts
ofcommunityrenewal,
thecosts
ofeventhelessambitious
but first-step
goalof stabilization
of the neighborhood.
In a number of ways,SouthShorehas stabilized.
Welfareand crimefigures
have stoppedrising,
thoughthey haven't
fallen.
Sincethe new owners took

overthebank,homesand apartments
haveappreciated
between
five
and ten
percent,
dependingon the area withinSouthShore.Foreclosures
are down,
thoughmany buildings
still
are beingmanaged for demolition.
Six to seven

large
buildings
a yeararebeingconverted
tocondominiums,
increasing
the
number of owners—a majorcondition
of stability.

Perhapsmostimportant,
community
organizations
areproliferating;
allof
them dependon the bank forstaff
timeand facilities,
butthey are beginning
to buildtheirown momentum. Says StanleyHallettof the Northwestern

University
Center
forUrbanAffairs,
and a boardmemberoftheSouthShore

Bank: “Peopleseethingshappeningand theyfolloweach other's
lead.Some
thingimportant
has happenedin SouthShore:peoplearebeginning
to under

standthestructure
of their
neighborhood
- specific
problems,how
theycan
be tackled,
in whatorder,
by whom,and when.Thelevel
oftheir
goals,
the
agendas of theirmeetingshave gone way up; largenumbers of them suddenly
are working very hard to get thingsdone.That'salla functionof theirunder
standingwho 'we'are and what 'we'have to do to make South Shore a good

placeto live.
For allof this,the bank is necessary
but not sufficient.
The
peopleare the first
investors
in theirneighborhoods."

With the growthof communityorganizations,
the apparent
stability
of the
area,millions
of dollars
loanedby IHDA for rehabilitation,
and loansand
mortgages
made by thebank,largebusinesses
arere-evaluating
SouthShore.
Jewel Companies' Chicago real-estate
manager, Pat Burke, says Jewel sees

"nothing
to discourage
us in South Shore.”
The companyisbuilding
a 44,000
square-footstore-"the largestin Chicago except for the Grand Bazaars"

at 75th and Stony Island.
In addition,
Jewel executives
are “observing"
shopping patternsto decide if they want to buy the land acrossthe street

whichhadbeenthechosen
spotfora new Nationalbeforethatcompanydecid
to pullout of theChicagoarea.
Walgreen's
has expandedone storeand is remodeling
another;Certified
food storeowner Michael Berezin bought the Hi-Lo when it closed(retaining

theentire
staff)
and in 1976enlarged
hisown office
space,
citing
the bankfor
“investing
in people,
whichisthe bestway toinvest
in an area.”
The consensus on the bank is not unanimous. When

National wanted to

expand itssupermarket
at 71stand South ShoreDrive,which required
de
molishing
a building
(from which most of the tenantshad alreadymoved),
neighbors
objected
to havinga largestoreand a parkinglotnextto their
apartmentbuildings.
The bank defendedthe storeat community meetings,

313
and much of the opposition
faded when National
presented
plansfor fences
and landscapingto screenthe parking lot.With Nationalgone, the issuehas

died,but it did revivethe initial
suspicions
about Grzywinski,
Davis and
Houghton: Are they bankersor developers,
and what do they expectto get
out of us?

For some,thequestion
lingers,
fedby thebank's
decision
torazebuildings
across the streetfor a parkinglot.No one doubtsthe desperateneed for park

ing on 71stStreet,
but residents
did question
thelocation:
" They toredown
buildings
thatwere in good shape,”
saidone at a recenttown meetingheld
at theSouthShoreCountryClub.“Thosearen't
theonestheyshouldbe tearing
down."

Others question
the bank'spriorities.
At thatsame meeting,
BillSaphir,

presidentof
oneoftheneighborhood
councils
in SouthShore,challengedthe

decisionto tear down buildings
for parkinginsteadof studyingthe feasibility

of an area-wide
transportation
system,
suchas themini-bus
run by Michael
Reese Hospital.

In allprobability,
when the now-empty
landis surfaced
and landscaped
toBen Weese's
impressive
design,
theopposition
will
fade,
and residents
and
shopownerswill
laudthebankforitsleadership
inproviding
parking
inan
area
wherepeople
havebeencomplaining
aboutthelackof parking
formore
than 20 years.
The pattern
of doubt,
slowacceptance,
and thenlavishenthusiasm
has been
repeatedthroughout
the threeyearsthe new ownershave been at the bank
by nearlyeverygroupwithwhichtheyhave dealt.
Today itisdifficult
to find
substantive
localcriticism
. Whateverthefutureof South Shore,community

leaders
areconvinced
thatitisthebankthatwillmakethatfuture
happen.
William Strickland,
whose Midas Muffler
Shop on StonyIslandis one of

themostsuccessful
inthecountry,
isoneofthebank's
strongest
supporters,
though he takesno activepartin communityorganizations.
" They'reoneof
thefew groupswho still
careabouthelping
us.Don'tyou everthinkthings
happenin thiscountryby accident;
thenational
commitmenttohelpminorities
has ended. If it weren'tfor the bank, we'd be left with the racism of the

downtown banks,we'dbe ignored
justlikewe were beforethe bank changed
lands,and SouthShorewouldhavegonenowherebutdown."
The commitmentof the SouthShoreBank is notspecifically
to integration,
buttothe development
of thecommunity,whateverthemake-upof itspopula
tion.“We

have too many massive problems to put integration
near the top,”

MiltonDavissays.“We have about15 percent
whiteresidents
now; if more
whitefamilies
aregoingto move to SouthShore,
itwillbe onlywhen we have

a stable
community
withgoodshopping
anda relatively
lowcrimerate.
Right
now,we'reconcerned
withthepeoplewho livehere."
CalvinBradfordof Circle
Campus adds:“ There's
a feeling,
finally,
thata
communitydoesn't
have to die as soon as it‘turnsblack.'
In fact,
there's
a
waiting
listfor
many buildingsin
SouthShore.
That doesn't
mean theproblems
aresolved,
onlythatthereareindicators
theycan be.”

At thestaffmeetingat
Ron Grzywinski'shouse,
thetalk
isofMAHA studies
on redlining.
Why would otherbanksmake loansin South Shore,evenifthe
SouthShoreNationalBankisaprofitableinstitution?
“For three reasons,"
Grzywinskianswers.“ First,
legislative.
There'sa
growingrealization
on the partof governmentthattherewon'tbe enough

public
monies
torebuild
neighborhoods.
And wehavetorebuildthem;
housing
units
aredesperately
needed,
andit's
fartooexpenseive
tobuild
newunits.So
banks,
savings
andloaninstitutions,
pension
funds,
andsoon arebeinglooked

at as sourcesof money.There may wellbe legislation
thatwillrestrict
the
ways institutions
may use some of theirfunds.

“Second,
there's
clout.
Political
leaders
can say to the banks,
"'Ifyouwant

branch
banking,
ifyouwantcity
deposits,
ifyouwantother
kindsofhelpwe
can give you, here'swhat you do.'

“ And finally
thereareprofits.
Thereisenormousprofit
potential
intherehab

ofolder
buildings.
If clusters
of buildings
arerefurbished
or completely
re

habbed,there's
averybigspread
betweenapurchase
price
of,say,$3,000
for

abuildingandthepriceitsunits
can be soldfor,
evenafter
addingin allthe

rehabcosts.
Rescorphasprovedit.
We'reabout
readytogointo
thecommunity

314

ourselves,
asRescorphasdone:
Ourholdingcompanywould
acquireand
rehab
properties
for saleas condominiumsor low-incomeco-opsif we could get
Federalor private
subsidies
forthem.
“Look at what'sbeendonealreadyin SouthShore;not one developer
who
has come in in the past few years to rehab for sale or rent has lostmoney.

Everyoneofthemhasmadea profit.
We'renot
saying
wedon'thave
a lotto

learn;we'renot sayingthereare no problems.
Some are huge,and none of
them areeasyto solve.
But we aresayingthatSouth Shore and maybe most

other
deteriorating
communities—
aren'tnecessarily
places
whereinvestors
willget burned."

On Wednesday
night,
October
17,1976,
Alderman
RossLathrop
conveneda
meeting
at the SouthShoreCountryClubwithrepresentatives
of thecity

waterdepartment
and an attorney
from thecorporation
counsel's
office.
About
300 South Shore residentswere there to hear what the city was going to do

aboutthe 60-foot
holein 69th Streetand the property
washed out by the
broken water main.

The city,
saidtheofficials,
was notlegally
responsible
forthedamage,but
Mayor Daleyhad decided,
"formoralreasons,”
to pay forruinedautomobiles,
personal
property,
and damage to the SouthShoreVilla,
as soonas the resi

dentsfiled
theirclaims.The
SouthShoreNational
Bankisproviding
staff
time

to help the residents
with the paper work.

PREPAREDSTATEMENTOF A. A. MILLIGANON BEHALF OF THE AMERICANBANKERS

ASSOCIATION

Mr.Chairman,
andmembersofthe
Committee,
my nameisA.A.Milligan.
I
am Presidentof Bank of A. Levy, Oxnard, California,
and President-Elect
of

the American
BankersAssociation.
I appearheretodayon behalf
of the
AmericanBankersAssociation
withrespect
to S.406,theCommunityReinvest
ment Act.

The billwould requirean applicant
for a financial
institution
charter,
insurance,
branch(including
an electronic
terminal),
holding
company acquisi
tion,merger,or home or branchoffice
relocation
to supplyinformationas
toitspastrecord
and futureintent
withrespect
tomeetingthecreditneeds
of
thecommunityin whichitislocatedtothe
Federal
financial
regulatory
agency
with jurisdiction
over the applicant.

The bill
would specifically
require
an applicant
to:1) define
thearea from
which it draws or intendsto draw more than fiftypercentof itsdeposit

customers
(its"primary
savings
service
area”)
; 2)analyze
thedeposit
and
creditneeds of the area,and how it proposesto meet them ; 3) detail the

proportion
of thesavings
and timedeposits
of individuals
residing
in that
areawhichitintends
to reinvest
there;and 4) describe
how itismeetingthe
creditneeds of the areasin which it is alreadylocated.

The Federalfinancial
institution
regulatory
agencies
would be requiredto

use the information
so provided
in considering
applicationsfor
approval

and must permitand encourage
community,consumer,or similar
groupsto

appearathearings
on suchapplications,
and testify
as to theapplicant's

proposal
or recordon meetingthe creditneedsof the communitiesalready
servedby theapplicant.
The bill
alsomandatesthatFederalfinancial
institu

tionregulators
require
periodic
public
reports
fromfinancialinstitutions

supervise
as to theirrecordof serving
thecredit
needsof theircommunities.
The ABA

recognizesthat S. 406 is intendedto help revitalize
and rebuild

thehousing
andeconomic
baseofcommunities
threatened
withdeterioration
and we agreewith that goal.
We recognizethat this billwould impose on banks a significant
additional

burdenofadministrative
processes
and paperwork.
If thiswere theonly

problem,
we wouldnonetheless
notopposetheopportunity
to demonstrate
that
the majority of banks are,in fact,working to meet the financialneeds of

theircommunities.
However,we cannotsupportS.406 because
itis basedon
a seriousmisunderstandingof how the nation'sfinancial
system functions
to
meet the creditneeds of allcommunities.The billseems to imply that a bank

should
lendtoborrowers
initsdeposit
service
areain somedirect
proportion

315
to the amount of funds it gathersin depositsin that area. Any attempt to

require
banksto meetthatcriterion
wouldseriously
undermine
thebanking
system's
ability
to meetthefinancial
needsof thisnation.
It wouldguarantee
thatcommunities
now suffering
from economicdeterioration
would be unable
togenerate
sufficient
fundstofinancetheir
owneconomicredevelopment.

Mr.Chairman,
in yourownstate
ofWisconsin,many
community
banksare
involved
in financing
projects
which theirown deposits
are not sufficient
to

finance.
Theydo thiseitherby
putting
together
loanparticipations
involving
banksoutside
theircommunities,
or by drawingon linesof credit
withtheir

correspondents
in urban areas.That'sgood for the communitiesin Wisconsin

becausetheirfinancial
needsare beingmet.But underthisbill,
the banks
in urban areas,
such as Milwaukee,
Chicago,
or Minneapolis,
thatare provid
ingthe necessary
fundsforruralcommunitydevelopment
in Wisconsin
would

notbe considered
tobe meetingthe
needsoftheir
own deposit
service
areas.
Theywouldbelabeledderelictintheirresponsibilitiestotheirownco
even if theirown communities had no current need for the funds that were

beingchanneled
intoothercommunities
in Wisconsin
in needofloanable
funds.
Consider
thesituation
in theSan JoaquinValley
in California.
Undernormal
circumstances,
the creditneedsof farmersin the Valleyvery widelyover
the year.At times,theircreditneeds may be severaltimes the totalvalue of

the deposits
of banks locatedin Valleycommunities.
The only way those
bankscan meet the credit
needsof thesefarmersis to draw on deposits
at
bank offices
located
outsidethe Valley.
Yet underthisbill,
bank offices
out
sidethe Valleywould not be considered
to be meetingthe creditneedsof
theirown communities.

This year,of course,
thisexampletakeson added importance
becauseof
the droughtCalifornia
farmersare experiencing.
They willneed additional
funds to tidethem over untilthe next rain- fundsthatcannotpossibly
be
generatedin the farming communitieswhere they deposittheirsavings.
These farmersraisea major part of the produceconsumed by the entire
nation,
and if they are to survivethisdroughtin relatively
good economic
health,
they willneedto draw on savings
generated
by banksand saversout
sidetheirimmediatecommunities.
Yet underthisbill,
banksoutside
California
thatmake loanstoCalifornia
farmerswouldnotbemeetingthefinancial
needs
oftheirowncommunities.
Finally,
consider
thefinancial
needsof the urbancommunities
in the North
east Corridor.These are the communities most seriouslythreatened with

economicdeterioration,
the communities
most in need of the assistance
this

bill
isintended
to provide.
But deposits
fromcommunities
in theNortheast
Corridor
may not be sufficient
to finance
the necessary
urbanredevelopment.

Successful
urbanredevelopment
wouldlikely
haveto relyon fundsfrom
financial
institutions
locatedoutsidethe Northeast,
perhapsin the fast
growing Sunbelt.Again, under thisbill,
institutions
in the Sunbeltthat chose

to channelfundsintothe Northeast
would not be considered
to be meeting
thefinancialneedsoftheirowncommunities.

We do not deny thatthereis a problem— thatfrom time to time a few
banksmay be channeling
fundsthatappearto be neededwithintheirdeposit

service
areasto borrowers
outside
theircommunities
in search
ofa quick,
highyield.
But we believe
thatcompetitive
pressures
will
in thefuture,
as
theyhavein thepast,
force
those
bankstochange
their
policies.
Theircom
petitors
withintheircommunities
takeadvantageof theselocalloan oppor
tunities
and willadvertise
thefactthattheyareconcerned
aboutcommunity

development,
whereas
theotherinstitutions
arenot.The resulting
publicity
forces
thesefew institutions
to beginpayingmore attention
to theircom
munity'screditneeds.
Even if thesecompetitivepressuresdid not exist,however, this billwould

notsolvetheproblem.
What itwould do isimposeanotherlayerof needless
regulation
and paperworkon the vastmajority
of banksthatare doingtheir

besttomeet
thefinancialneedsoftheircommunities.
Itwouldcreateneedlessly

rigid
formulaefor determining
what constitutes
adequatefinancial
service
to
a financial
institution's
deposit
service
area.In fact,
itisa majorsteptoward
political
allocation
ofcredit.
Itisa steptowardspecifyingthekind
and amount
ofloans
to be made by financial
institutions.
It wouldsubstitute
thejudgment

316
ofa Federalagencyas to what constitutes
a legitimate
creditneedfor the
judgmentof borrowers
and financial
institutions.
If thisbillis carried
to itslogical
conclusion,
financial
institutions
could
findthemselves
forcedto turndown creditworthy
borrowers
in orderto make

otherloans,
perhaps
oflowerquality,
to meetthepriorities
determinedby
theFederal
financial
institution
regulators.
In fact,
thebill
hasthepotentia
forcreating
a majorconflict
of interest
forthe regulators.
On theone hand,

theywouldbechargedwith
establishingand
enforcing
prioritiesfora
financia
institution's
loan portfolio.
They would encourage
banks to make certain
kindsof loansto satisfy
thoseearlier
established
priorities.
But in some
instances,
a bank might be forcedto make substandardloans to satisfythose

priorities.
The regulators
would thenbe required
to criticize
the very loans
theyin effeot
required
thebank to make.
Worst of all,
thisbill
wouldnotreverse
theeconomicand resulting
physical
deterioration
of the communitiesit is intendedto help.In instanceswhere the

credit
needsof a deposit
service
areaexceeditstotal
deposits,
as isthe case
in many urbancommunities,
the billwould make it more difficult
to finance
urbanredevelopment.
Under thisbill,
banksoutside
theseurbanareaswould
not havetheflexibility
to channeladditional
fundsintothesedeterioratin
communities.
S. 406 would,in fact,
narrow the"convenience
and needs"test
applied
in bank chartering,
therebyreducing
the flexibility
and discretion
of
Federalbank regulatory
agencies
to ensurethatfinancial
institutionseffecti
servethe deposit
and credit
needsof theircommunities.
The AmericanBankers Association
appreciates
the opportunity
the Com.
mittee
has offered
topresent
our viewson S.406.

TheCHAIRMAN.
Thankyouverymuch.
We aredelighted
to havetheABA come in and testify.
But I

do notknowhow many generations
willpassbefore
the ABA
comesout
infavorofsomethinginthepublicinterest.
Youopposed
theFederal
Reserve
Act.Youopposed
theFederalDeposit
Insuranc
Corporation.
You opposedTruth-in-Lending.
You have opposed

everythinginthe20yearsthat
Ihavebeenonthecommitteeexc
thepowerofStatesto
impose
an effective
taxon banks.

Mr.MILLIGAN.
Asamatteroffact,wehavebeen
positive
on many
issues
whichhavecome beforethisand othercommittees
of the

Congress.
In response
to a statement
you made in a hearing
on

March22,1973,wewrote
a letteronthequestion
ofnegativism

Senator
ThomasMcIntyre,
whichisincludedinthe
record
ofhear
ingson theextension
of theInterest
RateControlAct in March
1973.

Wewroteyouagainon
May12,1975,inresponsetoyourco
toourwitness
on theproposed
Home Mortgage
Disclosure
Actof
1975.

Inaddition,
youpersonally
complimented
ourwitness,
Mr.Rex
Morthland,
during
histestimony
on housing
legislation
on March

19,1975.
Lastyear,
we didnotoppose
H.R.3035,
to providefo
earningsonidlefundsin
Treasurytaxandloanaccounts,or
S.2304,
toincreasethe
powers
ofbankregulatory
agencies.
And Iam sure
youremember
ourvigorous
efforts
tosupport
actions
by this
com
mitteeto revise
the RESPA

statute
in 1975.

Itisnotaccurateto
characterize
theABA asgenerally
negativ
on bankinglegislation.
The CHAIRMAX.Come on.Every one of thosematters
thatyou

favoredprovidednorealbenefittothepublic
orthesoc

317

obligations
ofbanks.
Butletme point
outthatherewe havea TV
ad whichwassponsoredby
theAmerican
Bankers
Association
and
itsaysorsuggests
thefollowing—
andletme readthecaptions:

“Wheredoesyourmoneygoafteryouputitinyourbank?
Some
ofitisright
here,
building
yourneighborhood
withconstruction
loansand
homemortgages.
Moneyforyourpublicparksandmoney
foryourschools.
Today,Americanbankshaveover$80 billion
in
vestedincommunitieslikeyours.

“ So,ifyoubelieve
inyourcommunity,
there
isno better
placeto
put yourmoneythanyourbank."
Mr. MILLIGAN.
Thosestatements
arecorrect.
Twenty-five
percent

of theassets
of thecommercial
banking
systemareinvested
in
housingandrelatedfunctionstoday.
Thetotalinvestmentisinexce

of$220billion.
.

May Iputthis
intherecordforthebenefitofthecommittee?
The CHAIRMAN. Fine,

[ Theinformation
follows:]
THE BANKING INDUSTRY'SRELATIVECONTRIBUTION
TO HOUSING FINANCE
In the past,thrift
institutions
have garneredmost of the credit
for financ
ing residential
housing.
If thesituation
isviewedsolely
in termsof residential
mortgageholdings,
theirclaimshave validity.
But direct
housing
credit
isnot
the solerequirement
for providing
decenthousing,
thatalsodependson the
existenceof streetsand sewers,utilities,
construction
companies and industry

to producehousingmaterials.
And allof thesehousingfactors
are financed
by banks.Moreover,
banksprovide
the majorshareof fundsfor otherforms
of privately
financedlow costhousing.
I. RESIDENTIAL

MORTGAGE

LOANS

MORTGAGE
LOANSOUTSTANDING,
BY TYPEOF LENDER
ISTQUARTER
1976
(Dollarsinbillions)
Lender

1to4family Multi-family Total

Savingsandloan
associations..
Commercialbanks.
Mutualsavings
banks.

Lifeirsurancecompanies.
Allothers.
Total.

$231.3

$25.9

$257.2

78.2
50.3
17.3
126.3

5.5

13.9
19.7
35.7

83.7
64.2
37.0
162.0

503.4

100.7

604.1

Banks held$83.7billion
in residential
mortgagesat the end of the first
quarterof 1976,rankingsecondonlytothesavings
and loanindustry
in these

loans
(andbanks'bad
debtreserveprovisionsdonotprovideaspecialince
to hold such loans,as is thecase with savingsand loan associations
and
1

mutual savingsbanks).But, thisis only the beginningof the story.
II. MOBILE

HOME

LOANS

Banks are the major sourceof credit
for purchasing
mobilehomes which
havebecomethedominantfactor
in thelow-cost
housingmarket.Mobilehomes
account for almost half of the new singlefamily dwellingssold in the U.S.

lastyearand strongsalescontinue.
Mobilehomes are virtually
the onlykind
oflow-cost
housing
thatiswidelyavailable
to Americanfamilies
earningunder

$8,000per
year.
At theendof1975bankshad
$8.7billioninmobilehomeloans
outstanding,
an estimated
two-thirds
of allsuch debt.

88-032

0.77

• 21

318
III. CONSTRUCTION

LOANS

HOLDING
OF RESIDENTIAL
CONSTRUCTION
LOANSBYTYPEOFLENDER20
QUARTER,1976
(Dollarsinbillions)
Lender

1to4family Multi-family

Commercialbanks..

$5.5

Savingsandloanassociations.
Mutualsavingsbanks.
Mortgagecompanies..
Mortgageinvestmenttrusts.
Allothers..

8.0
.3

1.1
.7

Total.

Total

$2.5
2.1
.3
1.0

$8.0
10.2

2.0

2.7

2.0

1.7

2.7

15.7

9.6

21.3

Banksarea majorsupplieroffundsforresidentialconstruction,
baseof housingfinance.Attheend of thesecondquarterof 1976banksheld
$8 billion
in residential
construction
loans,
nearlyone-third
of thetotal.
More
over,banksheld$4.5billion
in landloansat theend of the quarter,
an esti
mated half of which was for residential
purposes.
IV. LOANS

FOR THE

INFRASTRUCTURE

OF HOUSING

The total
shelter
needsoffamiliesrequire
morethanjustthedirect
financing
of construction
and final
mortgages.
Alsoneededareservices
to make a house

usableforexample,such
private
and municipal
services
as electricity,wat

streets
and sewers.
Considering
allfinancing
requirements
to provide
adequate

housing
and related
facilities,
banksranknearthetopofthelending
groups.
Some of the mostrecent
dataavailable
reveal
thatbanks:
Investin obligations
of Federalgovernmentagencies
involved
in hous
ing,amountingto$14.5billion.

Hold over$100billion
in municipal
securities,
of whichan estimated
$7 billion
were issued
to financeresidential
support
facilities—
roads,
sewers and other utilities.

Provide$5.9billion
in home improvementloans.
Providecreditassistance
to the housingindustryindirectly
through

theloanstheymake to otherhousing
lenders,
suchas savings
andloan
associations,
mortgagebankers,
lifeinsurance
companiesand realestate
investmenttrusts,
totaling
an estimated$20 billion.
V. MEASURING

BANK'S CONTRIBUTION TO HOUSING

Residentialmortgage loans_
Mobile home loans..

Home improvement loans.
Residentialconstruction
loans.
Residential
land loans---

Federalhousingagencies
obligations
Municipal
securities
supporting
housing
Loans to otherhousinglenders.

$83.7
8.7
5.9
8.1
2.3
14.5
78.0
20.0
221.2

Total

This over$221billion
commitmentof the bankingindustry
to housing
isa
roughestimate,butaconservativeone.
Itdoesnotcoveranindeterminateamoun
of loansto contractors,
buil

suppliers
and otherbusinesses
engaged in hous

ingconstruction,
servicing,
and supply.
But by anystandard
ofmeasurement,
a 221.2billion
investmentis
a verysignificant
commitmentto the housing
in

dustry.
Thisputsbanksina verystrong
and veryclose
second
positiontothe
savingsand loanassociations
in the overall
financing
of the nation's
housing
needs.
FEBRUARY,

1977.

319

FSLIC
d

e
M

l
e

)

THESAVINGSAND LOANFOUNDATION
Serving
SavingsandLoanAssociations
AcrossAmerica
TITLE:

CODE #: OEFD5315

MACHINES

men...
MUSICUNDER:ANNCR
(VO)
Whatdoesittaketostartthewheels
ofAmericanindustryrolling?

LENGTH:

:30

andmoney

Ittakesmachines...
.
3

p
o
5
h
o
r

That'swhereSavings
& Loans

in the form of home loans.The
Moneyyousavewithusgoesback

come in.

intoyourcommunity...

Savings
andLooncommitmentto
housinggeneratesover...

ESLICH
Loan

100milliondollarsaday... forjobs,goods...andservices.
Help savings
accountof...yourSavings
keepAmerica
rolling
by having andLoan.
MUSIC:
UP TO END
your...

320

AMERICAN

BANKERS

LEO BURNETT COMPANY,INC.
AS FILMED AND

BJBS0220

"Vault"
(No Music)
:60

RECORDED(2/75)

RIN

3. Open'erup,
George.
(Sfx:

1. GILBERT Ed Gilbertfor
America'sBankers.

inyour checkingand savingsac
counts? Eyerwonder what hap
pens toit?

opening vaultdoor)

4. GILBERT:Some of the money

5. ...helpingpeoplechange
thingsforthe better.

6. Take Mike Moratto'sMen's
Store. Mike'sgot himselfa
new storefront--...

8.Then there'sEllenCardinale's
new car.

9. Bank helpedherwith it.

isrighthereintown...

7. ...he gotitwitha loan from
his bank. Salesare up, too.

1
10. And thisisthe Memorial
Hospital,TheBank financed
the new wing--...

11. ...gonna meana lotto
thistown, too.

Now
might
pened
withoutthe
bank.But with
thebank it'shappeningnow in
steadorlater.

AMERICASRO
tes

13. Soyou see, yourmony's
beenworking forthe town. And
foryou. And all thewhile...

11. ...it'sbuen righthere when

youn..!it,--thank
youGeorgeina sufe,convenient
placc.

15. Americu'sBunkers.Help
ing you changethis forthe
bettor.

321

The CHAIRMAN.
ThereisonebankhereinWashington
thatwill

not makehomemortgageloansbutisgeneroustotheoutsidebusin

interestsofitsboard
ofdirectors.
Nomortgageloansbutitsboardof
directorshave
100percent
ofallofitsloansthat
exceed
$100,000.
Banks in New York Citydo notcaremuch aboutBrooklynbut

areup totheirearsin
REITs.Theyhavetanker
loans.

Your testimonyconcedes
thatsomebanks
may be channeling

funds neededlocally
to out-of-area
borrowers
in search
of a high

yield.
Isthisthe
bankers'
constitutional
right
or should
therenot
be someregulatory
constraint
toserve
local
needs,too.
I am con
cernedaboutthefactthatthere
istoomuchemphasis
inhaving
Governmenttrytodoeverything.
Andbankssaythisisnottheirjob
Localcommunitiesarenot
theirjob.
Butwhenthey
areinaslightly
deteriorating
shape,
theneighborhood,
theysay,leave
thattothe
Government.

What I wanttodo isuseyourexpertise,
yourexperience,
your
ability,
discipline,
yourrecord
of success
to make thisgo;and
sittingjusttothe
leftofyouisamanwho
provesthis
canbedone.
He runs a bank thathasdone thisand succeeded
in it.He madea

13.8percent
return
on hiscapital
lastyearby
hispolicies.
Weare trying
toencourage
bankers
totrythis.
Youwill
find
it worksoutpretty
well.
Mr. MILLIGAN.I believe
he made the bulk of his returnson the

transactionsin
hissecurities
portfolio
rather
thanon hisloanport

folio.
Securities
transactionsarebeside
thepoint.
The CHAIRMAN.
No,itisnot.
He cando both.
I am notsaying,
put everything
in the local
community.
There may be situations

where youcanonlyputin 10 or 5 percent.
Thisbill
sayswhere

thereisa local
creditneed,
wheretheneedissound,
thatitshould
be provided
for.

We had Ms.Grenwald
appearafew daysagobefore
thecom

mittee,
the commissioner
of bankingin Massachusetts,
and she
foundin thelowest
incomecensus
tracts
therewas no worserecord

of delinquencythan
inthehighest
income
censustracts.
Shehas
been pushing
thebanksin Massachusetts
to getintocommunity

lending.
They founditworkedwell.

Mr.MILLIGAN.
Thatisarareexception.
Also,
thebanksyoucite

thatarenotinvolved
in their
communities
arethe rareexception
out of the14,000-odd
commercial
banksin theUnitedStates.
The CHAIRMAN. Mr. Grzywinskiis the rareexception
?
Mr. MILLIGAN.Not necessarily.
There area greatmanybanks that,

ifwehadhadtheopportunitytosurvey,wouldbeshowntobed
a goodjobintheir
own areas.
Thebulk of commercialbanksare.There arefew bankswhich are

really
subject
tothecriticismyou
aremaking.
I submitthat
with

14,300-plusbanks
intheUnited
States,
there
will
obviously
besome
thatwillfitthecategory
whichI mentioned
in my statement
and

whichyouhavementioned
inyourpress
release,
thatis,
whichare
ignoringtheircommunities'needs.

The CHAIRMAN.
How about
thetwobigChicagobanks
thatMr.
Grzywinskimentioned?
How about
thepitiful
inadequacy
oftheir

investmentin
theneighborhoods?

322

Mr.MILLIGAN.
He doessaythattheydo have$5.6million
total
credit
inthatarea.
Not$500,000.
He estimates
thata goodpercent
age of that$5.6million
isincreditlines.

The CHAIRMAN.
Doyou know whatpercentage
$5 million
repre
sents
tothose
banks?
Peanuts.
Itisa tinyfraction
ofone-tenth
of

1 percent.
Itisnothing.
Mr. MILLIGAN.Right.

Mr. GRZYWINSKI.
IfI may respond,
there
isa lotof datain
Chicago.
Ido nothaveitherewith
me.Ithinkthat
anyobjective
person
would,inreviewing
thatdata,
conclude
thatatleastin
that
citythatthebanks,themajor
banks,
arenotinvesting
intheold
neighborhoods
from whichtheygetdeposits.

Idonothavethat
datahere.
Icannotafford
a staff
tobring
it
here.
But I couldmakethatavailable.
It isa matter
of public

record.

FromtimetotimeIhavegottenintootherneighborhood

thecountry.
I havebeeninBrooklyn,
Hoboken,andvarious
kinds

of places.
Generally,
when you talkaboutmortgage
loans,
real
estate
mortgageloansthatthe industry
makes,I am surethat
thosenumbersare correct.

Generally,
youknow as wellasI know thatitismuch easier
andsaferand
moreprofitable
tomakea loanon a new homeina
new subdivision
fora variety
of reasons.

But thatisnotwheretheproblems
exist.
Problemsexistwith
thepeople,
neighborhoods
andtaxbaseof theoldcities
and old
neighborhoods.And
thatiswhereourindustry
should
be making
itsinvestment.

Wehave a public
charterand
public
responsibility.
Thatisnot
whatishappening.
I wishthere
wereno moreregulation,that
wouldnothave
tohavelegislation.
Butby andlarge
theinitiativ
that
isrequired
andtheinitiative
theindustry
should
betakingis

nothappening
When you talkaboutourownearningsandhowmuchisinveste

butthebreakout,reinvestmentintheSouthShorene

majorbanksofChicago,otherthanchargecards,ismini

Buttwobanksalonehave
$25millionindepositsfrom
my neigh
borhood.
The grandtotal
of deposits
to otherbanksfrom my

neighborhoodis$50million.

Development
costs
moneyandthereisno escapingthat.
The

problem
isIamserving
a predominantly
blackmarketthat
forall
of thereasons
in oursociety
hasgenerally
lowerincomes.
The
averagebalancein
my depositaccountis
60 percentof
theindustry
average.

Iampresentlya$58
million
bankandIserveover31,000
deposit
accounts.
I do notknow whatthestatistics
areforyourbank,but
I am sureourbalance
isconsiderably
lower
thanyourown.
Thatiswheretheproblem
comesin,in trying
to serve
those
accounts.

What we havefound—by doingdevelopment
workand having,
inourparticularcase,achargeimposedupon
usbyourshareholde
todo this
kindof work—isthatwe havehadto becomesharper
bankers
in everypartof our management,
including
thebond
portfolio
management.

323

The examiners
camein in June orJuly,and theysaidthatfor
thefirst
timein 10 years,
thetrendin thebank was up.Itisnot
easy,butsomehow
wehavetofindwaysintheindustrytodothis.

Mr. MILLIGAN.
I wasn't
criticizing
whathe hasdone.
He has
donean excellent
job.
I'mnotan expert
on theChicago
situation.
And itwouldbe improper,
I wouldthinknow,formeto haveany

opinionin
responseto
yourquestion
about
theFirst
National
Bank
ofChicagoand
Continental
Îllinois,
andwhatkindofjobtheyare
doinginChicago.

Theyhavebeen
there
fora longtime.
I submit
thattheproblem

we arecurrently
addressing,which
isthatof
thecentral
citiesand

thedeterioration
and funneling
ofcreditsto
them,isaproblem;
butitisonewhich
hasbeena longtime
inthemakingandis,
asfar

asthefinancialindustryisconcerned—
I'mblanketingin
thethrifts,
as wellasthecommercial
banks—
isone beingaddressed.
If I
recall
whatMr.Cookesaidaboutwhatwas happening
in Phila
delphia,they
aredoingagoodjobthere.

TheCHAIRMAN.
Whatarewetryingto
dohere
isnottoprovide
foranyterrible
sanction
orrequirethat
youmakeloans
thataren't
sound.Everyloanshould
besound.
We arenotsaying
thatyou
shouldmakealoan
thathasanygreater
prospect
ofdefault
inthe

community.
Allwearesaying
isthatthejobthatyoudo
inservic

ing communityneedsshouldbe takenintoconsideration
as one
elementin whetheror not branching
shouldbe approved.
It isa
mild proposal,
itseemstome.

Mr.MILLIGAN.
Yes,Mr.Chairman.
I submitthatsocial
conscious
nesshasfounditsway
intoeveryboardroom
ormostofthem.
The CHAIRMAN.I hope so.
Mr. MILLIGAN.The bottomlineisan indication
of what manage

menthasdone,
yes,
butmanagement
can't
accomplish
thatbottom
Jineunless
ithas a social
conscience
and an awareness
ofitsown

communityandservesit.
Otherwise,
thebread
andbutter
ofa com
mercial
institutionwon't
comethrough
itsfront
door.
TheCHAIRMAN.Wehavetheappalling
facts
of ourcities.
Presi
dentCarter
wasright
whenhesaidlastspring
in Milwaukee
that
thenumberoneproblem
, economic
problem
inthis
country,
isour
cities.
I thinkyouwouldagreewithme.We don'twantto
solve
theproblemwith
Governmentmoney.
Wecouldn'tdoit.
Wecouldn't
doitwithaMarshall
planforthecities.
We havetodoitwiththe
peoplewho arethere,
people
who understand
thecity,
livein the
city,
whoknow theeconomy,
loanofficials
who understand
thevalue

of theproperty,
who understand
whatitisto require
effective
discipline.

You arethepeople,
youbankers
arethepeoplewhocando the
job.
You havemoreresources
thanwe haveintheFederal
Govern

ment.
You do.The private
sector
isbigger.
Theresources
ofour

financial
institutions
arevast.
Some ofus in Congress
arelittle
deceived
by thenotion
thatwe can proceed
and spendmoreand
invest
moreand more,but thatis
a fallacy
whichwill
end up giv

ingus inflation
or an ineffective
way of doingthejob.Thisis
simply
onemildconstructive
approach.
I hope you willreconsiderthis.
Talk to the ABA aboutthis.

When yousaythatthis
bill
will
result
innotproviding
moneyto

324

thenortheastern
partsofourcountry
fromthebankinginstituti
fromthebanking
institutions
outside
theNortheast,the
Sun Belt
thatdoesn't
makeanysense
atall.
The banking
institutions
inthe
northeastern
partofourcountry
areinvesting
so much oftheir

funds abroad.

Our bankingsystem
has$250billion
invested
abroad;
$50billion
tolesser
development
countries
thatareconsiderably
morerisky
than investmentsin
localcommunities.

Mr.Milligan.
Thatremains
tobeseen.I
was notreferringto
themoneycenter
banks.
I wasthinking
of Altoona,
Pa.,Buffalo,
upstate
NewYork,rather
thantheNew York metropolitan
area

which
I readily
recognize
ispartofthethrust
ofthebill.
But
certainly
I wouldconcur
withyoucompletely
on yourfeeling

thattheprivatesector
canattackand
accomplish
theseprojects.

TheCHAIRMAN.
My time
isup.Youarenot
sayingyou
would

expect
theFlorida
banksunderthis
bill
tostopinvesting
money

inAltoona.
I don't
think
thereis
muchofthatgoing
on really

Mr.Milligan.
Ofcoursenot.
Theexamples
areobviously
hypo

thetical.
Thesearepossibilities
and that
is whatwe aretalking
about.
We areonlyprojecting
whatthepossibilitiesmight
be.
TheCHAIRMAN.
My problem
istheflowhas
beentheother
way.
Ithasbeen
fromthedepressed
communities.
Yougetdeposits
there
andthenyouinvest
intheoutside
thrivingcommunities.
Mr. MILLIGAN.
Thisisturning
around.
The CHAIRMAN. We want toencourage
that.

Mr.MILLIGAN.
Certainly,andsodoestheprivatesect

The CHAIRMAX. SenatorGarn.

Senator
Garn.Thankyou,Mr.Chairman.
I don't
know whether
I should
speakatallornot.I havehad a few momentstocooloff.

Iwouldlikeyou
toknowtherearesome
membersofthiscommitt
who feelthatitisthebanking
industry
and savings
and loan
industry
in thiscountry
who havebeenresponsible
for building

thisGovernmentand
notgovernment.Damnittohell,wehavehad2

yearsof
theprivate
sector
building
thegreatestcountry.
Thereare

problems
andI knowa lotaboutthem
firsthand,havingspent7yea

in local
government.
The answer
isn't
morerules
and regulation
Piecemeal,
we areheading
forcredit
allocation
and Government
bureaucratssittingback
here
interferingwith
theprivatesector.
sickand tired
oftheantibusiness
attitude
ofthiscommittee,
I think

therecord
speaks
foritself.
Itisconstant.
Youcomeinhere;
youareinsulted
dayafter
day,treated
rudely,

buttheKathleen
O'Reillys,
theRalphNader's
havetheir
asses

kissed
everydayand
andtold
how wonderfultheirtestimonyi
andoveragain,
while
we arebuilding
up aregulatory
burden
that
isgoingtodestroy
thehousingindustryin
thiscountry.
Igetso
sickandtiredofit.
Talkaboutnegativism.
Thiscommittee

isnegative.
You have
astaff
that
issooverwhelmingly
antibusine
that—andtheydon't
havea practical
bitof experience
intheir
brainseveryanswer
is:“ Passanother
law.”
I deliberately
stayed
away fromthese
hearings
mostofthisweek,soI wouldn't
havean

outburst
like
this.
I couldn't
stand
tocomeandhearRalphNader
overand overagain
representing
himself
asrepresenting
millions
ofpeople.

325

At least
therearea few of us who happento thinkthereare

problemsthatdoneedcorrection,butmoreandmore
Federalregula

tionisn't
theanswertothatproblem.
I havethegreatest
respect
for
SenatorProxmireand hisability
and intelligence.
He is probably

one ofthehardest
workingSenators
intheentire
U.S.Senate.

I suggest
maybehisGolden
Fleece
Awardgotothis
committee
forthecostsithasimposed
on theAmerican
consumerandnot
on

thefinancialinstitutions,becausetheyhavetobepa
sumerandwhenwe aregoingtogetreason
and balance
in these
decisions,
I don'tknow.

Oneofthesedays
I'mgoingtogetsosickofthisSenateandth

ideas
ofimposing
moreandmoreregulations
andignoring
what

builds
thegreatest
standard
of living.
I thinkwe should
lookat
whatwe havepassedinthepastandmakesuretheyworkprope
anddowhattheywereintendedtodoratherthancontinueto
newregulation.
I feellikegoinghome andmakingas muchmoneyas I can
before
I dropdead,
after
fighting
ethics
codeandeverything
else.
I'm sorry,
butafter2years,
Ihavehada belly
full
oftheanswer
being:
"Let's
pushthroughanotherlaw
inthenameof consumer
ism,"andthepoor
consumer
isgettingripped
offby it.
When we start
goingbacktoacost-benefit
analysis,
how much
doesitcost,who
paysthebill
and who isgoingtobenefit,
then
maybewe will
comeup withanswers.Weare
notwillingtowait

forthechairman's
andmybilltogothroughtogetaneighbor
commissionandanswersandanalysesofpast
programs.

Wejustkeepthrowing
inmore.
I apologizeforgettingsoangr
but I feel
strongly
aboutthis.
As thechairman
and everybody
else

knows,
I'mtiredof
notbeinglistened
toatall.
I don'tknow
what
gooditdidtospend7yearsintheneighborhoodsofthiscou
thinkI havetheanswers
when youhavethegroups
cominginto
yourofficeandcommissionmeetingsthereyouareoutinth

andfrontlines.
Morewouldliketobuildhousing.
Buttheridiculou
HUD thatsits
there
withtheir
silly
rules
andregulations
doesn't
result
in building
houses,
butyouend up justfilling
outforms.
When theywiseup to thefactthatfor20 years,
we havebeen
having
Federalprograms
thathaven't
beenproducing
housing,
maybetheywilllooktheother
way.

MaybeI'm totally
wrong.My way hasn't
beentried.
I'm not
listened
to at all.
I apologize
formy anger,
butI thinkweare
heading
fora totally
regulated
centralized
bankingsystemin
this
country,
politicized
withwhoever
happensto
beinpower,
although

I doubt
I'll
live
longenough
toseethe
Republicans
control
any
thing,
eventheelevator
operators
around
here.
Idon'tknow.I happentothinkwe oughtto havea balanced
viewpoint
between
theprivate
and public
sectors,
rather
thanthis
overwhelming
unbelievable
morass
of Government
and bunchof
bureaucrats
thathavenever
beenoutin therealworldtrying
to
regulateandplan.
Let'sput
Humphrey-Hawkinsin
andwewillhave
arealjewel.

The CHAIRMAN.
I agree
withyouwholeheartedly
thatweshould
do ourbestto
solve
these
problems
intheprivate
sector.
Thatiswhatthisbillisdesignedtodo.

326

Thisbill
isdesigned
togetthebanks
todo thejobrather
than

havetheFederalGovernmentdo thejob.

You and I agreethattheydo a better
jobthantheFederal
Governmentcan.
Theyhavefarmoreexpertise.
They know their
neighborhoodandtheirarea.
One approach
istodo nothing.
Theysay:Let's
keepthings
the
waytheyare.
Theprofitsystemwillenablethingstoworko
Perhaps
itwould
gradually
improve.
You havetheRon Grzywinskis
thatshow theway,perhaps.

I am tryingto
propose
legislation
thatwouldprovide
somemild

incentive
topersuade
thebanksto
getinto
their
localcommuniti
moreaggressively
thantheyhaveinthepastandtotrythekind
ofprescription
thatMr.Grzywinskihasindicated
canbeshown.
Letmeask you,Mr.Grzywinski-we
havehearda greatdeal
from thetradeassociations
aboutthelackof demand formortgage

creditinolderneighborhoods.
Whatisyourexperience
intheSouth
Shorearea?
Has demandmaterializedwhen
youopenedyour
doors
andsaidyouwereavailable
to makeloans
or didyouhavetogo
outandspreadtheword?
Mr. GRZYWINSKI.
Wedida lotofspreadingof
theword.Thefirs
winterwe weretherethepresident
of thebank and I thoughtwe

wererunning
an independent
political
campaign
because
we spent
twoorthreenightsaweekinparlormeetings,
PTAmeetings,telli
people
whatweweretrying
todo withthebank.
We tried
toconvince
themthattheneighborhood
wasn't
going
down.

The CHAIRMAN.You had tofight
forit,
sell
it?

Mr.GRZYWINSKI.
We had to fight
forit.
Thereisdatawhich
showsthenotionof demand isreally
a myth.The realtors
know
wheretheycan gettheloans.
The realtor
is interested
in making

theprofitand
closing
thatdealasquickly
ashe can.
Ifhe hasa prospective
buyer,
he willsendthatbuyerto the
placewhereheismostcertainhecangetthatloan.

I didthis
inLockport
whenI wasmanaging
abankina county

thathadno
FHAlendinginabluecollarcommunity.Ipu

a packageand gotalloftherealtors
together
overlunchand told

themwhatweweredoing,
andwe didmorebusinessthatyearth
a savingsandloan
thatwasfive
times
oursize.
People
just
havetoknowyouaredoingit.
TheCHAIRMAN.
Arecreative
loans
morecostly
toservice?
Mr.GrzywINSKI.
Thereisan inescapable_cost
of development
Someloans
aremoreexpensive
thanothers.
Depending
on interest

rates
inthemarketplace,
mortgage
loans
mayor may notbea
profitable
investment.

Student
loans
aredifficult
toservice
eventhough
theyareinour

case100 percent
insured.
We haveto do thecollection
work and
theyaredifficult
toservice.

Wedo notletour
installment
loanpeople
turndownaninstall

mentloanuntil
ithasbeenreviewed
by another
committee
atthe
bank.

Smallbusinessloans,wehavehadagoodrelationshipf
withtheSmallBusiness
Administration.
We havetogo througha

327

separatelevel,
afterwe
approvetheloan.
We havetotakeittothe
SBAand theygothroughthe
process
alloveragain
and we have
tosell
themon it.
Thatcosts
money.Itisdifficult.

We subsidize
partofthatcostbyraising
deposits
fromoutside

our marketand usingtheearningsfrom
that.
If we talkabouta national
system,there
are ways where we

should
beabletodevelop
cash-and-profit
incentives
so we canget
banks to do more of this.

As Isaidin
thebeginningofmytestimony,thisbillis
a reason
ablebill
andoughttobepassed
because
I think
already
banksdo
benefitfrom
publicpolicy.
While therewould beadditional
costsinvolved,
what we have to

createisasystem
by whichbankshavesome
incentiveto
find
ways.

Theyshould
start
arguing
fordoing
awaywiththebureaucracies

involved.

Weneed a development
banking
system
inthis
country,
and we

don't have it.

The CHAIRMAN.
You do agree
in principle
that
abankcharter

toservetheconvenience
and needsof thecommunity
hassome
obligationtomakeloansinthatcommunity?

Mr. MILLIGAN.
Yes,and mostbanksfulfill
their
charters.
You will
findthattobe thefactinthiscountry.
The CHAIRMAN.The threebank regulatory
agencies
have never

sanctionedabankorfailedto
approveabranch
applicationbecause
thebank wasfailing
to meetcommunityneeds.

Intheabsenceofsensitivityby
theregulators,how
canweexpect
lendersto
pursuethisobligationto
thecommunity?
Mr.MILLIGAN.
Wehaveanexcellentexampleoftheattitudeof
regulatorssittinghereatthetablewheretheysaid
that
a particular
bank mightnotmove outof theareain whichitwas established

because
itwasservingtheconvenience
andneedsofthatcommunity
and itshould
staythere
andcontinue
to do so rather
thanmove
uptownandperhaps
bemoreprofitable
totheshareholders.
The CHAIRMAN. That isa rarecase.

Mr.MILLIGAN.
Itisverylikelythatitisseldomthatthep

actually
arises
intheconsideration
of a charter.

TheCHAIRMAN.
Don'twe needtoredefine
convenience
andneeds
tomake sureitincludes
loansand notjustdeposits?

Mr.MILLIGAN.Mr.
Chairman,
ifyoudefine
theconvenience
and
needsclause
again,
you aregoingtocircumscribe
theregulatory
authorities,
whereas
now theyhavebroadauthority.

If younarrow
downthedefinition,
thentheregulators
aregoing
tobeheldwithintheconfinesofthatdefinition
whereasatthispoint
theycan,
throughthevarious
powerstheyhave,exert
influence
on

thefinancial
industry,if
youwill,
toaccomplish
thepurposes
for
whichtheyareintended.
And I suspect
that
fromwithinour
own industry
there
isthat
kindofpressure
andinfluence
whichisaccomplishingthe
purposes
thatyou
arespeakingof.
Itmaybepainfullyslow.
Maybe itneedsa nudge,butitisgetting
a nudge.And when I

saythere
issocialconsciousness
up anddownthepike,
ifyouwill,
itisthereanditisbecomingmoreevident.

328

The majorbankshave
departments
whichdevote
themselves
com
pletelytothisarea.
The CHAIRMAN.I thinkyou area remarkably
finewitness,
and

you make a fine
impression.
I am sureyou spokewithcomplete
sincerity.

What concerns
me,ofcourse,
isthefactthatallwe areasking
todohere
isthattheregulatorybodiesput
emphasison
therecord
ofservingcommunityneeds,
particularly
withrespect
toloans,
and
we wanttotakethatintoconsideration.

Itissuch
amildsuggestion
orrequest.
You aresucha
reasonable
man thatitwouldseemtome thatwouldappeal
toyou.

You agree
withthegeneral
objective,
althoughyoudon't
agree

withourmeansof
achieving
it.
You say,
relaxandlet
things
take

theircourse;
we will
workour
way outofit.
Butwe seethisreal
problemin our cities.
It isnot a racial
problemeither.
We have

many cities
whichareentirely
white,
wherethehousing
stock
is
somewhatold,
andtheyarehaving
a great
deal
oftrouble.
Itisabroadproblem,asyouknow.Itis
a problem
forresidences
as wellassmallbusinesses.

Mr.MILLIGAN.
The ramifications
ofthatproblem
aretremendous.

Theyarethingsagain
towhich
weshouldbeaddressingours
butoutside
thepurview
ofthis
particularhearing.

But,certainly,
we feel
strongly
thatthese
problems
mustbe

addressed.
Theymustbeconquered.
It can't
allbedoneovernight,
becausethereisn'tthat much expertise.

One ofthethings
we areconcerned
about
isthata simple
bill
will
result
inrather
substantial
setof regulations
and,again,
that
there willbe

TheCHAIRMAN.
Youhavegoodreasontobeconcernedaboutt
Wehave seenthathappenbefore.
We aredetermined
tonotletthat
happenagainthistime.
What I wouldliketo do withthislegisla

tionis
tofindout
fromtheregulatory
bodies
whatkindofregula
tions
theywouldhaveandmakesurewedon't
repeatthe
mistake
made bythe Congress
in enacting
theRealEstateSettlement
Pro

ceduresAct.Wehad
agreement
withthe
industry.
Theyfavoredthe
bill
andtheyfoundtheyhadanightmare.
I supported
Senator
Garn intrying
torepeal
that.
Your bank
isa small
institution,
understaffed,overworked,
specializing
inthe
kindofloansthattakeagreatdeal
ofstafftime.
You havetestifie
thisbillshouldbestrengthenedtorequireacomprehens
reinvestment
policiesand
all
oftheothersthat
gowithit.
You don'tthink
thiswillrepresent
an intolerable
paperwork
burden.

We foundwemadeseriousmistakes
inthepast
inthiscommittee
in enacting
legislation
thatdidthat,
and we don'twantto do that
again.

Mr. GRZYWINSKI. It would take additionalwork. Our bank hold

ing company has to file
eachquarter
an extensive
reportto the

Federal
Reserve
Boardontheholding
company.
Thereareother

regulations.
Truth-in-Lending,forinstance,
takestime.Ifwewante
toopena branch,
ora drive-in
facility
whichisallwe coulddoin

329

Illinois,
itwould be an additional
burden.We would want to make

surethatwe wereinterested
in goingintothatareabefore
doing
that.

I don't
likeit.I wishtherewerea better
way to do it.But I

dislike
thepaperwork,
asmuchasanybody
else.

I don'tknow whatthe costsare.But,certainly,
it costsmoney.

I thinkitshouldbe keptassimple
asitcanbe.But I don't
know
ifthereisanyother
answertoit.I
wouldliketo
add fortherecord
thatin ourdealings
withthe Comptroller's
Office
and the Fed
theyhavebeenfairand,
within
theextent
of theregulations,
quite
supportiveofthe
work we havebeendoing.

In thelast
examination
bytheComptroller's
Office
inJuneor

Julyoflastyear,
we wereatthe
endoftheexamination.
Whatwe

were doingin termsof reinvestment
in theneighborhood,
and it

appeared
asthough
theexaminer-in-charge
hadaquestionnaire
and
hewasaskingquestions
fromthatquestionnaire,
andwe hadtotell
him whatweweredoing.

Mr. MILLIGAN.
The examiners
always
lookatthedomicile
ofthe
loanstomakesureweareloaningin
anareanotonly
closetohome,
butloaning
inan areawherewe know a little
aboutwhatwe are
doing.
Thatisan ongoingthing.
The CHAIRMAN. SenatorGarn?
SenatorGARN. The chairman has saidthiscommitteehas made

serious
mistakes
in thepast.
Maybeyoucouldunderscore
thatin
the record.

Second:
Mr.Grzywinski,
I agreewith
youandthechairmanthat
thisbillby
itselfdoesnot
imposethatbiga
regulatoryburden.
But
won'tyouagree
withthetotality
of whatthis
committee
andthe
Congresshas
doneovera period
of years
isa massive
paperwork
burdenwithverylargecosts?
For 2 years,
oneofthefirst
questions
I askedcame atthiscom

mittee.
Isaidhowmuchdoesitcost?
For2 yearsIhavebeenasking

thatquestion,andIcan'tgetananswerfromthepropon
nentsofthebills.
I was on theexecutive
sideoftheGovernmentin
Utah.I couldn't
make decisions
without
havingsomeideaof costs.

We doitall
thetimewithoutknowing.
Thetotalityconcernsme.
A littlebill
hereanda little
there.
Itislike
building
thematch
stickhouses.
Youbuildthem
foralongwaysandthentheycollapse
Thisonelittlebillisn'tthatbigadeal.

Mr.GRZYWINSKI.
Idon'tkeeptrackoftheworkofthecommitte
I run a bank.

SenatorGARN. You must be familiar
withsome of the things:

EqualCredit
Opportunity,
Truth-in-Lending.
On andon andon.
You arefamiliarwith
them.
If youarenot,you
areviolating
the
laws.

Mr. GRZYWINSKI.We
don't
willingly
violate
thelaws.
We hope
we don't
doitunwillingly.
We filethosereports.They
taketime.

Ourcomptrollersometimescan'tdo
somethingelse,
becausehehas
to

dothat.
When Iweighthatagainsttheneedswehaveinourneig
borhoodandthekindof
needsIseeexistingin
otherneighborhoods,
and whenI don't
seeanyeffort
on thepartofother
bankstotake

330

initiative
totrytohelpin some way,and I don't
careiftheyhelp

in my neighborhood,
therearea lotofotherneighborhoods—w
have75 in Chicagotochoose
from-butI started
out5 yearsago

believing
if youcouldshow thatyou coulddo development—I
started
doingdevelopmental
lendingin1967
at another
bank
thatbankhasmade $21 million
or $22 million
worthof loansand

itslosseshavebeen
$100,000,Ihavebeentold.
Ibelieveifwestart
doingthat I mightadd thatthatoperation
isprofitable
tothe
bestofmy knowledge—
butifwe started
doingthat,
other
banks
would followthe lead.

Theywouldsay,we will
getserious.
Maybeunderourholding
company,we may openup a developmentoffice
or development

subsidiary
asa couple
oflargebanksaround
thecountry
have.

However,ithasn'thappenedin
10years.
I thoughtifwe
started

dealing
withthebankandcould
go intoaneighborhood
andturn

itaroundthatbankers
wouldmoveagressively.
And therehasbeenmovement,
I agree.

Senator
Garn.
MayIinterruptyou
topursue
a line
ofquestion

ing?

I willmake a statement
soyou know how I feel.

Redlining
doesexist.
I maysurpriseyou
after
hearing
my initial
outburst.
Redlining
doesexist.

WhatIdisagreewith,ishowdowesolvetheproblemofr
Doweblamethecreditunions,savings
andloans,
banks?
Or do we
lookat maybe another
causeof theproblem?

The consumersgroups,
theysaydamn thefinancial
institutio
theywon'tmakeloans.
Iagreewith
whatyouaresaying.
Buthow
dowestimulatewhat
youaretalkingabout?
Dowe doitbypass
inga law thatrequires
people
to do things,
thatmandates,and
assign
a bureaucracy
to police
it,
or do we lookatthebasic
causes?

Sometimes
suchthingshave
nothingtodo
withtheability
ofthe

ownertopay,butanyfinancialinstitutionhastolookatthe

ofthehousethat
isbeingboughtandthesituationthatexi
neighborhood.

Ifwecould
getpeople
offseptic
tanks
andgetcodeenforcem

programsfrom the FederalGovernmentand the chairmanwilltell

youthatnobody
haspushedharder
forsection312
thanI,agains

twoadministrationsandmaybenowwewillget$120milli
You canseea situation,one
mayorfromUtah,
inhistownthey
hadrehabilitated
119homes
for$70,000ofstategovernmentm
Thelikelihoodofbanksgoinginandsaying,wecanmakea
now isgood.

Thatisthe
point
I havebeen
trying
tomakefor2 years
andI

haveseemedtofailtotally.

Thatisjustanother
law, moreregulations
from thevarious

regulatory
agencies
will
never
ever
solve
theproblem
of disinves

mentand redlining
andtheproblems
intheinner-cities.
Untilwe
attack
theproblem
on a total
basis,
getting
banksinvolved
with

thecitygovernment
and withtheFederal
Governmentallin
coopera
tion,
things
arenotgoingtohappen.

331

You know the leadthe financial
institutions
have takenin cities
likeBaltimore.

Idon'tdisagree
withyou.
Youknowabankercan't
disagree
with
whatI'msaying.
Unlesswe
correct
someoftheother
problems
and
cooperate
you justcan't
passa law and expect
thefinancial
institu

tions
tobail
outtheinner-cities.At
thesametimethey
havehear
ingsabout
problem
banksandwhatalousy
jobtheyaredoing
and
wehave tostiffen
theregulations
because
theyaremakingpoor
loans.
Therehasto be commonsense
and balance.
Do you agreeor
disagree?

Mr. GRZYWINSKI.
LastJuneorJulyI testifiedbefore
this
com
mittee
on things
thatI thought
wouldprovide
additional
incentives

thatwouldnotcosttheTreasury
anything,
usingsuchthings
as
regulation
Qandthedollaramountofinsurancebythe
FSLI and
F IC asmarket
incentives
toencourage
bankstodo moreinthe
areaof development,

You wouldhavetocreate
asystemofmeasurement
whichwould
be difficult
butto havea systembywhicha bankerisdoinga

better
jobofdevelopment
might
beable
topay512and6 percent

on savings
accounts
and wouldhavea competitive
edgein the
marketplace.
It wouldbe an advantageto
theconsumer
and give
thebanka marketadvantage.
If my depositors
wereinsured
to
$50,000
or$60,000
andFirst
Nationaldepositors
wereinsured
only
to$40,000,therewouldn'tbemuchpaperworkinvolvedinth
Philosophically,
we aresayingthesame
thing.
On theotherhand,
I don'tseethathappening.
It may happen
someday.

Senator
Garn.My pointis
there,
ratherthan
justpassing
a law
thatisgoing
totrybylegislativefiat
require
youtodosomething,

wouldn'twebebetteroffinthis
Congresstoencouragewhat
I'msay
ing?Wouldn't
we bebetterofftoput
moremoney
into
community

developmentgrantsthroughlocalgovernment,wouldn'tth
less
indevelopmentcostsand
wouldn't
thebankingand
savingsand
loanindustrybebetterabletogoinandmakeloansinthesere
areasifweimprovedtheentiresituation
?

Youcan't
raiseone
shipintheharbor.
Butifyouraise
thelevel

of theharbor,
allof theships
come up.

Mr. GRZYWINSKI.
Thosethings
wouldhelp.
I don't
know what

the costswould be.

When I readtheprojections
fromtheBureauof
theBudgetthat
there
will
beno new spending
until
1980,
I don't
know wherethe
moneyisgoingtocome from.

Senator
Garn.We aregoing
totakeitoutofwaterprojects
in

the West.

Mr. GRZYWINSKI.I don'tknow what the totalwork of the com

munityisbutthislegislationiswhatwehavenow.
Itseemsifitispassed
itwouldbe a stepin thedirection
in

which weneed to move.

Senator
Garn.You aretalking
about
deficits
andI abhorthem,

too.

332

Lookatthebalance
of ourhousing
programs.
We fight
toget
$120millionfor
rehab.
Wouldyouagreethatthere
isatremendous
inventoryand
asset
ofgood,solidly
built,older
homesin mostof
thecities?
Rehabrather
thangoingoutand building
new public
housing,thebillionsofdollarsofcosts,that15years
fromnowwillbe
falling
apart

Mr. GRZYWINSKI.
I haveseentwo examples
of remarkable
re

development
activities.

SenatorGarn.
I tried
inthis
committee
for2 years
to reduce
some ofthe—nottalking
aboutincreasing
thetotal
budget,
but
thepriorities
within
it,
reducing
theprograms
thatdon't
worklike

236andto
reduce
conventionalpublichousing.
Ifyoucanrehabili

tate119
homesfor$70,000tomakethemlivable
andsafe
andupto
codestandards
thatiswonderful.

Mr.GRZYWINSKI.
236andsection
8 areimportant
pieces
in the
beginning
cycle
ofturning
aroundaneighborhood.
An areamay
betoofardepressedto
comeinwithmarket
rateandmarket
term
loans,butifyouhavea
strategy
foraneighborhoodorthat
partic
ularareaandcomeinfirst
witha large
enough
segment
of con
centrated
subsidized
moderate
incomehousing,thenyou
canbuild
aroundthatand begintocomein

Senator
Garn.Isn't
rehabtheveryfirst
stepin revitalizing
a
neighborhood?
Doyou think$120
millionis
adequatein
a rehabprogram?
Mr. GRZYWINSKI.No. We couldn't
use$120 million
in South
Shore,butclosetoit.

Senator
Garn.Youhavemademy pointexactly.
That
iswhat
we haveif
the$50million
extra
I requested
isputinfortheentire
country
forrehab.
A house
inSaltLakeCity,typical
WorldWar
IItype,
smallhome,elderly
couple
living
in it,and
ifyoustart

lookingat
thepossibilitiesof
lowincomehousing
forthem.
For

$3,000outofourfunds
inthecity,througharehabilitationp

themajorproblem
was plumbing,
electrical
and thefurnace.
Ithad

a wallheater
thatwasverydangerous.
With$3,000,we
wentinand
duga partialbasement,
putinanewfurnace,improvedtheelect
and plumbing
andtheyhaveanicehomenow.

Whatwouldit
havecostthem
togointo
anyotherthing.
Ithink

somebodymightbe willing
to make a loanon thathouse.
In the

future,whenthatelderlycouple
isgoneandsomebodywantstobuy
thathome,I betany bankorsavings
andloanin SaltLakeCity
willmakea loanonthathouseandthe$3,000madeitpossible.
Mr. GRZYWINSKI.
You canrehabmanyhouses
forbetween
$6,000

to$8,000.

The subsidy
programs,
section
8 and236,theconstruction
costs
arecomingin at $15,000
to$16,000
a unitand thenyou getup to
$30,000
a unitwithsoftcosts.

Nonetheless—
andI think
those
areexpensive
costs—
thatkindof
system
hasto beusedasa way ofpriming
thepump,and where
we do havesubsidies,
housing
subsidies,
whereweare makinglarge
housingexpenditures,
thoseexpenditures
shouldbe made in areas

wherethere
isnon-Government
subsidized
development
as part
of

333

thepackage.
We havenotusedthesubsidized
housing
packages
theway theyshould
be used,
toencourage
moremarket
activity
in
that area.

Senator
Garn.My timeisup.

I don'tthinkthereistoomuch
differenceinour
opinions.
The CHAIRMAN.SenatorGarn has made anexcellent
argument

forourbill.
I don't
thinkhe wouldacknowledge
thatbuthehas
Theprivate
sector
doeshave
animportant
role
here.
Ididn'tthinkthedaywouldcomewhenthedistinguishedSen
fromUtahmakesapitch
forthe
Governmentcominginandsolving
these
problems
through
Government-paid
rehabilitation,
through
Governmentactionsofvariouskindsandnotrelyfirstonthe
sector,
which isallthisbill
does.

Thiswon'tcosttheFederal
taxpayer
a nickel.
Itmaycostsome

thingto
thebankinginstitutions
butthat
issomethingthatyou
as
abanker can assume.

Buttheimportantthingiswhetheryouwanttosolvethispro
with Government fundsor with as little
Government funds as

possible;
ifwe aregoingtosucceed,
we havetoenlist
theprivate

sector.

Youcanproviderehabilitationtoo.
Thebankswith
therightkind
ofincentiveand
encouragement
willprovide
moreand better
re
habilitationthan
wecaneverprovide
intheCongressof
theUnited

States.

Youhaveprovided
rehabloans,isn'tthatcorrect?

Mr.GRZYWINSKI.
Yes,sir.

TheCHAIRMAN.
Thatiswhatthebillis
tryingto
achieve.
Senator
Garn.May I assumethatyouwillsupport
in thenext
housingbillgreatly
expanded
rehabilitation
andcutdown on con
ventionalpublichousing?
AllIhavesucceededwith
allofthecomplimentsyou
havepaidme
isallocate
$120million
outof a $450billion
budget.
That's
peanuts
foraconservative.
Put thatintherecord,too.

TheCHAIRMAN.
I hopeyouwill
joinme inmy committee
initia

tives.

Senator
Garn.Willyoufight
tokeepthatextra
$50million
in
that
I requestedthisyear?
The CHAIRMAN. For what?
SenatorGARN. Section312.

The CHAIRMAN.
$50 million
isn't
much foran ex-mayor
from
Utah,butfromapooroldcountryboy
fromWisconsin,thatisalot.
Senator
Garn.Thiscommitteehasunanimously
putitin.

Aschairman
Iwouldexpectyou
tofollowyourcommittee'sdirec
tionsasyousitontheAppropriationsCommittee.
TheCHAIRMAN.
I dowhenever
I agreewiththecommittee.
Thankyou,gentlemen.
Our next witnessis MorrisCrawford,Edward Brooks,Security

FederalSavingsand
LoanofRichmond,who,
I understand
will
give
us the viewpoint
of thesavings
and loanindustry
and Ms.
Kathleen
Hamilton,
Central
West End Savingsand Loan of St.
Louis.

88-032 0.77

- 22

334

STATEMENTS OF MORRIS D. CRAWFORD, JR.,CHAIRMAN OF THE
BOARD, BOWERY SAVINGS BANK, NATIONAL ASSOCIATIONOF
MUTUAL SAVINGS BANKS; EDWIN BROOKS,JR.,PRESIDENT,
SECURITY FEDERAL SAVINGS AND LOAN OF RICHMOND; AND
KATHLEEN O'C.HAMILTON, CENTRAL WEST END SAVINGS AND
LOAN ASSOCIATION,ST.LOUIS,MO.

Mr.CRAWFORD.
Thankyou,Mr.Chairman.
[StatementofMr.Crawfordfollows:)
PREPAREDSTATEMENTOF THE NATIONALASSOCIATION
OF MUTUAL SAVINGSBANKS

Mr.Chairman
and MembersoftheCommittee,
my nameisMorris
D. Craw
ford,Jr.,
chairmanof theboardof theBowery SavingsBank,New York City,
and chairmanof the NationalAssociation
of Mutual SavingsBanks' Com.
mitteeon FederalLegislation.

I am pleased
tohavethis
opportunity
todiscuss
S.406theCommunityRe
investment
Actof1977,introduced
by ChairmanProxmire
earlier
thisyear.
As we understand
the bill,
itsstatedpurposeand intended
effect
would be to

require
theappropriate
Federalsupervisory
agencies,
in passing
uponapplica
tionsfornew
“deposit
facilities,”
todeterminewhethertheapplicantins

has beensatisfyingcredit
needsin areascontiguousto
exitingdeposit
facilitie
Further,
applicants
would be required
to setforththe porportion
of consumer
deposits
expected
to be obtained
from residents
in theservice
areaof the pro
posedfacility
thatwould be subsequently
reinvested
in thatservice
area.
Federalstatutes
pertinent
to savingsbanks presently
require
the FDIC to
takeintoconsideration,
among othercriteria,
boththe convenience
and the
“needs”of the communityin determining
whetherornot to actaffirmativel
on applications
affecting
depositfacilites.
For example,in order to qualifya

bank forinsurance
underSec.67 of the FederalDepositInsuranceAct,the
Board of FDIC must consider
"convenience
and needsof the community"as
a factor.Under Sec.18(d)?of the Act,the same criteria
must alsobe satisfied

in orderfora savings
bank toestablish
and operate
any new branch.
The same
testis alsofound in the mergersection
--Section
18(c)
(5) of the F.D.I.A.”
Based on existing
statutes,
therefore,
the Federalsupervisory
authorities
can undoubtedly
interpret
"needsof the community"to include
creditneeds.

We havereason
tobelieve
thattheydo applythis
interpretation
fromtimeto

time but not in allcasesand not alwaysexpressly.
This suggests
thatthe

enactment
of S.406isnotstrictly
necessaryand
thatitspurpose
mightbe
accomplished
by administrative
regulations
or even by simplerevision
of
presentforms of application.

If,however,
Congressshould
determine
thatnostatutory
duplication
would

be involved
in the enactmentof S. 406,we believe
thatsome of the require.
mentssetforthin the bill
mightbe reconsidered.
For example,
the definition

of a bank's
"primary
savings
service
area”as “ a compactarea”whichis
geographically"
contiguous
toa deposit
facility”
may notbeentirely
appropri
ate for a branchfacility
locatedin a commercial
center,
a largeregional
shoppingarea,a high-rise
office
building
or certainmetropolitan
markets.

Many ofthese
branches
draw50 percent
or moreoftheir
deposits
fromsuch

widelyspreadgeographic
areasthatthe actualsavingsservice
areacannot
be thoughtof as either
" compact”or “contiguous."
Furtherthe applicant
for a “deposit
facility”
would bear the burdenof

analyzing
the"credit
needs”
ofits"primary
savings
service
area"and pro
posingmethodsfor meeting“thoseneeds.”
The applicant
would alsobe re

quired
to indicate
the“proportion
ofconsumer
deposits
obtained
fromindi
viduals
residing
intheprimary
savings
serviceareaby
thedepositfacilityt
will be reinvestedin that area.”In the firstinstance,nowhere does the bill

provide
a definition
of"credit
needs.”
Lackingsuchdefinition,
the burdens
of
112 U.S.C. 1816.

2 12 U.S.C.1828(d).
312U.S.C. 1828(c)
(5).

335

analysis
of,and providing
proposals
for meeting,
“thoseneeds"wouldbe

virtually
insurmountable.
Even assuminga reasonable
conceptual
definition
of
“creditneeds"could be provided,
the mechancialproblemsof compliance
would be significant.

There are otheraspects
of thebillwhichmightalsobe reviewed.
For
example,Senator
Proxmire,
in hisintroductory
message
accompanying
the
bill,
pointedout thatthe“needs"of a communitymay sometimesbe ignored
because of the motivesof applicants
who “may be interested
primarily
in

financing
their
own outsidebusiness
interests"
or "may wishto invest
the

community'ssavingsin far-flung
ventures.”
This justdoesnot applyto the
nation's
mutualsavingsbanks.Most savingsbanksare severely
restricted
or
completely
prohibited
by statelaw from thefinancing
of business
interests
of

theirofficers
or trustees
or fromsignificant
investment
in far-fung
business
ventures.
Most observers
would arguethatmutualsavingsbank supportfor

thenationalhousing
marketthrough
secondary
marketpurchasesofmortgage
paperon out-of-state
properties
or through
thepurchase
of municipal
obliga
tionsisin thenational
interest
and helpsmove neededfundsforpublic
hous
ing goalsfrom capital
surplusto capital
deficient
areas.The question
thus
arisesas to whethertheproposedlegislation
addresses
a critical
problemin
the case of our specific
industry.

Section4(3) of the bill
suggests
thatregulators
encourage
testimony
from

communityorganizations
at deposit
facility
application
"hearings.”
Present
FDIC regulations
provide
forpublic
notice
of allsuchapplications
and an
opportunity
to be heardforallinterested
parties,
whether
or nota formal
"hearing"is held.Becauseof the delaysinvolved,
we would not liketo see

formal“hearings"
for allsuchapplications
but itcouldwellbe thatthe
regulatory
authorities
couldamend presentregulations
to bringthisnotice
more specifically
to the attention
of interested
groupsand withoutfurther
legislative
direction.
While we respectfully
submitthat s. 106 would not add significantly
to
powers that Federalsupervisory
authorities
alreadyhave,itspassagewould
concernus in several
otherrespects.
The bill
isobviously
designed
in partto
combat alleged
geographic
discrimination
on the partofsome lendinginstitu
tions—a practicecommonly
referred
to as “ redlining.”
The bill
impliesthat
in the solution
of thiscomplexand vexingmatter,
thereshouldbe some sort
of relationship
betweenwhere an institution
receives
itsdeposits
and where
it should be investingthose deposits.
Granted,no such ratiois spelledout or

even required
undertheliteral
termsof the bill
but we,suggest
thatFederal
regulatory
authorities
couldwellinterpret
thelegislation
thisway.
This disturbs
us forat leastthreereasons.
First,
thenatureof the problem
appearsto be one of perception
atleast
as much as oneof reality.
In instances
where mechanismshave beenestablished
to dealwiththepractice,
ithas been
shown thattheseperceptions
werenota reflection
ofactualconditions.
Second,
the mutualsavingsbank industry
has addressed
thisissuethroughitsown
initiatives
and findsthisprivateapproachmuch preferred,
from a public
policy
standpoint.
I willexpandon thesepoints
further
on in my statement.
Third,we believe
thatany implication
thatthereshouldbe a specific
relation.
shipbetweenwheredeposits
come from and whereinvestments
shouldbe made
istoosimplistic
and couldwellbe self-defeating
forthosewho seekto encour

agegreater
investment
in lessaffluent
communities.
Financial
intermediaries
have always moved funds from capitalsurplusto capitalshort areas.Any
unrealistic
criteria
for localinvestmentof localsavingscould welllead (i) to

unnecessary
investment
incapital
surplus
areas,(ii)
toevenless
investment
thanat present
in capital
shortareas,
and(iii)
to thelocation
ofdeposit
facilitiesprimarily
inrelatively
affluent
areaswthoutsufficient
regard
tothe
convenienceof savers in lessaffluent
areas.

It is the tradition
of the mutual savingsbank industry
thatcommunity

needsmustandshall
beserved,
provided
suchservice
iscompatible
withsafe
and sound bankingpractices.
For example,we believe
our industry
has an
excellent
recordwithrespect
to establishing
special
programsto encourage
investment
in urbanareas.
What theseprogramshavein common isthatthey

represent
private
initiative
by thelending
community
tochannel
funds,
fur
nished
ona voluntary
basisby participating
institutions,
intoareasthatmay

havepreviously
experienced
difficulty
insecuring
mortgage
finance.
Thesepro

336

grams alreadyexistin Boston,Pittsburgh,
and Philadelphia,
and a simila
programhasbeendevelopedandisaboutto
belaunchedin
NewYork City.They
typically
involvea “mortgagereview committeeand thesecommittees
con
sistnotonlyof bankers,
but of neighborhood
represenatives
as well.
It mightserveto examineone of theseprogramsin more detail.
In Boston
an Urban MortgageReview Board was established
in 1976to reviewappeal
1
broughtby rejected
mortgageloan applicants.
The board consists
ofsix

members—three
bankers
andthreeneighborhood
representatives.It
issigni

canttonotethatin theboard's
first
eightmonthsof operation,
1,603mortgage
applications
for loanson Bostonproperties
were received
by savings
banks.

Ofthisnumber,
243weredenied.
All243
ofthedeniedapplicantsweread

oftheirrighttopetition
theUrban MortgageReviewBoardand some30didso.
Out of these30 cases,
therewere onlyfour where even a single
memberof
theboardfeltthatlocation
mighthave beena factor
in theinitial
rejectiono
theloanapplication.
Thus,the results
in Bostonsuggest
theremay be farles
"redlining"
than residents
of affected
neighborhoods
once believed
to bethe
case .

Inreviewingthebillandallied
materials,however,
weweregratifiedton

Senator
Proxmire's
wordsin hisintroductory
message:
“ Thebillisnot
intende

toforcefinancial
institutionsintomakinghighriskloansthatwou

theirsafety.
Indeed,
the bill
specifically
requires
thatany action
takenbythe
bank regulators
must be 'consistent
withsafeand sound'bankingpractices."

Accompanying
me todayaretwo oftheleading
savingsbankers
involvedi

urban lendingreviewprogramsin New York and Boston:Mr. Vincent
J.
Quinn,president
and chairmanof The BrooklynSavingsBank and Mr.Arthur
F. Shaw, president
of the FirstAmericanBank for Savingsin Boston.
These
two gentlemen
arefarmore expertthanI am and wouldbe pleased
toanswer
any questions
of the Committeeas to the operation
of urbanlending
review

programsin
fulfillmentofthe"needs”
ofthecommunity.

337

A NYPIRG

NYPIRG

REPORT

TAKE THE

MONEY

AND RUN !
Richard
Cesiden.

Redlining
inBrooklyn

2in

8168
WIU

NEWYORKpublicINTERESTRESEARCHGROUP,IN
Offices:ALBANY,BINGHAMTON,BROOKLYN,BUFFALO,MANHATTAN,QUEENS,SYRACUSE

338

TheNewYorkPublicInterestResearchGroup,
Inc.(NYPIAG)isa
nonpartisan
research
andadvocacyorganizationestablished,
directed,
and supported
by New YorkState
college
and university
students.
NYPIRG's
staff
oflawyers,
researchers,and
organizers
workswith
studentsinofficesinAlbany,Binghamton,Brooklyn,Buffalo,
Manhattan,
Queens,
andSyracuse,
Staffandstudentsworkatlearningcitizenship
skillsand
shaping
public
policy.Consumer
protection,
energy,fiscal
responsibility,politicalretorn
,andsocialjusticeare
NYPIRG'sprincipal
areasofconcern.

ACKNOWLEDGMENT
Thisreportwouldnot havebeenpossible
withoutthededicated

workofstudents
atBrooklyn
College
whohelped
conceive
andplanitand
wereentirely
responsiblefor
researching
thedata.The contribution
of
AndyRothwasespecially
important.
Heheaded
thetask
forceofstudents,
instructing
themin theintricaciesof
county
realestate
records
andmaking
surethattheworkwasdoneonschedule.
Themembers
of thetaskforce
rere:Barry
Glickman,
Barbara
Kluger,
Robert
Levine,
Susan
Lyons,
Maxine
Margo,
Dennis
Mulligan,
SusanOdessky,
MarcPergament,
andDavidRosen.
The

effort
ofEric
Cohen
also
merits
specialacknowledgment.
Asstaff
project

coordinator
at theBrooklyn
College
Chapter
ofNYPRG,heinspired
and

advisedthe students
and helpedthemchanneltheirconcern
abouturban
housingintoconstructive
action. RichardGolden,
a NYPIRGstaffattorney

assigned
totheBrooklyn
office
of NYPIRG,
helped
editthereportand
has
testified
before
Cityand
State
committees
investigating
theproblem
of red
lining.

For additional
copiesof this publication

($1.00)
or information
on bulkrates
write:
NYPIRG
Publications,
5 BeekmanStreet,New York,N.Y.10038

(212)349-6460

Copyright1976NewYork
Public
InterestResearchGroup,
Inc. IM120176

339

CONTENTS
i

Preface..

Introduction.....

Methodology..

Results..

Analysis
of Data....

Brooklyn
Is Redlined
BlackNeighborhoods
FareWorseThanWhiteNeighborhoods
Corroborationof Data.

Conclusion....

Appendices:
Table I:

The Seven Banks Surveyed

TableII: Mortgages
IssuedDuring1975
Table III:

Valuesof Mortgages
Issued

TableIV: Comparative
Ranking
of Banks
MapI

A to G:

Postal
ZoneDistribution
of Mortgages
Aggregated
by Bank

Map II: Combined
PostalZoneDistribution
of Mortgages

340

PREFACE

Housing
dominates
thedomestic
economy
of mostAmericans.
A
houseis themostexpensive
lifetime
purchase
for mostpeople,
withtheir
automobiles
andfunerals
beingdistant
seconds
and thirds.For apartment

dwellers,
rentisusually
thegreatest
single
monthly
expense,
absorbing
at leastonequarter
of disposable
income.
As mightbe expected,
housing
hasas muchimportance
for society
as it does for individuals. Homesareso expensive
thatalmosteveryone

who buysonemustdo so on credit,
extended
in theformof mortgage
and
homeimprovement
loans.Whenmortgages
are notavailable
forcredit-worthy
people
to buystructurally
soundhomes,
entireneighborhoods
andcities
decline.Youngfamilies
withchildren
cannotfindhomesandolderresidents
leavewithout
beingreplaced.Cityrealestatetaxincomedeclines,
leading
to a diminution
of schoolquality.Customers
leaveor cannotmoveintoneigh
borhoods
and localbusinesses
close,leading
to unemployment,lower
sales
taxes,
decreased
incometaxrevenues,
andthusto a decline
of municipal
services.

Peoplewithsteadyjobs,goodincome,
anda recordof credit

worthiness
cannot
obtaina
mortgage
atallorcandosoonlybygoing
to
a government
or private
insurance
poolthatcharges
"points",
therebyinflat
inginterest
costs.Whites,
who havethechoiceof movingto suburbs
where
lessexpensive
conventional
mortgages
areavailable,
no longermoveinto
theinnercities."Transition"
neighborhoods,
whichwouldbecomeracially
integrated
if whitescouldobtainmortgages
at competitive
prices,
instead
turn into racialghettos.

Thesesymptoms
of creditstrangulation
haveappeared
withfright
eningspeedandintensity
in NewYorkCity. Racialghettos
arespreading;
realestatetaxrevenue
is falling;
schools
and municipal
services
are
suffering.

Creditis extended
by thosewithmoney,whichmeans,inour
society,
banks.Thispowerto extendor withhold
credithas beengivento
banks by their depositors. In the past,residents
whodeposited
money
in a localsavings
bankcouldassumethattheirmoneywouldbe usedfor
thecommunity's
benefit.Thisassumption
is recognized
by Congress
in the
HomeMortgage
Disclosure
Actof 1975,whichis predicated
on banks'"obliga
tionsto servethe housing
needsof thecommunities
in whichtheyare
located."

There are two kindsof banks in America: commercial
and savings
Commercial
banksareformedby stockholders
andare profit-moti
vated.Savingsbanksarenotrequired
to earnmorethanenoughto give
depositors
a fairreturnon deposits
andto coveradministrative
costs.
banks.

341

As thisreportshows,manyBrooklyn
savings
bankshaveabdicated
their
responsibility
to theirdepositors
andcommunities.
Withone hon
urable
exception,
thesevenbankssurveyed
by NYPIRGarechoking
theflow

ofcredit
inBrooklyn.
Theypursue
profit
outside
their
homeareas
and
ignorethecreditneeds
of localresidents.
Thewithdrawal
of creditaffects

every
neighborhood,
every
race,
andevery
income
group.
Theredlineisdrawn
insecret,
without
theknowledge
ofdepositors
towhomthesebanksshouldbe accountable.
As can be seenfromthemetho
dology
section
of thisreport,
it was possible
to obtainthefactsonly
aftermonthsof workby manypeople
searchingdiffuse
and voluminous
public
records.

One ofthemostdisheartening
aspects
of theredlining
problem
istheinfinite
number
of waysa bankcanrefuseto keepcapital
in a given
Theaverage
mortgage
termmay havebeen25 years;it suddenly
becomes
tenor 15 years,
makingthemonthly
chargeprohibitive.
Previously
the

area.

loans
would
befor80percent
or85 percentof
theappraised'
value
ofthe
house;
nowtheloanwillbe for only60 percent
or 70 percent
of theappraised
value. Whilebefore,
theappraised
valuewouldapproximately
equalmarketval
ue,nowappraised
valueis only60 percent
to 70 percent
ofmarketvalue.Pre
viously
themortgage
wouldbeclosedwhentitlepassed;
banksnowbeginto re
quirecompletion
of unnecessary
repairs
or redecoration
priorto closing
the
mortgage.
Whereas
previously
a balloon
mortgage
on an apartment
building
wouldautomaticallybe rolled-overat terminationof the term, suddenlybanks

demand
payment
of theoutstanding
principal
or agreeto extendtheloan
onlyat an exorbitant
rateof interest.Before,
the potential
borrower
couldapplyfor a loanwithout
charge;
nowthe bankimposes
"frontend"
costssuchasapplication
fees,appraisal
fees,commitment
fees,and closing
andattorneys'
fees. Whereas
previously
a credit-worthy
purchaser
could
simply
assumetheobligations
of an existingmortgage,
suddenly
the bank
imposes
a "due-on
-sale"
clauseaccelerating
payment
of theloanuponsale
of the property,
whichrequires
the property's
purchaser
to negotiate
a new

mortgage
ata higher
rateofinterest
andwithfront
endfees.
Usingthesetechniques,
a bankdoesnothaveto proclaim
explicitly
that an area is redlined. Onceit getsthereputation
foremploying
these

practices,
potential
borrowers
do notevenbotherto apply.Without
mortgage
applications,
the bankcancomeintothe public
forumandsaywitha straight
face that demand does not exist. Thisreport
provesthatdemandformort
gagesexistsin Brooklyn,
no matterhow"mature"
its neighborhoods.
Oneof
thesmallest
bankssurveyed
recorded
722mortgages
in Brooklyn
duringthe
most recent full calendaryear
four times the numberof mortgagesas the
bankwith the next highestnumberof recordedmortgages. If the other banks,

withtheirfar greater
resources,
hadinvested
a similar
proportion
of their
assets,
therewouldhavebeen$313million
in mortgages
issued;
theactual
totalwas $40 million.

Bankstakemoneygivento themundera falseassumption
as to how
thatmoneywillbe used. Theynotonlydo notusethatmoneyfor the purpose
intended,
butalsoactively
deprive
the depositors
of useof themoney,
muchto theirharm. Thereis a wordfor thisconduct;
it is "fraud".

342

iii

Peoplewhowishto buya homein a redlined
neighborhood
arenot
seeking
favorsor special
treatment.
Alltheyaskis theopportunity
to
committhesamedownpayment
and paythe sameinterest
as theirfriends
in
other areas. Theyaredenied
thisopportunity
by peoplewhountilnowhave
been beyondaccountability.

There
aremanywaystocorrect
thesituation.
Public
officials
canbehelpful
inenacting
andenforcing
better
laws.But the surest,fastest,
andmosteffective
solution
liesin the handsof ordinary
citizens.Deposi
torsmustuniteto demandan accounting.
Somebanksaremoreresponsive
to community
needsthanothers.Citizens
havethe ultimate
power.Theycan

putredlining
banks
outof business.
Bydepositing
wisely,
theycanmake
responsible
banksandtheirownneighborhoods
flourish.NYPIRGpledges
everyassistance
it canrenderto thiseffort.
Donald K. Ross

Director
November1976

343

INTRODUCTION

LowandmiddleincomeAmericans
havetr ditionally
usedbanks
first,as therepository
of familie
' lifesavings;
and
second,as thefinancer
of thelargest
purchase
mistfamilies
evermakein two ways:

their home. These two servicesare closelyrelatd becausemoney depo

sitedassavings
islentintheformof home
mortjage
andimprovement
loans. Banksthussafeguardand
disburse
thelenling
poolnecessary
for
continual
rejuvenation
of neighborhoods.
In recentyearsbanksin manyareasacrossthecountry,
includ
ing Brooklyn,
haveabandoned
theirroleas lendin
! poolfor localhome
Instead,
theytakedeposits
fromareare identsbutinvestthem
in otherneighborhoods,nearby
states,
or evenot er partsofthe country.
buyers.

Localresidents
seetheirsavings
withdrawn
from heirownneighborhoods

and employed
forthebenefit
of othercommunities

Thisgeographic
disinvestment
is called"redlining"
since,in
effect, banks draw a red line around neighborhood
, and refuse to make
mortgage loans within them. Redlining
contribute
to a downwardspiral

of community
abandonment,
lowered
property
valuesandracially
and/or
economically
segregated
neighborhoods.
Despite
visual
evidence
of vastrundown
neighborhoods
and the
complaints
of frustrated
persons
who unsuccessfully
soughtto obtainmort
gages(the NAACPhasfiledsuiton behalf
of blackfamilies
deniedaccess
to houses southof AvenueH), it has until now been impossibleto prove

the existence
of redlining
in Brooklyn.Banksrefuse
to letthe public
know howmuchmortgage
moneytheyhaveinvested
in a neighborhood
or the
amountof deposits
madeby neighborhood
residentsThedepositor/mortgage
applicant
has no readily
accessible
sourcefordetermining
theprevious
recordof the bankin granting
mortgages
in hisor her neighborhood.
How
ever,it is possible
to discover
a bank's
investment
in a givenarea
throughtheextremely
arduous
process
of examining
public
records
of deeds
and mortgages.

Students
working
withtheBrooklyn
College
Chapter
of theNew
YorkPublicInterest
Research
Group,Inc.(NYPIRG)decided
to makethe
commitmentof time and labor to examinethese records. A task force of

ten Brooklyn
Collegeundergraduates
resolved
to answerthefollowing
question:

"Are bankswhich receivedthe dominantportionof their savings

deposits
fromBrooklyn
residents
investing
a similar
portion
of thesede
positsin mortgages
or properties
located
in Brooklyn?"

344

page2

METHODOLOGY

Thefirststepwasto identify
thoseban.swiththe greatest

percentage
ofBrooklyn
residents
asdepositors.
Tiistaskwascomplicated
by therefusal
of banksto release
therelevant
daa, butit is generally
accepted
in thebanking
industry
thatmostofthe lepositors
ina particu
larsavings
bankofficelivecloseto thatoffice.Commercial
bankswere
notconsidered
because
Brooklyn
residents.form
toosmalla portion
of
theirdepositors.
Onlysavings
bankswithheadqua'ters
or a majority
of

branches
in Brooklynwere
used.To insure
thatthebanks
selected
for
studywere
capable
ofmajor
investmentin
Brooklyn
onlythose
withmore
than$800million
in assetsanda totalinvestment
in mortgages
of more
than$500million
duringthemostrecentfiscalye.:r,
1975,werechosen.
Sevensavings
banksmeeting
thesecriteria
werechisenforsurvey:*
Brooklyn
Savings
Bank.
The DimeSavings
Bankof NewYork.
EastNewYorkSavings
Bank.
The Greater
NewYorkSavings
Bank.
Greenpoint
Savings
Bank.
Metropolitan
Savings
Bank.
Williamsburgh
Savings
Bank.
Everymortgage
issuedis recorded
in theofficeof thecounty

clerk
forthecounty
inwhich
theproperty
islocaied.
Thisrecord
ispublic
andisusually
examined
byanyone
thinking
ofbuying
a property
todetermine
if thereareanyoutstanding
debtson it. Informa:ion
on Brooklyn
mortgages
is recorded
in a ledger,
indicating
the bankgrant'ng
themortgage,
the
property
owner,
the blockand lotdesignating
the roperty
location
anda liber
number.Thelibernumberis usedto locatethemoitgageon microfilm
reels,
wherethe valueof themortgage
is recorded
as wel as the streetaddress.

TheBrooklyn
Collegetask
forcewent
to theMunicipal
Building
inBrooklyn
and,overa periodoffive
months,
looked
at themortgage
record
foreachof
the9,000blocks
in Brooklyn.Thestudents
recorded
datafromthemortgage
ledgers
formortgages
granted
by thesevensavings
banksduringcalendar

1975.Using
thelibernumbers,
theythenconsulted
themicrofilm
reels
to
determine
theamountof themortgage
andthestreetaddress
of the property.

Thenextstepwastoobtain
thebanks'
annual
reports
forfiscal
1975.Figures
fortotal
assets,
total
deposits,
overallmortgage
invest

ment,annualmortgage
investment,
and numberof branch
offices
wereabstracted
from the reports.

Themain
office
ofGreenpoint
Savings
BankisnowinFlushing,
Queens,
butGreenpoint
wasincluded
amongthesurveyed
banksin orderto investigate
itsreputation
formajorinvestment
in Brooklyn.

345

page 3

RESULTS

Thedataobtained
by thetaskforceis summarised
in thefollowing
tables and charts.

Table I:

TheSevenBanksSurveyed:Locations
of mainoffices
and
Brooklyn
branches;
totalassetsas of closeof fiscalyear
1975.

Thesurveyed
bankshadassetsvarying
between
lessthanone billion
dollars
(EastNewYorkandGreenpoint)
to almostfourbillion
dollars
(DimeSavings).
Mortgages
issued
by surveyed
bankson Brooklyn
properties
duringcalendar
1975.
Six of thesevenbanksinvested
onlya tokenamountin Brooklyn.The
largest
bank(Dime)invested
littlemore
thanfivemillion
dollars.
Table II:

Oneofthesmallest
banks
(Greenpoint)
invested
almost
$25million.
Table
III: Dollar
valueofmortgages
issued
onBrooklyn
properties
duringcalendar
1975as percentage
oftotalvalueof
mortgages
reported
at closeof 1975fiscalyearandas
percentage
of totalassetsat closeof fiscalyear1975.
Sixof the bankscommitted
lessthanone halfof one percent
of their

assets
to Brooklyn
during
calendar
1975.Theseventh
(Greenpoint)

committedalmost three percent.
Table IV:

Comparative
Ranking
ofSeven
Savings
Banks
Studied.
Number
of Brooklyn
mortgages
issuedduring
calendar
1975;
dollar
valueof Brooklyn
mortgages
issuedduringcalendar
1975;

percentage
of total
outstanding
mortgages;
percentage
of

total assets.

Thebankwiththesecond
smallest
amount
ofassets
(Greenpoint)
ranks
highest
by allindicia
of investment
in Brooklyn.
MapI

A toG: Geographic
Distribution
byzipcodeofmortgages
issued
during1975on properties
located
in Brooklyn.
Separate
mapforeachbanksurveyed.

MapII:

Combined
geographic
distribution
by zipcode.

The northern
partof Brooklyn
is mostlyblackand Hispanic
andreceives
littleor no mortgage
investment;
thesouthern
partis whiteandreceives
mostof whatlittlemoney
is committed
to Brooklyn.

346

bage4

ANALYSIS OF DATA

BrooklynIs Redlined
The featurewhich calls for attentionfirst is the small number

of properties
involved.According
to the1976U.S.Census,
thereare
209,842
owner-occupied
housing
unitsin Brooklyn.Thesurveyed
banksmade
mortgage
loansinvolving
only1,186properties.
The next observationis that these banks,with total assetsof

almost
$11 billion,
issuedonly$40million
in mortgages
on Brooklyn
proper
tiesin 1975. Theythuscommitted
lessthanone halfof one percent
of
theirassetsto Brooklyn.
Whenthe banksdo investin Brooklyn
mortgages,
theychoosethe
morevaluable
properties.
According
to the1970census,
themedianvalue
of owner-occupied
dwellings
in Brooklyn
was$25,400.The averageamount

ofa mortgageextended
by thebanks
surveyedwas
$33,804
during
1975.When
a bankisaskedto extenda mortgage
loan,it sendsan appraiser
to thepro
perty. Theappraiser
givesthe bankhisopinion
as to themarketvalueof
the house. Traditionally
in NewYorktheappraised
valueis conservative
andis usually
10 to 20 percent
belowthe priceagreedto by theseller
and buyer. Thebankwillextend
a mortgage
onlyto between
seventy
and
eightypercent
of theappraised
value,
requiring
thebuyerto supplythe
balance
of the purchase
priceeitherby secondary
financing
or fromhis
or her own resources. Thus,an average
mortgage
valueof $33,000
indicates
thatthemarketvalueof the propertywas inthe vicinity
of $45 to $50
thousand.

Taken
asa whole,
then,
theperformance
ofthese
banks
isdeplor
able. However,
onebankconsistently
lentproportionately
moreon Brooklyn
properties.The GreenpointSavingsBank committed3.58 percentof its total

mortgage
investment
and2.87percent
ofitstotal
assets
toBrooklyn
properties.
Thecorresponding
figures
fortheothersix banksaverage
0.22percent
and
0.14percent.Eventhoughit rankedsixthamongthesevenbankssurveyed
in termsof totalassets,
Greenpoint
aloneissued
722 Brooklyn
mortgages
in 1975totaling
$25million
in mortgages.
Therecordcompiled
by thesix banksotherthantheGreenpoint
indicates
an acutestateof lethargy.Together,
thesix banksissued
464mortgages
in 1975totaling
$15 million
compared
with722mortgages
to
taling$25million
for Greenpoint.
Thecombined
assetsof thesesix banks
is $10 billion. Theirmortgage
investments
in Brooklyn
represent
only15
percentof total assets. Thegreatest
commitment
ofmortgage
moneyby a single
bankamongthesixwasonly$5 million
for 184mortgages.
If thesebanks,
with
theirfar greater
resources,
hadinvested
in Brooklynduring
1975at the

samerateasGreenpoint,
$313million
ofmortgagemoney
would
havebeenin
vestedinstead
of $40million.The performance
of Greenpoint
undermines
any
allegations
by theotherbanksthatthereis no market
for mortgages
in Brook

lynorthatitwould
notbesound
business
practice
toaccept
mortgages
on
Brooklyn
properties.

347

page5

Black Neighborhoods
FareWorseThanWhiteNeighborhoods
The entire boroughof Brooklynis redlinedbut some neighbor

hoodssuffer
morethanothers.
Study
ofthepostal
zonemaps,
andespe
cially Map II,showsthatthesurveyed
banksconcentrate
theirmortgage
madein the
activity on the southernthird of Brooklyn. The35 mortgages
Greenpointsection
(zipcode11222)wereallfromtheGreenpoint
Savings
Bank and the28 mortgages
in EastNewYork(zipcode11207)
wereall made
by the EastNewYorkBankforSavings.Exceptforthesetwoconcentrations,
no postalzonenorthof Eastern
Parkway
received
morethantenmortgages
during 1975.
Thissingular
neglect
of neighborhoods
may be related
to their
racial composition.
Thezipcode11222area,whichreceived
thelargest
number of mortgages
northof Eastern
Parkway,
alsohasthelargest
white
population
northof Eastern
Parkway.Censusfigures
aresimilarly
sugges
tive. Brooklyn
censustract291is located
in the Bedford-Stuyvesant
neighborhood
of zip codearea11221,oneof threezonesto receive
no mortgages.
Censustract686 is locatein theMillBasinneighborhood
withinzip code
11234 whichreceived
the h zhestnumberof mortgages
of all Brooklyn
zones.
Tract 291 hasa 97.8percetblackpopulation
whilethe blackpopulation
of
tract 686 is 1.1 percent. Thehousine
stockin tract291consists
of turn-of

the-century
brownstones,
wiilethehousing
intract
686is post-war
suburban.
Thispattern
of racialdiscrimination
is notisolated
to twocensus
tracts. Similar
evidence
if discrimination
is available
fromexamination
of
censustracts916and280. Censustrict916 is located
in theEastNewYork
neighborhood
withinzip coi? 11212,whichreceived
threemortgages
in 1975.
Tract 280 is located
in theBensonhurst
neighborhood
withinzip code11214,
which received
65 mortgagein 1975. Tract916hasa blackpopulation
of
76.8 percent;
the blackpoiilation
of tract280is 3.0 percent.

348

page 6

CORROBORATION
OF DATA

TheOfficeof Finance/Administration,
Deiartment
of theTreasury

of theCityof NewYorkhascustody
ofmillions
ofdollars
paidintolocal
courtspending
determination
of lawsuits.The Deprtmentdeposits
these
tunds in interestbearingaccountsat savingsbank locatedin the county
which is the site of the action.

On February
27,1976,Commissioner
Jay E Butlerwroteto these
depositories,
amongwhomareallof thesevensurveyed
banks.He asked
themto disclose,
amongotherinformation:
thetoti amountof theirdeposits
andtheamountof thesedeposits
in NewYorkCityiffices;
and thetotal
amountof theirmortgage
portfolio
and theamountif thisportfolio
invested
in New York City properties.Thesefigures
wereriquested
as of December
31,1974and December
31,1975.
Three of the surveyedbanks

Metropolitan,
East New York,and

eitherdid notreplyat allor submittid
an unresponsive
letter.
Dataas of December
31,1975fromtheremaining
baikswasas follows,
calcu
latedas percentages:
Brooklyn

Dime

Deposits
in NewYorkCity
offices
as percentage
of

Greater
N.Y.

Greenpoint Williamsburgh

73%

98%

93%

81%

17%

15%

61%

15%

totaldeposits.
Mortgageson New York City

property
as percentage
of
totalmortgages.

Thebanks
receive
atleast
three
quarters
oftheir
deposits
fromNewYork
City
offices,
butplacefewerthanonefifthof theirmortgages
on NewYorkCity
property.Again,theoneexception
is Greenpoint.
Thesefigures,
supplied
by the banksthemselves,
andforthefirst
timemakingpublic
dataon therelation
between
deposits
andmortgages,
banks
confirmthetrendidentified
by theNYPIRGtaskforce.Brooklyn-based
are investing
a negligible
proportion
of theirassetsin Brooklyn.This
factbecomes
evenclearer
whenonenotesthatthefigures
submitted
bythe
banksto Finance/Administration
represented
theirtotalportfolio.
The
trendawayfromBrooklyn
musthavebeengoingon forsometimeif only15
percent
of a bank's
mortgage
portfolio
remains
there.

Westill
havenocomprehensive
datashowing
where
thebanks
are

investing
ourmoney. Naturally,the banks themselvesdo not releasethis
information.

349

page 7

Oneindication
of whatis goingon, however,
is thefactthat,
according
to theDecember
4, 1975issueof "Southeast
RealEstateNews",
theWilliamsburgh
Savings
Bankcommitted
fivemillion
dollars
to theGeneral
Development
Corporation
of Miamias financing
for 200residential
properties.
Thisone loanfaroutweighed
thelessthantwomillion
dollars
Williamsburgh
committed
to mortgages
on 67 properties
located
in Brooklyn
duringallof
1975.

CONCLUSION

TheBrooklyn
College
NYPIRG
taskforcebeganthisstudywiththe
following
question:
"Are bankswhichreceive
thecominant
portion
of their
savings
deposits
fromBrooklyn
residents
investinga
similar
portion
of
thesedeposits
in mortgages
on properties
located
in Brooklyn
?" Forsix

oftheseven
surveyed
banks,
theanswermust
bea resounding"No!"
Only
theGreenpoint
Savings
Bankhasreturned
morethana negligible
portion
of
itsdeposits
to Brooklyn
in theformof mortgage
investment.
Allsevenof the bankssurveyed
havediscriminated
against
the
blackpopulation
of Brooklyn
by channeling
mortgage
moneyto thoseneighbor
hoodsthatare predominantly
white.

Banks
donotpublish
intheir
annual
reports
or publicity
literature
figures
whichwouldtelldepositors
wheretheirmoney
in invested.The banks'
attitude
hasbeen:"Allyoushouldworryaboutis therateof interest."
Depositors
concerned
abouttheirneighborhoods
shouldcareaboutmorethan
that.

NYPIRG
haspublished
thisreport
asanaidtoresidents
ofBrooklyn.
Armedwiththeinformation
contained
here,depositors
caneitherdemand
greater
investment
in redlined
areasby theirsavings
banksor transfer
theiraccounts
to moreresponsible
banks.

Public
officials
canalsohelp.Theycanplace
public
money
in
bankswhichareresponsive
to community
needs. Theycanenactstatutes

prohibiting
discrimination
against
credit-worthy
people
ontheground
of loca
tionof the property
justas discrimination
because
of race,national
origin,

religion,
orgender
is nowprohibited.
Theycandemand
thatbanks
release

complete
dataon thesourceof theirdeposits
andthe beneficiaries
of
their credit.

The problem
of redlining
can be solvedin manyways. The important
thingis to begin.

88-032 O. 77 . 23

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354

MAP I-A

22
DEENPOINT

BROOKLYN
11
WILLIAMSHING

37
WCOFFHEIGHTS

27
Su RIDGEWOOD
r
1. at

06
METROPOLITAN

or:
GENERAL

POSHO

NS
RE
OU

21
PUSHWICK

PRATT

17
TIMES
PLAZA

33:

RED HOOK

NEW LOTS

ST JOHNS
PL

EAST
NEW YORK

ORLONSVILLE

32
BUSH TERMINAL
IV.

.03
TRUCA

26:
ATBUS

36:

BAY GINGE

Numberof

Mortgages
IssuedIn
CalendarYear1975
09

ORTAMILTON

RYDER

.BYKERHIGH

1.9

2
3

10-19

20-29

GRAWESEND

35
RAY

24
CONEYISLAND

30-39

40-49
50

GEOGRAPHICDISTRIBUTIONBY ZIP CODE OF MORTGAGES
ISSUEDDURING1975 ON PROPERTIESLOCATEDIN BROOKLYN

BROOKLYNSAVINGSBANK

355

MAP I-B

22
OCENPOINT

MYDOOR

BROOKLYN
11
37

WYCROFFHEIGHT

06
MEDOPOLITAN

RIDGEWOOD
E
S

GiNEM
05

PRATT

TIMES PLAZA

B
A E
DN N

BUSHWIC

:38:

1617

33
STUYVESANT

31
RED HOOK

ST JOHNS

15
VAN BRUNT

LOTS

:25

BRUUNSVILLE

07
EAST
NEWYORK

BUSH TERMINAL

03
RÜGE

26
20
KONSINGIN

BAY RIDGE

Number of

THEBOURNE

09.
poiHAMILTON

MortgagesIssued
In
CalendarYear
1975

04
18

o
1.9

10-19

23
TRAVESE

20-29

::
:35

30-39
40-49

CON

504

GEOGRAPHICDISTRIBUTION
BY ZIP CODE OF MORTGAGES
ISSUEDDURING1975 ON PROPERTIESLOCATEDIN BROOKLYN

DIME SAVINGSBANK

356

MAP I-C

22
GOLENPOINT

BROOKLYN

11
WILLIAMSBU

37
WYCKOFF HEIGHTS

Q RIDGEWOODD
O OUE
E
RN

METROPOLITAN

OI
GENERAL
DEST OFFICE

17:

16:

YN
KLNE
OOMI
BRO

BUSHWICK

PRATT

API

STUYVESANT

RED HOOK

NEW LOTS

ST JOHNS
PL

15
VAN BRUNT

LEFFERTS

BRONSVILLE

32
BUSH TERMINAL

03
AGE

:26
18
KENSINGTON

20
BAY DINGE

FUTUSA

Number of

BLYTHEBOURNE

::30.

HAMON

MortgagesIssuedin

10
ANDERVEER

Calendar Year 1975

.apwool,

DAREVILLE

DYKER HEIGHTS

2
9
14

ONECAS

1.9
10-19

BATH BEACH

20-29

GRAVESEND

30-39

SAY

40-49

CONEY ISLAND

50+

GEOGRAPHICDISTRIBUTION
BY ZIP CODE OF MORTGAGES
ISSUEDDURING1975 ON PROPERTIESLOCATEDIN BROOKLYN
EAST NEW YORK SAVINGSBANK

357

MAP I-D

22
GREENPOINT

BROOKLYN
II
WILLIAMSBURG

37
WYCKOFF HEIGHTS

27
RIDGEWOOD

METROPOLITAN

OI
GENERAL
DOST OFFICE

PRATT

OT N
E O A
QU

BUSHWICK

BREVOORT

ADELPHI

38
31
REDHOOK

NO R
L

STUYVESANT

13
STJOHNS

NEW LOTS

Inpur

LEFFERTS

FAST
NEW YORK

BROWNSVILLE

32
BUSH TERMINAL
Lurdes

OFFVD

FITF

RUGBY

:26
FLATOU

18
p

USINGTONBARIDGE

CANARSKE

Number of
BLUETOURNE:

MortgagesIssuedIn

VANDERYÉER

04
PARELLE

FORT HAMILTON

Calendar Year 1975

MIDWOOD

RVOER

DYKERHEIGHTS

1.9
29
HOMECREST

10-19

BATH BEACH

23
GRAYSSEND

20-29
35

30-39

BAS

40-4924
CONEYISLAND

50.

GEOGRAPHICDISTRIBUTION
BY ZIP CODE OF MORTGAGES
ISSUEDDURING1975 ON PROPERTIESLOCATEDIN BROOKLYN

GREATERNEW YORK SAVINGSBANK

358

MAP I-E

BROOKLYN
37

cost.WIGHTS

RIDGEWOOD

METROPOLITAN

OI
GENERAL
PUST OFFICE

RUSHWICK

PRATT

17
TIMESPLANA 38

16
33

RDEVOORT

STUYVESANT

RED HOOK

08
NEOS

15
BRUNI

25
vsyriei

TORM

BUSH PERMINML

20
BAYBori

36
CANARSIE

Number of

MortgagesIssuedIn
CalendarYear 1975

04
28

34
RYDER

CAURVILLE

DYKERHEIGHTS

[18
B

BATHBEACH

O
1-9

29
HOMECREST

10-19

23
GRAVESEND

20-29
30-39
40-49

GEOGRAPHIC
DISTRIBUTION
BY ZIPCODEOF MORTGAGES
ISSUEDDURING
1975ON PROPERTIES
LOCATED
IN BROOKLYN
GREENPOINTSAVINGSBANK

359

MAP I-F

22
GREENPOINT

BROOKLYN

WYXOR
11
WILLIAMSBURG

37
WYCKOFFHEIGHTS

RIDGEWOOD

METROPOLITAN

21
21

BUSHWICK

PRATT

38
31

1
NG

ADELPHI

TUWESANT

RED HOOK

08.
"

BROWNSVILLE

LEFFERTS

NEY

BUSHTERMINAL

03
RUER

26
18

20.

FLATSUSH

KENSINGTON

BAY DOG

"CANARE

19
BLYTHEBOURNE

Numberof
Mortgages
Issued
In

10
VANDERVEER

09:
FD

Calendar Year 1975

YON

RYDER

028

DIKPRHEIGNIS

1.9
29
10-19
23
GRAVESENO.

20-29
30-39
40-49

CONEYISLANO

50.

GEOGRAPHICDISTRIBUTION
BY ZIP CODE OF MORTGAGES
ISSUEDDURING1975 ON PROPERTIESLOCATEDIN BROOKLYN

METROPOLITAN
SAVINGSBANK

360

MAI -G

22
GREENPOINT

Yoo

BROOKLYN
11
WILLIAMSBURG

37
WYCKOFF I'MTS

RIDGEWOOD

METROPOLITAN

OI
GENERAL
POST OFFICE

BUSHWICKPRATT

:38
Acco

TIMESPLAZA
31
REDHOOK

BREVOORT

1617

PE
08

13
ST JOHNS

NEW LOT

VANBRU

BRLONSVILLE

LEFFERTS

Q7
CAST

NEVYORK,

BUSHTERMINAL
GING

03
RUGE

26
SLATBUS
18
KENSINGTON

20
BATBIOGE,

19
THEBOURNE

36
CANARSIK

Number of

MortgagesIssuedIn

10
VANOGRVEER

CalendarYear 1975

30
04

RATON

028
OKBR.NEWS
1.9

29.

HOMECREST

BEACH

10-19

23
20-29

GRAWESEND

:35
BAY

24
CONE

30-39
40-49

ISLAND

GEOGRAPHICDISTRIBUTION
BY ZIP CODE OF MORTGAGES

ISSUEDDURING
1975ON PROPERTIES
LOCATED
IN BROOKLYN
WILLIAMSBURGH SAVINGS BANK

361

MAP II

BROOKLYN

2706
RIDGEWOON

METROPOLITAN

21
21

BUSHWICKPRATT

38.
A

31
ato'

13
15
25

12
Ingre

32
TERMINA

03
26
TATOUS
20

Numberof
MortgagesIssuedIn

TWOORN

a
g

Calendar Year 1975

RAMILTON

RYDER

PARYVILLE

0
1-19

29
HOMECREST

20-39
40-59

;

60-79
24

80-99
100

COMBINEDDISTRIBUTIONBY ZIP CODE OF MORTGAGESISSUEDBY
THE SURVEYEDBANKS DURING1975 ON PROPERTIESLOCATEDIN BROOKLYN

362

Mr. CRAWFORD.
My name is MorrisD. Crawford,
Jr.,chairman

oftheboard
ofTheBowerySavings
BankofNew YorkCity,
and
chairman
of theNationalAssociation
of MutualSavings
Banks'
committeeon
Federal
legislation.
Iwouldbehappytorespondtoyourquestions.

However,
I would
like
tosaywithparticular
reference
tomort
gagereview
boards,
I haveaccompanying
me today
twoof the

leading
savingsbankers
involved
in urbanlending
programs
in
New York and Boston.

Vincent
J.Quinn,presidentandchairmanoftheboardof
Brook
lyn SavingsBankand ArthurF. Shaw, president
of the First
American
Bank forSavings
in Boston.

Theywould
behappyto
answer
thequestions
ofthecommittee

astotheoperation
ofurbanlending
review
programs
infulAlling
communityneed.
Thankyou.

Mr.BROOKS.
Thankyou,
Mr.Chairman.
Myname isEdwin Brooks.

Iampresidentofthe
Security
Federal
Savingsand
LoanAssocia

tion
ofRichmond,
Va.,
andIappeartodayas
legislativep

committeevicechairmanoftheU.S.LeagueofSavin
Associatio

The U.S.Leagueappreciatesthisopportunitytoprese
onS.406,the
Community
Reinvestment
Act.
Intheinterestoftime,Ihavecutmystatementdown,bu
Iwould
liketofilemycompletestatementfortherecord.

The CHAIRMAN.
I appreciate
that,
anditwill
be printed
infull
in the record.

Mr. BROOKS.
As you know,savings
and loanassociations
are
established
toservethe
thrift
and home ownership
needsofthe
Americanpublic.

Over90percent
of theinvestments
by ourinstitutions
arein

residential
real
estate,
andclose
to80 percent
areinsingle-fam
home loans.

One result
of this
specialization
hasbeenthat
ourinstitutio
originated
fouroutofeveryfivemortgage
loans
in ourcountry
duringmuchofthepast2years.
Anotherresult
has beento make our institutions
targets
for

communitygroups
and others
who allege
thatour investment
practices
causeneighborhood
disinvestmentand
urbandecay.

The 94thCongress
responded
by passing
theHome Mortgage

DisclosureAct.

Weviewthelegislationunderconsiderationtoday,t
Community

ReinvestmentAct,asacontinuation
ofthatapproach,andmyc
mentswillreflectmany
ofthesamereservations
weexpressed
two
years ago.

First,someregulatoryconsiderations:
The introductory
statement
forS.406,
reprinted
intheJanuary

24Congressional
Record,
states:

The credit
needsofthelocality
andtheapplicants'
capacity
toservicethese
needs— have been almost ignoredby the regulatoryagencies.

Whilewe cannot
speakforotherdepository
institutions,
savingsand
loanassociations
underthejurisdictionofthe
Federal
Home

Loan Bank Board would take issuewith this statement.

363

The Boardcan,and does,
place
a burden
upontheapplicant
to

justify
thecreditneeds
ofthecommunity
tobeserved.

If thepurpose
ofS.406istoincrease
thedocumentation
which

already
accompanies
these
types
of applications,
we wouldnote
that S.& L. applicants
already
shoulder
a significant
paperwork
burden.

Addingtothis
burden
implies
processing
delaysforobtaining
approvalordenialofthesefacilities—andresultingd

the public.
An evenmoretroublesome
problem
ispresented
by theperiodic
reportrequirementof
Section4.

That language
calls
forperiodic
reports
concerning
theamount

of consumer
deposits
obtained
fromand theamountof credit
extendedin theinstitutions'
primary
savings
service
areasand
makingsuchreports
availableto
thepublic.

In thefirst
place,this
recordkeeping
appearsto
duplicate
the

Home MortgageDisclosure
Actforinstitutionswithhomeorbranch
officesin SMSA's.

We strongly
recommendthatthe Congress
awaitthe results
of

the March31reportingdate
underHMDA, thefirst
to usecensus
tractcoding,
before
universally
imposing
any new reporting
re
quirementforhomeloanactivity.
Furthermore,
thecollection
and distribution
of savings
data,as

calledforin
S.406,raisesseriousquestionsofprivacya
abuse-forinstitutions
andforourdepositor
customers.

The committee
wisely
rejected
sucha provision
in theHMDA
2yearsago,andweurgeyoutodosoagain.
As wetestified
atthattime,
periodic
disclosure
of areas
ofhigh

savings
concentration
wouldprovide
a “gold
mine”
ofinformation
whichwouldnotonlybe ofinterest
tocompeting
institutions,
but
couldattract
theattention
of door-to-door
salesmen,
direct
mail
advertisers,
andsoforth.

Insum,theperiodic
reporting
section
ofthis
bill
wouldbean
administrative
nightmare
forlarger
savings
andloans
withmany
branchoffice
locations,
and suchcostly
requirements
woulddis
couragesmaller
institutions
from expandingto meet theircom
munity'sneeds.

S.406raises
another
regulatoryissue.
Branching
approvals
by

FSLIC -insured,
State-chartered
savings
and loanassociations
have

heretofore
been
determined
solely
bytheappropriate
State
regula

toryagency.

To impose
a review
attheFederal
level
ofthese
branching
de
cisionsby
Stateauthoritieswould
certainlyconstitute
a fundamental
changein our regulatory
structure,
and intrude
upon Statesover
eignty.
We would alsonotethatthe Subcommitteeon FinancialInstitu

tions
ofthis
committee
recently
receivedtestimony
ontheInterim
Report of the NationalCommissionon Electronic
Fund Transfers.

The recommendations
of thatreport
regarding
terminal
place
ment areeffectively
preemptedbythe requirements
contained
in
S. 406.

Wealsohaveproblemswiththepropositionthatnew
applications
should
be tested
by an applicant's
"pastrecord”
in meeting
com
munitycreditneeds.

364

Neighborhoodsandcommunitieschange—and
regulatoryagenc

mustbegivensomeflexibility
in permittinginstitutionswhi
as

asoundbusiness
decision,seekto
respond
tothatchange.

Withtheincreased
regulatoryrestraint
proposed
inthis
legisla

tion,
fewinstitutions
wouldseektolocate
offices
in any areasexcept

thosewiththe mostfavorable
possibilities
forfuture
mortgage
loan demand.

Thus,establishedneighborhoods,businessdistr
industria

locations
wouldbe morepoorly
served
asa result.

Won'tone
oftheconsequencesof
the"past
record”
criteriabe
to

encourage
institutions
toclose
downservice
locations
in marginal
investment
areas
ifitwill
prevent
themfromapplying
formore
profitablelocations?
Or,do we really
wanttopenalize
an institutionlocated
inan
areawhich
becomes
blightedduetofactors
beyonditscontrol
by denyingit
an opportunity
torelocate?

Inshort,wequestionwhetherthepenalty
ofdenyingnew
services

tothecommunity
isjustifiedby
previouscreditperformancea
ex

isting
locations.

Iwouldnowliketo
discuss
briefly
someeconomic
considerati

oftheCommunity
Reinvestment
Act.
We needtohavebranches
togetthemoneywhichsupports
our
homelending
activity.
Ifsavingsandloan
associations
aredenied
convenience
locationsforattractingsavingscustomers—
forexample,

inanestablished
neighborhood
ofhigh-rise
apartments
withlittle
need for additional
mortgagecredit
—thosepotential
customers

willmovetheirdepositstosomeotherkindofinstituti
ormarket
instrument.
Thehousingmarketwill
paytheprice.
On a local
level,
themarkets
forsavings
andforloans
aredis
tinctand
separate.
Theycannotbe
linkedas
S.406suggests.
Loans
may beneeded
by youngerfamilies
in bedroom
neighborhoods
and
suburbs;
savings
may be available
in downtownlocations
near
jobsor inretirementcommunities.

Parenthetically,
I wouldliketo sayat thispointMr. Elbert

Stuart,
who ispresidentofthe
Berkely
Savings& Laon Association

inNorfolk,
Va.,which
isaminority
association,
ishereonhisown
initiative
this
morning.
He hasexpressed
tome,whenhe heard
I
was testifying,
hisconcern
aboutthisbill.

Hehasstatedthatifyouwish,hewouldbehappytoanswe

of your questions
relative
to thismatteror hewould be most

happytoconsult
withyourstafforthestaffof
anyofthemembers
ofthe committeeat a latertime.

TheCHAIRMAN.
Verygood.
Mr. BROOKS.
Continuingwith
thetestimony:
Further,
itisour
observation
thatsavings
flowsdo not necessarily
coincide
with
mortgageloandemand.

One examplemightbe thesituation
in the GreatPlainsStates
wherebumpercropshaveledto fastsavings
growth,
butthereis

little
orno population
growthcreatingmortgage
loandemand.
These
institutionsbuyloansand
participationsinloansori
in the urbancenters,
thusmovingtheirexcess
fundsefficiently
to

areas
wheretheyareneeded
forhousing
city
families.

365

Themovementof fundsfromcapital
surplus
to capital
short
areasis,as yourcommittee
heardlastfall,
thepurpose
of the

secondarymarket
facilities.

The CommunityReinvestment
Act erects
new barriers
tothis

movement
ofcapital.
Itispotentially
destructive
tothesecondary
markets.
Wealsotakeexception
tothenotion
thatourcredit
practices
initiateneighborhooddecline.

There
aremany,manyfactors
besides
lending
decisions
which

contribute
to urbandecay- poormunicipal
services,
code enforce

ment,local
taxpolicies,educational
facilities,
transportation,
job
opportunities,etcetera.

What isoften
needed
isa totalcommunity
effort
toarresturban
decayandrevitalizeneighborhoods.
As you know,savings
associations
arefinancial
" intermediaries."
We investotherpeople's
money.

We mustdo so in a prudentand safemanner,notonlyforthe

protectionof
ourdepositors,
butfortheprotection
oftheFederal
Savings&LoanInsurance
Corp.
We,therefore,cannotignoreriskinourlendingdecision
In thisregard,
theU.S.Leaguehascommissioned
a studyby
two formergovernorsof theFederalReserveBoard,Andrew

BrimmerandSherman
Maisel,to
isolateurban
lending"risk”
from
noneconomicfactors—
suchasracialdiscrimination—
andtoquantify
risk
inurbanresidentiallendingsituations.
We willsharethismaterial
when completed.

The CHAIRMAN.
Wehave thehighest
respect
forGovernor
Maisel
and Governor
Brommer.We wouldlike
togetthat.
Thankyou.

Mr.BROOKS.
Inourviewwhatisneededisaprogramofincentiv
to private
sectorfinancial
institutionsto
encourage
themtotackle
thehigher
risks
inherent
ininner-citylending.
Together
withtheFederal
Home Loan Bank Boardstaff,
we
haveexplored
a shared-risk
insurance
planforconventional
home
loansintroducedas
H.R.15407inthelast
Congress.
Theconceptinvolves
establishmentofaninsurancefundto
appor
tion
theriskofloss
on an80/20basis
withoriginatinglenders.
Properties
in areas
determined
—perhaps
by HMDA data—to
haveinsufficientloanactivitywouldbeeligibleforthes
mortgages.
Lenderswouldretain
their
shareof therisk—andtheircommit

menttotheneighborhood—throughoutthelife
oftheloan.

TheFHA'sexperimental
section
244coinsurance
program
and
theFarmers
Home Administration's
newguaranteedsingle-fami
homeloanprogram
aresimilar
conceptswhich,
I understand,are

underreviewby yourHousingand RuralHousingSubcommittees.

We wouldwelcome
furthercongressional
consideration
ofthese

variousloan
programs.

Allof theseincentives'
approaches
to lending
in higher
risk
situations
merit
careful
review.
Theyprovide
"loans,
notlists"
for
thehome-buyingpublic.

Thecoverageof
S.406islimitedtothoseprovidersofcredit
thejurisdiction
ofFederal
financial
supervisory
agencies.
88-032 0.77

. 24

366

In theareaof mortgage
finance,
of immediate
concern
tous,the

Community
ReinvestmentActwouldnotapplytomortgageb
insurance
companies,
pension
funds,
finance
companies,
and,under
thetermsof
thebill,credit
unions.
Under the Home MortgageDisclosure
Act,theU.S.Leagueof

SavingsAssociationshasbeen
helpful
bysupplyingcoding
guides,
and so forth,
foreachstandard
metropolitan
statistical
area.
The U.S.Leagueof SavingsAssociations
has alsobeenhelpful

inencouraging
theneighborhood
housing
services
programunder
way in more than30 cities.

I believethemembersofthiscommitteevisited
an NHS project
in
Baltimore
recently.
We arealsoencouraging
the establishment
of mortgagereview
boardsaroundthecountry
to provide
appeals
procedures
for re

jectedloanapplicants.
The Milwaukeeareamortgageopportunity
planin your home

State,
Mr.Chairman,hasservedas
a prototypefor
development
of
mortgage
reviewpanels
inothercities.

These
activities
and others
within
thehousing
and community
developmentjurisdictionofyourcommitteepromise
farmoreinthe
way of meeting
communitycredit
needs
thandoestheCommunity

Reinvestment
Act,S. 406.

Iappreciatethisopportunityto
testifyandinvite
yourquestions

[Complete
statement
ofMr. Brooksfollows:]

PREPAREDSTATEMENTOF EDWIN BROOKS,JR.
Mr. Chairman: My name is Edwin Brooks, Jr. I am Presidentof Security

FederalSavingsand Loan Association
of Richmond,Va.,and appeartodayas
Legislative
PolicyCommitteeVice-Chairman
of the UnitedStatesLeagueof
SavingsAssociations.*
The U.S.League appreciates
thisopportunity
to pre
sent its views on S. 406, the Community ReinvestmentAct.

As you know, savingsand loan associations
are established
to servethe
thrift
and home ownershipneedsof the Americanpublic.
Over 90 % of the
investmentsby our institutions
are in residential
realestate,
and closeto 80 %

areinsingle-family
homeloans.
One result
ofthisspecializaton
hasbeenthat
our institutions
originated4 out of every 5 mortgage loans in our country

duringmuch of the pasttwo years.
Anotherresulthas been to make our
insititutions
"targets"
for community groupsand otherswho allegethat
our investment
practices
causeneighborhood
disinvestment
and urban decay.

The 94thCongress
responded
by passing
theHome Mortgage
Disclosure
Act.
We viewthelegislation
underconsiderationtoday,
theCommunityReinvest
ment Act,as a continuation
of thatapproach,
and my commentswillreflect
many of thesame reservations
we expressed
two yearsago.

Beforeaddressingtheseconcerns,
Mr.Chairman,I
wouldnotethatunderth

rulesoftheCommitteeour written
statement
issubmitted
48hoursinadvance
of presentation;
it is difficult
to anticipate
the comments,constructive
and

otherwise,
whichtheCommittee
willreceive
attheir
Wednesday
and Thurs
day hearings.
Thus,I wouldappreciate
an opportunity
to amplify
uponthese
printed
remarksduringour oraltestimony
on Friday.
* The UnitedStatesLeague of SavingsAssociations
(formerly
the United
States

Savings and Loan League) has a membership of 4,600 savings and loan associations,

representing
over98% of the assets
of thesavingsandloanbusiness.
Leaguemember:
ship includes all types of associations-Federaland state-chartered,
insured
and
uninsured, stock and mutual. The principalofficers
are : John Hardin, President,

RockHill,
SouthCarolina;
Stuart
Davis,
VicePresident,
Beverly
Hills,
California

LloydBowles,Legislative
Chairman,Dallas,
Texas; Norman Strunk,ExecutiveVice
President,
Chicago,Illinois.ArthurEdgeworth,
Director—
Washington
'Operations;
and
Glen Troop,Legislative
Director.
League headquarters
are at 111 E. Wacker Drive,
Chicago,
Illinois
60601;andtheWashingtonOffice
islocated
at 1709 New YorkAvenue,
N.W.,Washington,D.C.20006;
Telephone:
(202)785–9150.

367
REGULATORY

CONSIDERATIONS

The introductorystatement
forS. 406,
reprinted
intheJanuary
24 Con

gressional
Record,
states:
“ Thecredit
needsof the locality
and theapplicants'
capacity to servicethese needs— have been almost ignored by the regulatory

agencies."
Whilewe cannot
speakforotherdepository
institutions,
thesav
ingsand loanassociations
underthejurisdiction
oftheFederal
Home Loan
Bank

Board would take issue with that statement.We

assume that this

observation
applies
primarily
to applications
forbranches
and remote
termi.

nals, new

charters,and insurance-of-accounts
coverage.In these cases,the

Board can and does placea heavy burdenupon the applicant
to justify
the
credit needs of the community to be served.

If the purpose
ofS.406isto increase
thedocumentationwhich
already
accompaniesthese
typesofapplications,
we wouldnotethat
S&L applicants
alreadyshoulder
a significant
paperwork
burden.
Addingto thisburdenim
pliesprocessing
delays
forobtaining
approval
or denialof
these
facilities
and resultingdelays in servingthe public.

An evenmoretroublesome
problem
ispresented
by theperiodic
report
re
quirementof Section That languagecalls
for periodic
reports
"concerning
the amount of consumerdeposits
obtained
from and the amount of credit

extended
in theinstitutions'primary
savings
service
areasand makingsuch
reportsavailable
tothepublic.”
Inthefirst
place,
thisrecord-keeping
appears
to duplicate
the Home MortgageDisclosure
Actforinstitutions
withhome or
branch offices
in SMSAs. We strongly
recommendthattheCongress
awaitthe

results
oftheMarch31 reportingdate
underHMDA, thefirst
tousecensus
tractcoding,
before
universally
imposing
anynew reporting
requirementfor
loanactivity.
Furthermore,
thecollection
and distribution
of savings
data,
as calledforin S.406,raisesserious
questions
ofprivacyandpotentialabuse
for institutions
and for our depositor
customer.The Committeewiselyre

jected
sucha provision
in theHMDA twoyears
agoandweurgeyoutodo

so again.As we testified
at thattime,periodic
disclosure
of areasofhigh
savingsconcentration
provide
a "goldmine"of information
which would not
only be of interest
to competing
institutions,
butcouldattract
theattention
of
door-to-door
salesmen,
directmail advertisers
and so forth.In sum, the
periodic
reporting
section
of thisbill
would be an administrative
nightmare
for largersavingsand loanswith many branchoffice
locations.
Such costly
requirements
would discourage
smallerinstitutions
from expandingto meet
their community's needs.

S. 406 raisesanotherregulatory
issue.Branchingapprovalsby FSLIC

insured,
state-chartered
savings
and loanassociations
haveheretofore
been
determined
solely
bythe appropriate
stateregulatory
agency.
To imposea
review at the Federal levelof these branchingdecisionsby stateauthorities

would certainly
constitute
a fundamental
changein ourregulatory
structure,
and intrudeupon statesovereignty.
We wouldalso notethatthe Subcom
mitteeon Financial
Institutions
of thisCommitteerecently
received
testi.
mony on the InterimReportof the National
Commissionon Electronic
Fund
Transfers;the recommendations
of that reportregardingterminalplace
ment areeffectively
preemptedby the requirements
contained
in S. 406.

Wealsohaveproblems
withtheproposition
thatnew applicationsshouldbe
testedby an applicant's
" pastrecord”in meetingcommunitycreditneeds.
Neighborhoods
and communitieschange—and regulatory
agenciesmust be

given
someflexibility
in permitting
institutionswhich,
as a soundbusiness

decision,
seektorespond
tothatchange.
Withtheincreased
regulatory
re.
straint
proposed
inthis
legislation,
fewinstitutions
wouldseektolocateoffices
in any areasexceptthosewith the most favorable
possibilities
for future
mortgageloan demand. Thus, established
neighborhoods,
business
districts
and industrial
locations
wouldbe more poorlyservedas a result.
Won'tone of

theconsequences
ofthe"pastrecord”
criteria
be toencourageinstitutions
to
closedown service
locations
in marginalinvestment
areasif it willprevent
them from applyingformore profitable
locations?
Or, do we really
want to
penalize
an institution
located
in an area which becomesblighted
— due to

factors
beyond
itscontrol—by
denyingit
an opportunity
torelocate?
In short,
we question
whetherthe penaltyof denyingnew services
to the community
isjustified
by previous
creditperformance
at existing
locations.

368

Beforeleavingthe regulatory
considerations
we would note that the
proceedings
at theFederalHome Loan Bank Boardand at theDistrict
Federal
Home Loan Banks alreadyencourage“community,consumer or similar

organizations
to present
testimony”
on applications.
ECONOMIC

CONSIDERATIONS

I would now like to discussbrieflysome economic considerations
of the
Community Reinvestment Act.
In 1975,the League commissioned Booz, Allen,Hamilton to study consumer

service
strategies
forsavings
associations.
Theirreport
emphasized
the im
pcrtance
ofconvenience
locations
toattractsavings.
Weneedtohavebranches
togetthemoneywhichsupportsourhome
lendingactivity.
Ifsavings
andloan
associations
are deniedconveniencelocations
for attracting
savingscustomers
for example in an established
neighborhoodof high-rise
apartments with little
need for additional
mortgage credit— thosepotential
customerswillmove their

deposits
to someotherkindof institution
or marketinstrument.
The housing
marketwillpaytheprice.
On a locallevel,
the marketsfor savingsand for loansare distinct
and
separate.
They cannotbelinkedas S. 406 suggests.
Loans may be neededby
youngerfamilies
in bedroom neighborhoods
and suburbs;savingsmay be
availablein downtown locationsnear jobs or in retirementcommunities.

Further,
itisour observation
thatsavings
flowsdo not necessarily
coincide

withmortgage
loandemand.One examplewouldbe therecent
recessionary
periodwhen consumer uncertainty
led not only to high personal
savings
levels,
but alsoto hesitancyto make such significant
purchasesas new homes.

Anotherexamplemight be the situation
in the GreatPlainsStateswhere
bumper cropshaveledto fastsavings
growth,
butthereislittle
or no popula.
tiongrowthcreating
mortgageloandemand.Theseinstitutions
buy loansand

participations
in loansoriginated
in the urbancenters,
thus movingtheir
excessfunds efficiently
to areas where they are neededfor housingcity

families.

Themovementoffundsfromcapital
surplus
tocapital
shortareas
is,as

yourCommitteeheard
lastfall,
the purposeof thesecondary
marketfacilities.
The Community Reinvestment
Act erectsnew barriers
to thismovementof
capital.
In our view,itis potentially
destructive
to the secondary
markets
whichprovide
a cushion
fortheswingsin theeconomywhichhave beensuch
a problemfor housingin the past.As suggested
by the example above,
secondarymarket activity
can play a helpful
rolein revitalization
of our
nation's
urbanareas,
too.Placingundue emphasison an institution's
overall
community lending record is inefficient
in economic terms and could be a

greatdisservice
to many communities.
We alsotakeexception
to thenotionthatourcredit
practices
initiateneigh
borhood decline.
There are many, many factorsbesideslendingdecisions
which
contributeto urban decay— poor municipalservices,
code enforcement,
local

tax policies,
educational
facilities,
transportation,
job opportunities,
etc.
What
isoftenneededisa total
communityefforttoarrest
urbandecayand revitalize
neighborhoods.
As you know,savings
associations
arefinancial
“ intermediaries”.
We invest
otherpeople's
money.We mustdo so in a prudentand safemanner,notonly
forthe protection
of our depositors,
but for the protection
of the Federal
Savingsand Loan Insurance
Corporation.
We, therefore,
cannotignore
risk
in our lendingdecisions.
In thisregard,the U.S. League has commissioneda
study by two former Governors of the Federal Reserve Board, Andrew Brim.
mer and Sherman Maisel to isolateurban lending"risk”from non-economic

factors
(suchas racial
discrimination)
and quantify
riskin urbanresidential
lendingsituations.
Theirstudies
are not yet complete;
however,theirpre
liminary
findings
show thatrisksare typically
higherin olderneighborhoods
in larger,
ratherthan smallercities,
and,not surprisingly,
neighborhoods
of

higher
incomes
represent
lowercredit
risks.
We willcertainly
share
this
material
with the Committeewhen completed.
In our view,what is neededis a programof incentives
to private
sector
financial
institutions
to encourage
them to tackle
the higherrisksinherent
in

inner-city
lending.
Together
withtheFederal
Home Loan Bank Boardstaff,

wehaveexploredashared-riskinsuranceplanforconventionalhomeloan

369

duced as H.R.15407inthelastCongress.Theconcept
involves
establishment
of an insurance
fundto apportion
theriskof loss
on an 80/20basis
with
originating
lenders.
Properties
in areasdetermined
(perhaps
by theHMDA
data ) tohaveinsufficientloan
activity
wouldbeeligiblefor
theseconventional
mortgages.Lenders
wouldretain
their
shareof therisk—
and their
commit
ment

to the neighborhood
— throughout
the lifeof the loan.The FHA's ex

perimentalSection244
co-insurance
program
and theFarmersHome Adminis

tration's new guaranteed
single-familyhome
loan programare similarcon
cepts which,I understand,
are under reviewby your Housingand Rural

Housing Subcommittees.
We wouldwelcome
further
Congressional
considera
tion of thesevariousloan programs.Allof theseincentives'
approaches
to

lendinginhigherrisksituations
meritcareful
review.
They provide
“loans
not lists”
forthe home-buyingpublic.
COVERAGE

The coverageof S. 406 is limitedto thoseproviders
of creditunderthe

jurisdiction
of Federal
financial
supervisory
agencies.
As theintroductory
statement noted,thisexcludescloseto half of the totalcreditextendedin the
U.S. In the area of mortgage finance,of immediate concern to us, the Com
munity Reinvestment Act would not apply to mortgage bankers,insurance

companies,finance
companies,
and,underthetermsofthe bill,
credit
unions—
which couldbecome a growingfactorwhen H.R. 3365,now in Conference,
becomes law.
WHAT

S & LS ARE DOING

We are not unmindfulof the criticism
of inadequate
savingsassociation
performancein a number of our majorcities.
The U.S.Leaguehas endeavored
to provide
itsmembers withthe most accurate
material
available
with which
to comply with the Home MortgageDisclosure
Act.Through arrangements
made withtheReuben H. Donnelly
Corporation
of Chicago,
we have produced

specially-designed
CensusAddress
CodingGuidesforeachStandard
Metro
politanStatistical
Area.Theseguides,
in use not onlyin our business
butin
commercialbanksas well,assurethe bestcompliance
achievable
forthe1976
data.(March 31,as mentionedpreviously,
isthefirst
compliance
dateutilizing
censustractrecording.)
Whilethe HMDA may have improvedresponsiveness
of financial
institutions
to communityhousingneedsinsome isolated
locations,
we would repeatour judgmentthattheexercisehas been time-consuming,
costlyand unproductive
forthevastmajority
of depository
institutionslocated
in SMSAs across
thenationwhere"redlining”
is notconsidered
a problem
.
Savingsassociations
have alsoresponded
throughtheir
participation
in the
NeighborhoodHousing Servicesprogram now underway in more than 30
cities.
Members of thisCommitteeand staff,
I understand,
have touredthe
BaltimoreNHS project
and are acquainted
withthisinnovative
and coordin
ated approach to stabilizing
urban neighborhoods.
We are alsoencouragingthe establishment
of mortgage review boardsaround

thecountry
to provide
appeals
procedures
forrejected
loanapplicants.
The
MilwaukeeArea MortgageOpportunity
Plan in your home state,
Mr. Chair

man,hasserved
as a prototype
fordevelopment
of mortgage
review
panels
in
other cities.

Theseactivities
and otherswithinthe housingand communitydevelopment

jurisdiction
of yourCommittee
promise
farmore in the way of meeting
communitycredit
needsthandoestheCommunity Reinvestment
Act,S.406.

I appreciate
thisopportunity
totestify
andinvite
yourquestions.

TheCHAIRMAN.
Thankyouverymuch.
Ms. Hamilton?

Ms.HAMILTON.
Mr.Scatizziand
I arehappytobehereonbehalf
of our group:

TheCHAIRMAN.
We didn't
anticipate
thatthere
wouldbetwo of
you.

Ifyoucanabbreviateyourstatements,wewouldappreciat
Mr. SCATIZZI.
I am Thomas A. Scatizzi.

370

The typeofcommunity-oriented
financial
institutions
whichare
envisioned
intheCommunityReinvestment
Actiswhatwe have

beenthrough.
We havefulfilledall
oftheprovisions
ofthisact

inthelast2years
thatwehavebeenputtingthis
thing
together

unknowingtousthatthisactwouldbeproduced.

Wedetermineda
primaryservicearea.
Weestablishedtheamou
ofsavingscapitalthatwouldbeavailabletoaneighbor

and loanassociation.
We attempted
tooutline
aprogramconcerning

communityneeds.
Ithasbeenexciting.
Thecommmunity
supportwehavereceived
hasbeen
terrific.
The

typeofinstitution
we envision
wouldbeone operating
in the
neighborhood,
drawing
itsresources
fromtheneighborhood,
pro
viding
a baseforreinvestment
of resources
drawnfromthatarea
backinto
those
specific
neighborhoods.
We arealsoconcerned
residents
of a largeAmericancity.
We

sawthedemise—we
sawthelackof lending
opportunities.We
try
nottotaketheindustry
totasktoogreatly,
because
basically
we

feelifthis
wasduetoalack
ofunderstanding
bytheindustry:
I
wouldbehesitant
tolend
someone
else'smoney
inanareawhich

I didnotunderstand.
We appreciate
this.
Thisis whywe feel
community-oriented
andcontrolledfinancial
institutions
suchasare
envisioned
inthisbill
area cornerstone
inthis
country,
assavings
and loansand bankshavebeenthroughout
thehistory
of this
nation.

Theyhaveprovidedtheresourcesthatbroughtourcou
tothe
levelit
isatnow.We areheartened
by thefact
thatitisnota

regulatorymeasure.
Itspurpose
istoencourage
a national
policy

whichwefeel
isa policy,
isa programthat
thesavings
and loan
andbanking
industries
canlivewith
andcanfunctionand
operate
within.

And we feel
thatbyidentity
ofonewiththeother
thattheycan
be successful
in isolating
theseprofitable
lending
opportuniti
within
thearea,
witha critical
element
oflocal
control.
In closing,
one otherremark I would liketo make is,as the

otherwitnesses
havestated,
thereporting
requirements
oftheact,

and I am familiar
withthereporting
requirements
forbanksand
savings
andloans,
ifcarecouldbetakennottoduplicate
and make

themasminimal
aspossibleinorderto
accomplishthegoalsof

act becausethesecan be burdensome and difficult
to financial
institutions.
Thank you.
IwilldefertoMs.
Hamilton.
Ms. HAMILTON. I am KathleenHamilton and I am one of the

incorporators
of the proposed
Central
West End Savings
and
Loan Association
located
in St.Louis,Mo.

Thiswasan areaneighborhood
hitbyrealestate
blight.
Our

institution
willbe controlled
by area residents
and businessmen

who arecommitted
to theneighborhood
and sensitive
to itsneed.
As stated
intheCongressional
Recordon February24,
a financia

institution's
investment
in thecommunity
in whichitislocated

ofteninvolves
less
riskbecause
of thelender's
firsthand
knowledge
of thecommunity.

371

Webelievecommunitysupportiscriticalforacommuni

financial
institution
since
activecommunitygroupsare major

cornerstonesofthelifeofanurban
neighborhoodand
areavaluable
resource
fora lendinginstitution
withcommunitycommitments.
Iwouldliketo
emphasizesection
4,part3 ofthis
bill,
directing
such
lendinginstitutionsto
demonstratecommunity
support.

Thereisacontinuing,andmutuallyenrichingneed
forcommuni
cation
andcooperationbetween
a local
financial
institution
suchas
thesavings
and loanassociation
and various
commmunitygroups

that
arethecornerstone
ofthatarea's
life
andcontinued
growth.
Wefeelthis
Community
Reinvestment
Actisvital
tothesurvival

ofthecities
by focusing
on serving
thehousingneeds
of the

neighborhood
and reinvesting
a certain
amountofitsdeposits
to
assure
continued
growthofthatneighborhood
whichisa major
deposit
resource.
An important
element
of thesuccess
ofsuchfinancial
institutions

isoutlinedinyourbill
andisseeninourproposedsavings
andloan
association,
through
control
ofarearesidentsand
businessmen
who
havecommitmentstothe areaand understand
itsneeds.

We feelthisactcan be a majorcontribution
to the continued

growthofhealthyurbanneighborhoods.
Thankyou.
The CHAIRMAN. Thank youverymuch.

Thankyoufordoing
sucha fine
jobof makingyourstatement

concise.
We appreciateit.
[Completestatements
follow
:]

372

THE

COMMUNITY

TESTIMONY
REINVESTMENT

FOR
ACT,

SENATE

BILL

406

SENATOR WILLIAM PROXIIRE, CHAIRMAN
COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS
MARCH 25, 1977
DIRKSEN
SENATE
OFFICE
WASHINGTON , D.C.

BUILDING,

ROOM

5302

CRITICAL IMPORTANCE OF COMMUNITY SUPPORT IN FINANCIAL

INSTITUTIONSSERVICING A PARTICULAR NEIGHBORHOOD
.

Presented by:
Kathleen
Member

O'c.

Hamilton

Board of Incorporators
Central West End Savings and Loan
Association, St. Louis, MissouriProposed
6252

Westminster

Place

St. Louis, Missouri 63130

373

TESTIMONY
PRESENTED
BY THE INCORPORATORS
OF THE PROPOSED
CENTRAL
WEST END SAVINGS
AND LOAN ASSOCIATION,
ST. LOUIS, MISSOURI ,
CONCERNING
THE CRITICAL
IMPORTANCE
OF COMMUNITY
SUPPORT
IN
FINANCIAL
INSTITUTIONS
SERVICING
A PARTICULAR
NEIGHBORHOOD
.

TESTIMONY FOR THE COMMUNITY REINVESTMENT ACT, SENATE BILL 406
SENATOR
WILLIAM
PROXMIRE,
CHAIRMAN
COMMITTEE
ON BANKING,
HOUSING
AND

URBAN

AFFAIRS

MARCH 25, 1977
DIRKSEN SENATE OFFICE BUILDING, ROOM 5302
WASHINGTON, D.C.
Senator Proxmire and Distinguished Members of the Senate

Committee on Banking, Housing, and Urban Affairs, we are very
pleased to be able to testify to you and your committee on
behalf of the Community ReinvestmentAct, s. 406, and thank you
for this opportunity. We feel that our proposed savings and
loan association,The Central West End Savings and Loan Assoc
iation, is an explicit example of what your bill, The Community
ReinvestmentAct, is seeking to accomplishin encouraginglending
institutionsto be aware and supportiveof the needs of the
community in which it is located. Our proposed institution will
be controlled by area residentsand businessmenwho are committed
to the neighborhoodand sensitive to, and knowledgeableof, its
needs.

We believe that community support is critical for a

community-orientedfinancial institutionsince community groups
are a major cornerstoneof the life of an urban neighborhood.
Such groups can literally bring back to life a dying and decaying
area; and are an invaluableresource for a lending institution
with particularcommunitycommitmentssuch as are outlined in
your

bill.

I feel this statement is best illustratedby a brief re
counting of the revitalizationof our west end communityof

374

St. Louis,whoserebirthis largelydue to the dedicatedinvolve
ment and spirit engendered by the formation of community groups
to buttress and promote the area.

The central west end community of the City of St. Louis is

a raciallymixedneighborhood,
locatedin the centralcorridor
of the city which includes the site of the 1904 St. Louis World's
Fair.

As a lifelongresident of the west end in the specific

Skinker-DeBalivierearea, I have come to firmly believe that
thriving neighborhoods,with their own loyalty and personal

identity,
are key answersto the salvation
of the city.

The

central west end of St. Louis is such a neighborhoodcommunity.
My husband and I bought our first home in the Skinker-DeBaliviere
area of this community in 1966 when there was apparent evidence
of neighborhooddecline through migration to the suburbs,
deterioratingbuildings,rising crime, growth of real estate
speculators,the abuse of the "235" housing financing program,
abandonmentof houses, and the practice of "redlining"certain

areasfor excessive
insurance
premiumsand a lackof homeloans.
But the housing stock that was and is available in the magnificent,
spacious, older homes, many in need of restoration,but offering

a lifestyle
and heritagethatcouldnot be built,alongwith
the reasonablecost of such residences,outweighedthe obvious
liabilities.

Financing
of such homeswas particularly
frustrating

in that lending institutionswere unfamiliar with the area and
were reluctant to invest their resources in such neighborhoods.
We moved into this community when the demise of the area had
been accelerating since the late 1950's.

But

the

influx

dedicated, new homeowners,coupled with the commitment and
belief in the area by residents that had remained, preventeda

375
further downward spiral. I feel this upturn was directly
motivated by the mobilizationand beginning of community groups
forming an encouragingand intense community spirit, and loyally
promoting the area.
Our proposed Central West End Savings and Loan Associationis
a natural

outgrowth of such community groups.

The

central

west

end urban community of St. Louis could not have been designed
more effectively to be an example of an area that can meet the
requirements of the Community ReinvestmentAct.
The plan of restorationand attack on neighborhoodblight,
rising crime, and declining home values, was directed by a core
of home owners who perseveredin obtaining financing for home
mortgages, and home remodelingat incredibleobstacles.

form

ing effectiveand aggressive
community
groups,focuswas con
centrated

three

areas:

promotionof the neighborhoodto

encouragepeoplenot only to be activelyawareof thiswest end
community, but to purchase homes and move in and be a part of it;

crime reduction
of the area;and political
impactto effecta
positive

change.

The promotionand stabilizationof neighborhoodreal estate
activity began in the late 1960's and early 1970's.

The

skinker

DeBaliviere Council was establishedin March, 1966, as a co-operative

effort of threelocalneighborhood
residential
organizations,
threeareaChurches,
and Washington
University,
whichis located
within

the

area.

Its purpose is to work together as a force to

maintain and develop a healthy, urban community to benefit present
and future residents.

In 1969, the Skinker-DeBaliviere

residential

376
service

a volunteer group of home owners dedicated to promoting

residential sales, was established.

The

concentration

the

group was focused on weekend house tours of available and re
habilitated property.

An outgrowth of this organizationis now

an annual neighborhoodart fair and house tour of unique and

recentlyrenovated
homeswhichreceivescity-wide
attention.One
local real estate company which is still actively interested

in the sale of westend homes,concentrated
on hiringagents
residing in particularwest end blocks, to promote housing avail

abilitywhenotherrealestatecompanies
were bypassing
the area.
Our community contains many magnificantand unique private
place residentialareas dating from the time of the 1904 World's
Fair

era.

Thesehave now attainednationalrecognition
through

being designatedas historic districts due to the diligent research
and promotionof its residents and their local political repre
A for-profitcorporation,with profits held in trust,

sentatives.

West End Townhouse,was also establishedin the late 1960's by

area residents
concerned
aboutreclaiming
deteriorated
multiple
dwellings.

Since financing was so difficult at the time, loan

guaranteeswere underwrittenby Washington Universityand the
Catholic Archdiocese of St. Louis.
also owned by area home owners so

Now, many apartments are
that

absentee

landloards

are

at a minimum.

Crime preventionachieved a major breakthroughthrough the
formation, in 1970, of the Women's Crusade Against Crime.

Its

founding co-chairwomenare west end residents. This is a national,
pioneer organizationin volunteercrime prevention. Its strength

377

stems from neighborhoodand block-streetinvolvement. The local

police forcemeetsregularly
with neighborhood
groups. Aggressive
representation by aldermen within the neighborhoodon the city

level and representation
on the statelevelwas instrumental
in
revitilizing our community. Through such representation,the
mayor of St. Louis was made aware of neighborhoodneeds and
recently created the Community DevelopmentAgency, whose first
head was the past alderman from the Skinker-DeBalivierearea. This
agency has played a vital and rejuvenatingrole in neighborhood
rehabilitation

and renewal.

Our hearing this past November for preliminaryapproval for
a

state charter for the Central West End Savings and Loan Association

fulfilled the requirementsof the Community ReinvestmentAct as
stated in section four, part three, which directs that such lend
ing institutionsshould demonstratecommunity support. We received
solid endorsementand support from the mayor of St. Louis, the
treasurer of the State of Missouri, state representativesand
aldermen, as well as numberous business organizationsdevoted to

the area,including
the localbank,churches,
and bothWashington
and St. Louis Universitieswhich are located in or near our primary
market

area.

All explicitly
endorsedthe idea thatsucha lend

ing institutionwas needed and could derive support from the area.
The fact that it would be controlledby local area and business
residents was emphasizedas a positive factor.
Previously,our only lending resource was chiefly two commercial
banks whose main interest is not home financing. But through
the persistenceof our politicalrepresentativesand our local
real estate agents, of which I am one, who are residents of the
area, savings and loan institutions were made more aware of the

378

lending needs.

In the past, it had been extremely difficultto

Just
obtainmortgagefinancing
fromtheseinstitutions.

this

past November, the St. Louis Post Dispatch had an editorialand
correspondingcartoon which showed the noose of mortgage loan
red-lining around the city.

In recent years there was a great

disparity between city and county lending practiceswhich was

documentedby the Phoenix Fund report. The chief executive officer
of a large, regional savings and loan associationwhich has been
increasinglyresponsive to the city's needs, testified in our
behalf at our November hearing.

Loans are now being made on a

more balanced scale, looking to the capacity of the person seeking
the loan rather than the location of the house in the city or
suburbs.

This past February, the Federal National Mortgage

Association,the government-chartered
secondarymarket for residential
mortgages, has committed twelve million dollars in home mortgages

in St. Louis neighborhoods.
We feel that city savers should deposit in institutions

sensitive to their needs which is directly addressed by the Communityof
Reinvestment

Act.

All the governmental,financial,educational,

and community support for us has emphasized that such a savings
and loan associationshould be controlledand directed by residents

of the area who understand problems and other factors critical

in that specific area's growth and improvement.

The involvementof two major universitiesin our area and
a major redevelopmentof Washington University'shospital complex
has generated extensive real estate activity along with private
redevelopment groups.

There is now over two hundred million dollars

worth of redevelopmentactivity in our primary market area.

379

The emergence of a savings and loan associationsuch as the
Central West End association which is controlled and directed

by area residents and businessmen,can be viewed as an organic
growth from such cellular, neighborhood,community active groups
as have

been

described.

The two monthly, neighborhoodnews

papers with volunteer staffs that have emerged within the past
five years, have viewed the local control of a savings and loan
institutionas adding another dimension to all our efforts to
preserveand enhance city living. The Community Reinvestment
Act further directs our efforts to preserve the quality of city
life.

An important part of this bill should greatly emphasize the
need for communicationand co-operationbetween the local, financial
lending institution,such as a savings and loan association,and
the various community groups that are the cornerstonesof that
area's life and continued growth.
Such a bill as The Community Reinvestment Act is vital to

the survival of the cities by focusing on serving housing needs
of a neighborhoodand reinvestinga certain amount of its deposits
to insure continued growth of that very neighborhoodwhich is a
major deposit resource. The success of such financial institutions
as outlined in your bill, and as specificallyseen in our proposed
savings and loan association,is commensuratewith the control of
it by area residents and businessmen who have a commitment to

the area, and understand the problems and other factors crucial
to the area's improvement.

The critical importancein the com

380

municationand input received from an ongoing communication

betweensuch a lendinginstitution
and community
neighborhood
groups cannot be overestimated.

Such groups, through their

active loyalty and commitment and promotionof the central west
end neighborhood,have completely turned around and revitalized
the

area.

It is also happeningin other neighborhoodsnationally.

This is a chief key to urban revitalization. We

feel

the

Community ReinvestmentAct can be a major factor in the continued
growth of healthy, urban neighborhoods. Thank you for giving us
the opportunityto express our support of such a vital bill.

381

TESTIMONY PRESENTED BY THE INCORPORATORS OF THE PROPOSED CENTRAL

WEST END SAVINGS AND LOAN ASSOCIATION,ST. LOUIS, MISSOURI.
CONCERNING

THE

NEED

TO LEGISLATE

A NATIONAL

POLICY

RELATING

TO COMMUNITY REINVESTMENT OF RESOURCES BY FEDERALLY INSURED
BANKS AND SAVINGS AND LOAN ASSOCIATIONS.

TESTIMONY FOR THE COMMUNITY REINVESTMENT ACT, SENATE BILL 406
SENATOR WILLIAM PROXMIRE , CHAIRMAN
COMMITTEE ON BANKING , HOUSING AND URBAN AFFAIRS
MARCH

25,

1977

DIRKSEN SENATE OFFICE BUILDING, ROOM 5302
WASHINGTON , D.C.

Senators:

We offer these remarks both as Incorporatorsof the Central
West End Savings and Loan Associationas well as being concerned
residents of a large American City. The urban neighborhoodswhich
constitute our primary service area are characterizedby resident

promotedrevitalization,
enjoyinga strategic
locationat the center
of a largemetropolitan
area,and havinga rich historical
and
cultural

heritage.

These neighborhoodscontain a sound and virtually

irreplaceable
housing
stockin needof a continuing
infusion
of
new and caringresidents
willingto investthe financial
resources
necessary to promote the systematicrehabilitationwhich will maintain

theirinherentviability.In addition to its residentialqualities
the area has located at its peripheriestwo noted private Univer
sities as well as a large Universityaffiliatedhospital-medical
school complex. Financial resources must and should be made

88-032 0.77

- 25

382

available to those persons choosing an urban way of life. Therefore,
we view the criteria as set forth in the Community ReinvestmentAct

as specifically
applyingto the community
forcesand needswhich
led to the organization
of our proposedCentralWestEnd Savings
and Loan Association.

We speaknot only for ourselves
but alsofor potentialresi
dentsof this CentralWestEnd community
who have beenconstantly
frustrated
by the pastlackof understanding
as to the inherent
The Community
valueof thisarea by St. Louislendinginstitutions.

Reinvestment
Act recognizes,
as we do, thata vitalurbanneigh
borhood such as the Central West End of St. Louis, as well as many
other such neighborhoodsnationally,provides an attractive,exciting
and cosmopolitanalternativeto suburban living. In addition to
offering an effective means to counter act the negative and costly
forces of urban sprawl which have flourishedin our country for

of such areasshouldand
the past quarter century. The stability
must be insured if a very importantelement of American society,

namelycityliving,is to be preserved.
We are convinced
thatcommunity
orientedfinancialinstitu
tions should play a vital role in maintainingthe stability of such

urbanneighborhoods
as well as realizing
profitable
lendingoppor
tunitiesresulting from existing and potentialinvestmentslocated
within

these areas.

Consequently,as concernedresidents and

businessmenwho are committed to our Central West End neighborhood,

we decided
thatwe couldmostfavorably
support
thisareathrough
establishingas a result of our own efforts a Savings and Loan

institution
at the neighborhood,
grass-roots
levelwhichengenders

383

solid community support as well as educates, informs and serves
to

broaden the base of the home lending industry.

Establishing

such a neighborhood-oriented
and supportedSavings and Loan
Association parallelswhat we feel to be the thrust of the Commu

nity Reinvestment
Act,whichis an excitingand practical
attempt
to guide and encourage financialinstitutionsto lend in urban
areas where a majority of these institutionshave previously
refrained from reinvestingresourcesin a manner which servesthe
best interests of the community in which these institutionsare
located.

Through the years the Thrift Institutionand Banking Indus

tries have provideda cornerstone
for economicgrowthand have
served as an important vehicle for improving the quality of
American life.

Neighborhood
orientedand controlled
lending

institutionsare vital to orderly and profitablefuture commercial
growth in this country as well as providing the resources to ex
pand and improve housing facilities. People in our greatly root
less American society can personallyidentify with and be committed

to a localneighborhood
institution,
especially
one which encom
passessuch a uniqueand intensecommunity
spiritwhichis inherent
to its own existence. The orientation
and focusprovidedby neigh
borhood financialinstitutionsis consistentwith the overall well
being of our entire money market system since the banking industry

nationally
mustrely on the cellularsupportof localinstitutions
for its foundationand basic strength. A national policy based
on this commitmentto local neighborhoodreinvestmentshould be

formulated
to leadbanking
institutions
to attain
thisnecessary

384

life in our great American cities.

The provisions
of this Billrequiring
lendinginstitutions
to examine the deposit potentialand lending needs of the commu
nities in which they are located is of critical importance to the

viability
and execution
of a nationalgoalof community
involved
financial institutions, Anotherpositive
forcewhichcouldresult
fromimplementation
of thislegislation
wouldgiveriseto increased
Policies
competition
amongfinancial
institutions.

established

as a result of the passage of the Community ReinvestmentAct hope
fully would encourage the formationof more responsivelending
institutionswhich would serve to retard the developmentof large

centralized
bankinginstitutions
whichoftenleadto a noncompe
titive and unfavorableconcentrationof financialresources.

is our belief that the principalimpetus of this legislationshould
require regulatoryauthoritiesto investigateand give reasonable
considerationas to whether existing or proposed financial insti

tutionsare utilizing
or will fullyutilizesoundreinvestment
opportunities
whichexistwithintheirmarketareaspriorto granting
permission
to establish
additional
facilities
or grantingnew
charters.

We haveexaminedthe provisions
of thislegislation,
and in
our opinion the criteria establishedare reasonable;and that these
provisionsare capable of being fulfilled not only by us in our
primary service area but by other financial institutionsas well.

We feel thatthe primarymarketareawhereour depositfacility
is to be located will be a drawing source for the bulk of both
our savings and lending customers. Our applicationfor a Savings

385

and Loan Association
charterhas analyzedthe depositand credit
needs of the primarymarketarea,and we feelwe can successfully
and profitably
satisfytheseneeds. Our statisticalprojections
indicate that a major portion of consumer deposits obtained from

our primaryserviceareacan be soundlyreinvested
in thatarea.
Therefore, permitus to reinforce
the conceptthatSenateBill 406as submitted--properly
placesprincipal
emphasison the encourage
ment

of seeking out sound reinvestmentopportunitiesas opposed

to regulatedor imposedquotapercentage
reinvestment
of capital
resources.

As it is our opinion that such a regulated imposition

would be contrary to the basic principlesof our Free Enterprise
system.

Therefore,we urge you to maintain the emphasis on encour

agement as opposedto regulation.Also it is our consideredopinion
that cautionshouldbe takento specifythatany reporting
require
ments establishedin this law be as minimal as possible and not
lead to an unnecessaryexpansion of the extensive reporting burdens

currentlyimposeduponregulated
financial
institutions.
We have formed what we consider to be a nucleus neighborhood
Savings and Loan Associationwhich will serve as a model nationally
for policies affectingsuch lending institutions.

We note

that

the Central West End Savings and Loan Associationwill be the
first such financialinstitutionchartered in twenty three years
in the St. Louis metropolitanarea and only the second to be char
tered in the past twenty years in the State of Missouri.

We recognize
thatin the finalconclusion
no institution
can
be requiredto originate
and pursueunsoundlendingpolicies.
However, a lendinginstitutionsituated in an urban community,

386

dedicated to the needs of that community and controlledby inte

restedmembersof thatcommunity
can be mutuallybeneficial
and
profitableto the neighborhoodin which it is located as well as

to the institution
itself. We applaudthisproposedlegislation
whose goal as introducedis not directed toward the regulation

of lendinginstitutions
or theirpolicies,
but providesa reaso
nableframework
to encourage
institutions
to developa greater
understanding
of the communitites
in whichtheyexistthroughthe
close identificationand support of one with the other.

alsoappropriate
thatthe FederalGovernment
utilizeits conside

rableresources,
prestige
andpowerto provide
theimpetus
for for
mulation
of a committed
national
policy
of urbanreinvestment
and
neighborhoodpreservation.
We as the Central West End Savings and Loan Associationwill

provide
a grass-roots
example
of a community
involved
financial
institution
as is envisioned
in thislegislation,
such as can exist
and grow throughoutthe United States serving to strengthenthe
roots and broaden the scope of the Savings and Loan and Banking
Industries.

The goals of the Community ReinvestmentAct can be

accomplishedwithin sound lending practices,and we enthusiastically

supportthe passageand adoptionof thislegislation
to insure
specific urban neighborhoodstabilizationand the sound financial
growth of our nation.

RespectfullySubmitted:
Thomas A. Scatizzi, Chairman
Board of Incorporators
Central West End Savings and Loan Assn.
(Proposed)
4440 Lindell Boulevard
#1003
St. Louis, Missouri 63108

387
CENTRAL WEST ENDSAVINGS AND LOAN ASSOCIATION- PROPOSED
ST. LOUIS, Mo.
3.0

MORTGAGE POTENTIALIN THEPRIMARY

MARKET AREA

The anticipated
potential
volumeof mortgageactivity
foreachof the first
threeyears of operation
of the institutionhas
beenestimated
by a method

discussed
in 3.1below.
The mortgage
estimates
forthePrimaryMarketArea
as

a whole are disaggregated
for each of the four sub-areas
previously

identified.

3.1

METHODOLOGY

OF DETERMINING POTENTIAL LOAN DEMAND

Table4 summarizestheestimatedpotential
mortgagedemandinthe
Primary
MarketArea fortheperiod
5/75to6/76.
Fromeachsub-area,
a representative
sampleof blockswas selected
fordetailed
analysis.
From thisanalysis,
resi.
dential
sales activity
for each sub-area
and the primarymarket area was
identified.

For each samplearea,a totalnumber of property
transfer
transactions
for
thepast 3 years(5 /73–6/76)
was recorded
from the platbookrecords
in the

Cityof St.LouisAssessor'soffice,
RealEstateDepartment.The
total
number

of structures
foreachsub-area
was determined
from the Sanbornemaps and
a thorough familiarity
withthe areasbeinganalyzed.
Thesetwo setsof data
permittedthe development
of a ratio(number of transactions:
number of
structures)
whichcouldthenbe applied
to theareaas a whole.The resulting
ratiopermitted
thedetermination
of thetotalvolumeofproperty
transactions
which could represent
bankablemortagesfor each sub-area
and the entire
Primary Market Area.A factorof 10% was deductedfrom thisfigureto
account for transactions
where no sale was involved(title
transfersand fore

closures)
toyieldan estimated
totalvolumeof property
transactions.

In estimatingthe
dollar
volumeoftransactions,
an average
property
trans

actiondollaramount for each sub-area
was determined.
Theaveragetrans
actiondollaramount was derived
from information
provided
by:

1. Comparable
datafiles
of residentialsalescompiled
bythe American
Societyof Appraisers
forthePrimaryMarketArea.
2.The workingknowledgeofrealtors
activein
thePrimaryMarketArea.

3. Information
provided
by the Washington
University
Medical
Center
Redevelopment
Corporation.
3.2

The

ASSESSMENT

OF POTENTIAL

LOAN

DEMAND

annual estimated
potential
demand for mortgagesin the Primary

MarketAreaisestimatedat
approximately$22,000,000.
To estimate
thepro
portion
of thisamount whichthe proposed
Central
West End Savings& Loan

Association
canbe expected
tocapture,
50% ofthetotal
property
transaction
volumewas projected
tobe absorbedbyother
institutions
(i.e.
otherSavings
& Loans,CommercialBanks,Insurance
Companies).
Approximately
$11,000,000
in tranactions
was therefore
estimated
to be a realistic
potential
totaldollar

volumeof mortgages
relating
to theproposed
Association.
Assuming
a 25%
standard
down payment,
theactual
mortgage
demandinthePrimaryMarket
Area available
forservice
by the CentralWest End Savings& Loan is esti.
matedat about$8,250,000.
(See Table4).

388
TABLE4.ESTIMATEDVOLUME
OFPROPERTY
TRANSACTIONS
INPRIMARYMARKETAREA,
BYSUBAREA
(MAY 1975-MAY1976)

Area No.

Estimatednumber
oftransactions
in subarea
Average
trans
action
price
(May1975–
May1976)
perproperty
244

139
153
316
852

1$40,000
128,000
a10,000
121,500

Estimatedtotal
annualvolume
oftransactions

forMay1975
June1976

$9,760,000
3,892,000
1,530,000

6,794,00

24,875Totals...
21,976,000

Less50pctto
beabsorbed
byotherinstitutions.
Less25pctfor
downpayments...

10,988,000
8,241,000

1Averagepricebasedonappraisaldataandgeneralknowledgeofarea.
?Washington
University
Medical
Center
RedevelopmentCorp.
3Othersources:
Platbooks,cityassessorsoffice,Cityof
St.Louisand
U.S.Census.
1970.

Note.Thefiguresforareas1and2havebeenmodifiedtotakeintoaccountamorere
sampleofhousi

types.Theaveragepriceoftransactionsforarea3wasestimatedbytheW

mentCorp.
staff,whoareveryfamiliarwiththeareaanditstransactionsaspartoft

The CHAIRMAN.I wouldliketo callMr. Crawfordand Mr.

Brooks'
attentionto
thelast
signwehaveoverhere.
Thisindicate
thebeautiful
music
thatwe seeonTV abouthowyourinstituti
service
the communities.

Thisisasavingsandloanfoundation.
Musicunder.
Itbegins,
What doesit take to startthe wheelsof Americanindustry
rolling?
It
takesmachines,
men, money.That is where the savingsand loanscome in.
Money you savewithus goesbackintoyourcom nity in the form of home
loans.

Itshows
thetypical
housein
a city,
rowhouse.

The savings
and loancommitmentto housinggeneration,
over$100 million
a day. For jobs,goods,and services,
help keep America rollingby having your

savingsand loanaccountat your savingsand loan.
Music then ends.

Softviolinsplayingputusin
themoodforfeelingthatthis
inessageoftruthandmessagethatpaintsabeautifulp
happens.

[Seeillustrationsprintedonpp.319and320.]
TheCHAIRMAN.
Nr.Crawford,
accordingto
datareleased
bythe
New YorkCitytreasurer,yourinstitutionhasthelowe
ofitsassetsreinvestedin
New YorkCityofanyofthelargeNew
York
banks.
Onesmallsavingsbank,
Immigrant,islower,with7.1
percent

Mostoftheothersreinvest20
andsomeover60percent.
Whatis

thereasonforyourpolicy?DoyouconsiderNew
Yorkapoorrisk?
Mr.CRAWFORD.
Ido notconsider
New Yorka poorrisk.
I think
New Yorkisstill
thegreatest
city
intheworld,
andI think
ithas
a goodfuture,
Senator.

I am notquite
sureofthefigures
youarequoting
fromthecity

treasurer.
I amnotawareof
them.Perhaps
Ishould,
ifyouwant

totalkabout
BowerySavings
Bank,tellyou
a fewof thethings
that we have done.

In thefirst
place,
backas faras 1956our bank establisheda

office
in Harlem,
thefirst
onein50 years,
and built
inconnectio

389

therewith
an apartment
house,200
units,
whichis
still,
andhas

alwaysbeen,
fullyoccupied.
The CHAIRMAN.Whatyear wasthat?
Mr. CRAWFORD.1956.

In 1968,
longbefore
theconcerns
thatare
so widely
expressed
today,
BowerySavings
BankinNew York,havingtried
foryears
todosomethingin
thereally
deteriorated
areas
ofthecity,
under
tooka turnkey
program.
By that,
I mean we actuallybecame
developers
ofthelow-incomearea
inSouthHarlem,
Brooklyn,
the
lowereast
side.
We actually
acquired
properties,
tenaments
that
wereburned
out,
and we inthefirst
instance
built
an apartment
of 50 units,
123rdStreetof New York City.

We hadno commitment
from any Government
Agencytotakeus

outofthat,ultimately.
We hadamerehandshakefromthe
public
housing
authoritythat
theywouldbuytheproperty
back.
We constructed
that
first
apartment
housein 13 months—
from
the day we acquired
the property
to the day it was readyfor

occupancy.
Thepublic
housing
authority
toldusittakes
them7
yearstoaccomplish
thesameresult.
Wewentonfromtherewithotherbanksandinsurancecompanies.

When the236program
and other
fundsthatwereavailable
were
takenawayfromusin1973,
we hadatthattimebuilt
1,000
new

unitsofhousing.
Thatisa considerable
portion
ofthenew housing
in thedeteriorated
areasof New York thatwerebuilt
by anyone.

The CHAIRMAN.
Youaremakingagoodandthoughtfulresponse,
butitisnotaresponsetothe
question
Iasked.
Myquestion
wasthe
proportion.
Thefactis,youarethebiggest
bank of yourkind,
savingsbank,
inNew York.Verylarge
bank,
$3.7billion.
And the
percentage,
proportionthatyou
invest
inthecommmunity
isless
thanany oftheother
largebanks.

Thequestion
is-youhave
donethings
obviously.
Withthat

colossalamount
ofcapital,you
areboundtobe makingsomelocal
investment.
We donotdenythat.
I wanttoknowwhyitissolow.
Mr.CrawFORD.
I donotknowwhatfiguresyouaretalkingabout
there,
buttheBowerySavings
Bankmadethelargest
investment
inthebondsfloated
to bail
outtheUrbanDevelopment
Corpora
titon.
We justcompleted
thatoperation
in New York,as youknow,

andthesavingsbankshave,bymakinganinvestmentof$240mi

madepossiblea
savingof20,000
unitsofhousingthatthe
UDC is
building

Itisfarfrombeing
thelowinvestor
inthatarea.
We haveby
farthelargest
amountinvested
ofanysavings
bankinNew York.
The CHAIRMAN.
You arethebiggest.
ThepointI makeisthat
you havetotal
deposits
of $3.762
billion,
as of the end of 1975.

And asoftheendof1975yourNew YorkCitymortgages
were
$477million,which
was 11.8
percent,
whichwasless
thananyof
the otherbanks.

Mr. CRAWFORI).
I didn't
hearthatlast
figure.
The CHAIRMAN. 477 million
was the dollaramount of New York

Citymortgages
attheend of 1975and thetotal
percentage
of the

total
percent
was11.8
percent.
Arethosefiguresrightorwrong?

390

Mr.CRAWFORD.
Thatmay beright.
I don't
recall.
As you know,
New YorkCity,
thetotalassets
ofthesavings
banks
aresomething
near$50 billion.

Traditionally,
thelarge
Brooklyn
banksandothers
have con

centratedintheone-family
homelending
intheBrooklyn
area.
We

havedonewhat we havein thebranchareasthatwe have,and we
onlyrecently
havehad branches
in thatarea.
The CHAIRMAN.You haveManhattanbanks.
You have Drydock,

23 percent.
You haveEmpire,
45 percent.
You haveGreenwich,
37
percent.
You haveManhattan,
20 percent.
You haveNew York
Bank forSavings,
30 percent.Youhave
UnionDime,15 percent
UnitedMutual,40.6percent.
Yours isthelowest.

Mr. CRAWFORD.
Yes.Thereisa division
of labor.
If we were to
putallofourfundsintohousing
The CHAIRMAN. I'm notaskingforthat.
Mr. CRAWFORD.I don'tthinkthe markethas suffered.
Also there

havebeen
initiatives
inother
housing-related
areas
thathavebeen

substantial.

TheCHAIRMAN.
Isn'tthelending
record
ofyourownbankproof
thatwe needreinvestment
initiatives,
so thatbankswillgive
prioritiestothecommunitieswheretheydrawtheirdep
Mr. CRAWFORD. I don'tthink so.

The CHAIRMAN.
Do you haveproposals
to encourage
mortgage
investments
inareaswhereyouhavedepositors,
toencourage
build
ingorhomeloaning?

Mr.CRAWFORD.
Wehave established
branches
intheLongIsland
areain thelast3 years.

We pursue
mortgages
inthat
area.
I havetold
youabout
our
effortsin
connection
withthenewhousing.
The CHAIRMAN. That isthesuburbs.

Mr. CRAWFORD.
Therearen't
many one-family
homesin Man
hattanforonething.
Wehaverecentlyhad
anofficeopeninQuee
and wearelending
moneythere.
We arelending
moneyin New
York City,
whenever
wehave theopportunity
to make a sound
loan,
whether
itbea one-familyhouse
orapartment
houseorany
other
kindofloaninthecity
of New York.
The CHAIRMAN.
Well,
Icertainly
don't
mean by these
statisti
tobe atallcritical
of you oryourbank.

Ithasa marvelous
reputation.
And itisa well-deserved
reputa

tion.I'msayingitseemsthatthisbillshouldbeus

acriteria
foryouandyour
bankwhich,as
Isay,
althoughith
1
done many finethings,seems
to be lagging
behindin local
com

munityinvestment,
AndI don't
have—youapparently
don't
have
a specific
programfor New York City.Mr. Brooks,
you sayon

page2of yourstatementthat
application
forcharters
andbranches

thebank
board
places
a heavy
burden
ontheapplicant
tojustif
thecreditneedsofthecommunitytobeserved.
Justwhatisthatheavyburden?

Mr.BROOKS.
Mr.Chairman,thereis
anextraordinary
amountof
materials,paperwork,studies,feasibilitystud
lotofit

391

on themortgage
dataand construction
and housing
in thepar
ticularareathatyouaregoingin.
I havefourofficesinmyassociation.
I'man average
size
associa
tioninRichmond.
I think
I havea typical
sizeassociation
forthe

country.
Ihaveinmybriefcase,acopyofthefiles
fromthedayI

incorporated
Security
Federal20
yearsago.

Wehavebeen
serving
thepublic
andourcommunity
since
that
time,excellently.

The files,
gettingback
tothequestion,the
file
ofincorporation,
and lookingatthe
lastbranch
we got,it
hasgonefromthinto

voluminous.
Whereisitgoing
tostop?
Butthepoint
isthat
the

FederalHome Loan BankBoard andFederal Home Loan Bank of

Atlanta
do requireus
todo extensive
worktojustify
going
intoa
particularcommunity.

The CHAIRMAN.
Letme make two points
then.
Letme quote
Daniel
Goldberg,
who isthebankboard's
general
counsel,
in a
speechtothe
U.S.League.
Hesaid:
" I recognizethatbranchesare

establishedprimarily
toattract
savings.”
Primarily
toattract
sav
ings.He doesn't
sayprimarily
to attract
savings
and thenmeet
credit
needs
bylending
themoney.
Isn't
this
therealmessage
you
getfromtheregulators
underexisting
lawand practice?
Howmuch dothey
careaboutwhere
youareprovidingcredit?
Mr. BROOKS.
It naturally
follows
thecreditneeds
willbe met.
Letmesaythisto
you,Ilookonmyassociation
asperhapsamanu

facturingcorporation,ifImay,andmoneyismyrawmater
I havetogetit.

IfIdon't
getit,Idon'tsupplytheendproduct,credit.
I think
Mr.Goldberg's
statement,
andI'm nottoofamiliar
with
it,buthearing
yourepeat
it,
isaimedatthatparticular
situation.
Wehavetogetthemoneyfirst,sir,beforewecanlendit.

The CHAIRMAN.I
understandthat.
If yougetthemoney,
ifyou

don'tmakeitavailable
tothecommunity,that
ismy point.

Letme pointto
theforms,
Federal
Home LoanBankforms,
re
quired
items,
check
lists
forpermission
toorganize.
Thereisa list
ofrequirements.
Itisa detailed
list.
Itrequiresagreatdeal.
Itwouldbesimpletotakethis
formand
withoutany
significant
additional
burden,make
thisformcomply
with thisparticular
bill.

Itwon'ttakemorethan
a fewcomputationsto
provide
thecredit
information.
However,
there
isnothing
on this
formthatwe can

find,
andwe havegonethrough
itcarefully,
that
requires
thein

formation
withrespecttomeetingcreditneeds.
Theyhaveproposed
savingservicearea,localsavings,proposedoperations,of

so forth.

ButI don'tseethatthe
regulators
now arerequiringyou
topro
videcredit
information.

Mr.Brooks.
Mr.Chairman,again,inthefileand
Iwouldbeglad

tosupply
copies
ofanythingyou
wantfrom
my own files
tothe

committee,
believe
youme,there
is plenty
ofinformation
there
aboutcredit.
Letme go onestepfurther.
Ihappentohave
a copy
of the letterfrom theFederal Home

Loan Bank of Atlanta to Mr.

392

Blumenauer,
whoisthepresident
ofColumbia
Federal
Savings&

Loan Association
herein Washington.
Thisisone examplewhere

theyrequested
more"credit
needs"
documentation
froma branch
applicant.
Theletter
says:“Please
also
indicate
theexpected
mort
gagevolume
on theannual
basis
fortheproposed
office.”
Istatethis
because
theHome Loan Board doesaskforit.

The CHAIRMAN.
Mortgage
volume,
butnotin theservice
area.

Thatcould be anywhere.

Mr.Brooks.
Fortheproposedoffice.
Thatisimplied.
TheCHAIRMAN.
No,theproposedofficecouldmakemortg
in Californiaor Florida.

Mr. BROOKS.But thatisnothow we readit.I don'tlend in Cali

fornia
from my WillowLawn branch.
The CHAIRMAN. You haveconnection
in California?

Mr. BROOKS.
I made $30 million
worthofloanslastyear.
Ofthe

money,
$13millioncame
fromthesecondary
market.
Itcamefrom

otherassociations
intothe Richmond market.We are supplying

thecommunity
need.
The CHAIRMAN.I
don'tobjectto
yourmaking
loansout
andthis

bill
would
notinhibitthat.Butitsaysthatyoushoul
providef

thenecessaryneedsofyourlocalcommunity.
Thatiswhatthebillwould
provide.
Mr. BROOKS.Weare doingthat.

TheCHAIRMAN.
If you make loans
in Florida
and Californ
thereisnoobjectiontothat.
I'mnotsayingyou
havetohave95or
100percent
of yourloansin
thelocalcommunity.
You mighthave
50,40,30,orless.
Ifthesituation
inthelocal
community
wasfull
met,you may haveless.
But thatisone of thecriteria
whichtheexaminerwouldlook
for-regulator
wouldlookfor.

Mr. BROOKS.You willfindthatthesituation
in most communities
are likethat.

Steps
arebeingtaken
wherethedeficiencies
occur.
Thisproble

wasn'tcreated
overnight.
We aretryingto meetthe deficienci
To put inlegislation
- I testified
beforeyouon RESPA, and you

knowwhataproblemthatwas
TheCHAIRMAN.
Iwasneverinfavorof
RESPA. I wasoppose
to it.It was Senator Brock'sbill.

We repealed
partofthatbill.

Ms.Hamilton,youtestifiedthatyoursisthefirstn
loaninSt.Louisinmorethan20years.

in
Ms.HAMILTON.
Itisthefirst
charter
application
in23 years
St.Louisand17yearsin
Missouri.
TheCHAIRMAN.Itisastonishing.
Ms. HAMILTON. It is.
The CHAIRMAN.
Did youfindthattheolder
neighborhood
had
difficulty
inobtaining
mortgage
credit
fromtheolder
establis
savingsand
loans?
Ms.HAMILTON.
Yes,and I'marealestate
agentalso,
andIdid
findthat.
For7 yearswe
havehada problem
ineducatinglend

institutionsto
lendinthisarea.

They aremoreresponsivenow.

393

We had theexecutive
of a majorsavings
and loanassociation
testifyinourbehalf.
Itisbecausewehavebeenpersistentin
trying
to gettheeducation
thatwas neededtothese
savings
and loans.

We area grassroots
organization,
andI thinkwe couldbe a
nationalexampleof
whatcanhappenwithsucha bill
asthis
to
neighborhoodsto
helpthemselves.

Thisiswhywearesoelated
aboutthisparticularlegislation.
The CHAIRMAN.
Mr.Crawford,your
testimony
emphasized
how

much the mutualsavingsand loansare doingfor theircom
munitiesvoluntarily.

Some lenders
aremeeting
communitycreditneeds
and thetwo
folkson yourleft
areexamples
ofthatinSt.Louis.
Theywill
be
doing that.

Mr. Cookeand Mr.Grzywinski,
two otherwitnessesfrom
this
morningaremodelsof whatimaginative
lenders
can do.Except

forarelativelysmallnumber,othersdo
notseemtocare.

Look atthelending
statistics
forBrooklyn.
One smallsavings
bank,GreenPoint
isproviding
moremortgagecreditin
Brooklyn

thanthe othersixBrooklynBankscombined.
GreenPointBank's
assetsare $868 million.
The othershave more than $9 billion.

Shouldn't
wesendthose
other
banksamessage
todo better?
Isn't
that what thislegislation
woulddo?

Mr.CRAWFORD.I
wouldlike
Mr.Quinntoanswer
thatquestion.
Mr. Quinn.Iassume
inyourstatistics
youarereferring
tothe
report
ofthePublic
Interest
Research
Group,
whichwasmadeon
sevensavingsbanks
in Brooklyn.

The CHAIRMAN.
Thatisright.
Mr. Quinn.Firstof all,
thedatawasjustfortheyear1975.
It

ignorescompletely
thetotal
mortgage
loancommitment
by the
remaining
sixbanks.
The report
alsoleaves
outthree
other
major
banksin Brooklyn,who
meetthesame sizecriteria
reported
tobe

thecriteriausedby
thePublic
Interest
Research
Group.
Thisleads
to thenextquestion,as
to whetheror nottheirallegations
would

nothavebeenaswellfounded
iftheyincluded
those
three
banks.
Intermsofthecommitmentto
Brooklyn
ofsavings
banksmen
tionedinthereport,oneofthebanksbroughttotaskby
thatreport
has,in fact,
44 percent
ofitstotal
mortgageportfolio
inBrooklyn

andderivesonly43percentofitstotal
depositbase
fromBrooklyn.
Imightalsoaddinmyownbank'scase Ihave10branchesfive

ofthemarein
Brooklyn.
Intheyearsuggestedby
thereport,three
of thosebranches
lostmoney.
Thereisno reference
tothatin the
report.

In addition
towhich,duringthatyearand
well
beforethatyear,
datingbackto1967,the
Brooklynsavingsbankshave,
includingthe
fiveorsixbanksinthereport,have,in
fact
The CHAIRMAN.
Letme interrupt
tosaythatyourelate
theper
centofdepositsto
loans.
Mr. Quinn.I didthatbecausethat
iswhatthereportdid.
The CHAIRMAN. Thatiswhatthe billwoulddo.
Mr. QUINN. Does the billmean I shoulddisinvest
in the other
threeareas

88-032 O.

77 . 26

394

The CHAIRMAN.Of course
not.Thiswouldbe onecrude,rough

overallguide.
Butitwouldn'tbethedeterminativefactor.
As Isay,
youcould
get100percent
of yourdeposits
in thecommunityand
lend3 or4percentthere,if
itcould
beshownthattheinvestment
opportunitywas
being
fullymet.
Mr. Quinn.Itseemsdifficult,
Senator,
as oneof the witnesse
mentioned
before,
todescribe
thecommunity
whichthe Brooklyn
Savings
Bankserves.
TheCHAIRMAN.Letmetakeyourbank.

Mr.Quinn.DidyousaytheBrooklyn
Savings
Bankin1975,the
yearcoveredbythatreport,increasedtheirmortgagep
$ 30million

I'msorry.
Some$40million.
Of that$40million,$311/2
million

wentintoNewYork
State.
Morethan75percentofitwasin

in New YorkState.
Over50 percent-$20.6
millionof thatnet
increasewentinto
thefiveboroughs
ofNew YorkCity:
The CHAIRMAN.
Let's
takeyour bank,the Brooklyn_Saving
Bank with$1.1billion
in assets.
You made 52 loansin Brooklyn
during1975.
GreenPointBank,a smaller
bank made 722 loansin Brooklyn

or about15 times
as many.Thatcertainly
proves
thedemandis
there.

What issoobjectionable
aboutBrooklyn?

Mr. QUINN.It proves
the demandwas thereforthe Green
Point's
area,
inparticular.
Itdoesnotprove
thatwe havenotmet
thecommunity
need,when
wehaveinvestedover
50 percent
ofour
total
mortgageincrease
inthatyearinthefive
boroughs
of New
York.Arewelimited
toBrooklyn
asourcommunity?Would
this
billsuggestthat
New YorkCity,the
restof
New YorkCityshould
suffer?

The CHAIRMAN.I am askingthequestion.

Mr. Quinn.Thereis no way to respond
to thequestion
of
whetheror
notthedemandisthere.
If youextrapolated
thesame

percentage
thatthe GreenPointinvested
to theirtotalassets
in
Brooklyn
andtried
tohaveallof theother
savingsbanks
to do the

samepercentage,therewouldn'tpossiblybeenoughdem
TheCHAIRMAN.
MostoftheGreenPointloanswere
notmadein
GreenPoint.
Only22 weremadethere.
They weremadeinother
parts
ofBrooklyn.
Theyweremadeatthefarcorner
ofBrooklyn
fromGreenPoint-36inCanarcy,34in
Ryder,29in
Homecrest,23
inGrave's
End,14inBathBeach,andsoon.
Theyaremadenotin

GreenPoint.
They weremade elsewhere.
Again,I'mnotsaying
thatyou shouldn't
make loanselsewhere.
Youshould.

I'msayingwhen
youcomparethese,
itlooksas
ifthisbankwas
more aggressive
and active
and serviced
itscommunitymore
effectivelythan
yourlarge
bankdid.

Mr. Quinn.I don't
necessarily
agree
withthat.
Our bankspe

cializesinlargehigh-riseapartmenthouses-mul
GreenPointdoes
not.
We considerourselves
morespecialized
that
area.
Imaintainonce
again
that
morethan50percent
ofour

total
mortgageincrease
forthesame
yearreferredtoin
thePublic

395

Interest
Research
GroupreportwentintothefiveboroughsofNew
York.
Thatisstill
servingthe
community.
Over75 percent
ofthe
total
mortgageincreasewent
intotheStateofNew York.

Isubmitifyouextrapolatethose
figures
intermsofthesavings
banks
inthecityyou
will
findthey
areservingthe
community.
In
the10-year
periodfrom
1965to1975—whichistheyear
covered
by

thereport—
thesavings
bankinvestment
in NewYork Cityin

creasedby over60 percent.

The CHAIRMAN.New York Stateis
a largeState.
Itis18million

people.
New YorkCityitself
haswhat—8million
people?
Itisan
enormous
city.
Your communityis Brooklyn.
You arethe BrooklynSavings

Bank.A great
proportion
ofyourdepositscome
fromBrooklyn.
I'msureyougetdeposits
fromelsewhere.
Much of yourdeposits
comefromBrooklyn.
Thecontrast,
inthiscase,
yourbankisnot
servingthatcommunity,where
youarelocated.
Mr.QUINN. You can'ttakethecurrent
deposit
flowsin any 1

yearandsaywe arenotservingthe
Brooklyncommunity.
Alarge

baseof ourdeposits
arein Brooklyn.
A largebaseof ourexisting

mortgagesare
inBrooklyn.
Theincreaseinour
deposits
inthelast
5 yearshascome from outside
of Brooklyn.
We haveserved
those
communitiesfromwhich
thenew depositshavecome.
I do notagree

thatwedo
notserve
thecommunitywhere
we have
ourdeposits.
The CHAIRMAN.You havetestified
thatexisting
statutes
already
requirethe
regulatoryagencytotake
into
consideration
community
creditneedsin determining
whetherto approvebranchapplica

tions.
Haveeither
oneofyoueverheardofanycasewhereoneof
theregulatory
agencies
rejected
an application,
or required
the
applicant
tomakea greaterloan
commitment
on thegrounds
that
the proposed
facility
wouldnot be sufficiently
attentive
to the
community
credit
needs?
Mr. CRAWFORD.
BeforeI answerthatmay I amplifywhat Mr.
Quinn said?

Ihavetried
togetatthisbyansweringyour
firstquestion.
When
youhavethekindof concentration
of deposits
suchaswe havein
theNew York Citysavingsbanks,
thereis
necessarily
a division
of

labor
amongstthem.
TheGreen
Point,
theDime,others,
havecon
centratedalmostexclusivelyontheone-familyhome.
Mr. Quinn sayshisbanktakesupthegreat
dealofdemand in

themultifamilyarea
andsodo other
banks,
includingtheBowery.
Therearethings
thathave
tobedoneinthecommunity.
We have

to haveoffice
buildings,
shopping
centers,
allkindsoffacilities.
Many of thelargebanksliketheBoweryhavehad to pickup that

typeoflending—
whichthesmallerbanks
cannot
do.
You mentioned
11 percent.
11 percent
of $4billion
isstill
a

sizable
amountofmoney.Ifyouwere totrytorelate
thesourceof

depositswiththesourceofloans,itisaveryimpracticalth
In the 18 months,years1973and 1974,BowerySavingsBank

hada netdeposit
outflow
of$300million.
Thiswasgenerally
the
situation
ofallofthebanks
inthemetropolitan
area.
Theirmort

gage
lending,
beitshopping
centers,
apartment
houses,
one-family
houses,
continued
undiminished.

396

Ifwe hadgagedourlendingonthe
amountofdeposits
we had

received
fromanygivencommunity
then
The CHAIRMAN.
I'm notaskingthat.
Perhapsweshould have
language
in thebill
thatwouldmakeit clear
thatthatisn't
the
purposeofthebill.
Canyouanswer
thequestion
astowhetheryou
cancite
a single
instance
wheretheregulator
rejected
an applica
tionor required
theapplicant
toincorporate
a greater
localcom
mitmenton the groundsthattheyweren't
serving
the local
communities?

Mr. CRAWFORD.
I haveno knowledge
ofthat.
We are nottold

whyabranch
applicationisturneddown.
Therearebranch
applica

tions
turneddown.Itcouldbe on thatbasis.
I wouldsay this,
that
theNew York StateBankingDepartment
requires
thetrustees
of

eachbanktoformanauditcommitteeeachyeartohave
examina
tion of the bank.
Thereareanumberofquestions
whichourbanking
department

requires
tobeanswered.One
ofthose
ishowareyouserving
the

local
community's
needforhousing?
Thatmatteris
goneintoby
ourowntrustees,andbytheexaminerswhocome
in toexamineour
operations
andourlending.
We haveneverbeencriticized
fornot
pulling
ourweight
inthatrespect.
Thisisoneexample
wheretheState
supervisor
constantly
asks

whetherweareworkingon
thecommunityneeds.

Mr. BROOKS.
I havetwo aspects
of thatin answerto your ques

tion,sir.
Firstofall,oneoftheitemsin
thecriteriaforestabli
thesavings
andloan
association,
asyouknowis,
isthere
a needor
necessityfortheinstitution
?

Now, admittedly,
it doesn't
say deposits
or credit.
We are
chargedby
charterto
bethrift
andhomefinancing
institutions.
So
theFederal
Home Loan Bank seesa needforboth.
I have heard

timeandtimeagain
, Ican't
document
ithere,but
I canlaterof
associations
beingturneddown because
of lackof need,lackof
necessity.
It hasn't
beenbrokendown as to whether
itwas lackof
needfordeposits
or lackof needforcredit.
But, nevertheless,
I feelthatassociations
have beenturneddown

because
therewas nota credit
need.Now,I mentioned
Mr. Stewart

fromNorfolkand
Ialsomentionedheisthepresidentofami
association.
Thereisa lesson
here.
He servescentral
Norfolk.
I be

lievethe
supervisory
agencyof
theFederal
Home LoanBank
Boardapproved
thisassociation
primarily
fortheextension
of
credit,
not deposits.

TheCHAIRMAN.
Myquestioniswhetherornotan
applicationwa
turned
down becausethere
wasa finding
thattheinstitutions
did
notpropose
to meetcommunityneedforcredit
and therefore
would
not be allowed to branch.

Mr.Brooks.
Idon'tknowof
anycasethathasbeen
turneddown
for that.

The CHAIRMAN. That istheanswer?
Mr. BROOKS. No.

The CHAIRMAN.They oughttodo thatonce
inawhile.

397

Mr. BROOKS.
Withthekindofsurveys
we havetogive,if
we
couldn't
provethat,
we wouldn't
puttheapplicationin.In
the
savingsandloanbusiness,they
requireustodocumentthatthereis

suchaneedandthatweareservingthecommunity.
The CHAIRMAN.But withallof the S. & L.'swe have in this
country,
withallof the branches
we havein thiscountry,
you

wouldthink—
andwiththedelinquency
insomecases,
I don'tmake
charges
withrespect
toanyone
heretoday,
butwe knowthere
are

institutions
thatdon'tmeet creditneeds.

Everybodywho hastestified,
eventhespokesmanfortheABA,

admitted
that.Yet,
therehasn'tbeenanyonethat
wecanfindwho
knowsofabankthatwasturneddownbecausetheyfailedtome

creditneeds.

Mr. BROOKS.
Theadministrative
aspect
of ourbusiness
couldbe

improved,butI don'tthinkittakesalaw to do it.

The CHAIRMAN.
Mr.Brooks,
yousay,we really
wanttopenalize

aninstitutionlocatedinanareathatbecomesblighted
beyonditscontrol,
by denying
ittheopportunity
torelocate.
The
answertothat
is,yes.
Lookatthewitness
who preceded
you.Mr.
Grzywinski'sbankwanted
to relocateto
getoutof theblighted
neighborhood.
Thatiswhenitwasunderdifferent
ownership.
But

theonly
rulingofthiskind,the
Comptrollersaidit
would
deprive
thecommunityofneeded
services.
Mr. Grzywinski
gotthebankand thatbankhasbeena prime
factor
inthatcommunity's
revival.
But youthink
thebankshould
be ableto move to morelucrative
opportunities.

Mr. BROOKS.
Eachcase
isdifferent.
Perhaps
intheChicago
case,
therewas a needforthat.
In otherareas,
I wouldbe willingto
say

a savings
andloan,
ifitremained,
could
notdo whatseemstobe

demandedherethismorning.
The CHAIRMAN.The peoplewho had the bank beforethought

that.ButMr. Grzywinski,
however,made
it fly.
As he said,he
had meetings
in cellars
and in neighborhoods.
He wentoutag
gressively
andfought
hardtogetthekindofbusiness
thatwould
makehisbankmoveanditdid.
Itisaprofitablebank.
Itmakesa
14-percentreturn.

Mr.BROOKS.
Inthatcase,itiscorrect.
Butwearereasoningfrom
thespecificto
thegeneralhere.
Itseemsto me to getan overall
picture
we shouldget
other
cases.

The CHAIRMAN.Ithinkthatisright.
Therearecasesundoubtedly
wherea neighborhood
isinsucha shapethatyouwouldhaveto
permitthebankto move out.I thinkitshouldbea consideration.

That is allthisbillwould do.

Mr.BROOKS.
I don't
thinkyouneed
a lawtodoit.

The CHAIRMAN.Itisnotbeing
donenow.

Mr.CRAWFORD.
The deputy
superintendentof
bankshassaidno
proposalforsolvingtheproblemisworthwhilebecause
theeffectof
theproblemhas notbeendefined.
Thisisan issue
we aredealing

withhere.
Thesetwopeopleare
talkingsomefineideals,but
I note
thisisa
proposed
organization,and
Iwishthemwell.

398

Hereisthedeputysuperintendent
ofbanks
saying
thatformore

thanayearandahalftheyhavebeenactively
involvedinvesti

ingtheproblemofcheckingthemortgagecreditin
New YorkState,

particularly,
thechargethat
banks
redline
ordiscriminateaga

borrowersonthebasisofwheretheirpropertyis
located.Hegoeson
toexplorewaysthatthisproblemcanbedealtwiththrou
andinitiativesunderway,andsoforth.
He concludes
thatbecause
thedepartment
isin a process
of pre

paringareportonmortgagefinancingin
NewYork
State,based

thestudyof dataderivedfrom
thedisclosure
information,
itisnot

prepared
tomakerecommendationsatthis
time,
astowhatspecific
actionswould
bemosteffective
in New York.Isubmitto
youthat
this
problem
hasnotbeenproperly
defined.
Therehasneverbeenyet,tomyknowledge,aconclusive
argument
madethat
thereareeffectivemortgage
credit
demandsthat
areun
resolved
in NewYork City—or anywhereelse.
Now, we allhave

blackhatsandwhitehats.We
arenotall
perfect
andwe don't
live
ina perfectworld.But,
thereareseriousinitiatives
thatarebeing
experimentedwith
inNew Yorkand Bostonandelsewhere.
Wehave

puttogether
forthefirst
timethisenormous
amountof dataon
wheretheloansarebeingmadeand in what amounts.
I feelmyselfembarrassed
to come before
thiscommittee
forthe

firsttimeandtakea
negativeattitude.
I havebeenheresupport

overthelast12,
15 years,
legislation
thatI think
issupportive
of
housing.
I submit
to you,Ithinka little
breathing
spell,
a little
timetoanalyzewhatever
wecangetoutofthis
enormousamount
of data,wouldbe worthwhile
before
imposingon thebanksthese

additional
burdens,
andI mightadd,imposing
further
burdens
on
theregulatory
agencies.

Theagenciesnow
arestrungvery,very
thin
intermsoftheire
amingstaff.
I just
learnedyesterday
thatin New YorkState,
for
example,
thereare
60 unfilled
positionsforbank
examiners
and we
knowwhy thatis.
Itisnotan attractive
job.
The payisnotvery
good.

If we addon them—untilwe
aresurethiskind
oflegislationi
necessaryfurther
additionalburdens,
I think
itisgoingto make
oursupervision
less
effective.
I don't
thinkthe
casehasbeenmade
thatthis
kindof an approach
will
solve
theproblem
thatwe all
know exists.

The CHAIRMAN.
You saytheproblem
exists.
I am gladtohear

you say that.

Theproblem
exists.

WehaveseenthatMr.Cooke,whowasourfirstwitnessthismor
ing,andMr.Grzywinski,havebeenabletoshowandestablishe

factthattherearemortgageneedsthatweren't
beingmet,thatthe
weremetbecause
theygotoutanddidthejobofdevelopingand

making
itpossiblefor
these
people
who weren't
getting
mortgage

loans and wanted them and needed them.

We havetheremarkable
record
of thebankingcommissioner
in
Massachusetts.

Wehavesimilar
experience
inCalifornia
andConnecticut.

399

We had testimony
on thatbefore
thiscommittee
on Wednesday

establishing
thefact
thatwhenthebankingcommissioner
insisted
on moreaggressiveactionon
thepartoftheir
financial
institutions
thattheyfoundagainand againa greatmarketnotbeingmet that

couldbemetonasound
basis,notbymakingunsoundloans,buto

a sound basis.

Wehavearecordestablishingthefactthatthereisamarke
aneed.
Youcanseethatthereisaneed.Itisn'tbeingmetnow.

Thatiswhatwe meanby saying
there
isa need.
Itisnotbeing
met.

Allwe aredoingwith
thismildand
limited
legislation
istopro

videencouragement,incentive,
reward
forthosewho
dothejobwe

allagreeshould
bedoneandisnotbeingdone.

Mr. CRAWFORD.
I havetocorrect
my statement.

Ithinkwecandoabetterjobthanwearedoingnow.
ButIdon't

thinkthatthisisthe way to do that.

Iwouldliketoseetheseinitiativesgoingforwardnow,ha

timetobringontheeffectswearealltryingtoacco
burdensome,
additional
paperwork
whichiscostly
and time-con

suming.

I don'tknowhowyou
gointoanewbranchand
establish
before

hand what thecreditneedis.

Forexample,
weestablished
abranch
about2
yearsago
onLong

Island.
Weknew thatthere
wasa gooddeposit-gathering
potential
in that area.

Mr.Brookspointedoutthatisthebeginningof
theprocess.

Wethenencouragedallofthecommunitygroupsto
comein.We

hadapublicfacilityforthemtouseand
itisused
everysinglenight
oftheweek.Theyknowwearethereandtheyknowwe
areanxious

to makemortgageloans.

I don't
know ifyoucanhuddle
in basements
and getmortgage

loans,but

The CHAIRMAN.
Itsounds
appealing
tome.Thatistheway you
get votes.

Mr. CRAWFORD.
We arenotrunningforoffice.

TheCHAIRMAN.
Youmaynotbe,butyou
arehustling,lettingth
neighborhood
know whatyouhavetooffer
andwhattheycando.

Youarenotinterestedonly
inaffluentpeople,
butwitheveryone.
Your bankparticularly.
Yournamesignifies
youareinterested
inpeoplewithmodestincomes.

Mr.CRAWFORD.
Thereis
no question
inmy mindthatthe
people
ofthecityof
New Yorkknowtheycancometothesavingsbanks
and getafairhearing.

InNew YorkState,thesavingsbanks,asof1974,had
$42billion
ofmortgageholdings;
commercialbanks$13.4
billion.
The CHAIRMAN.The testimony
of thebankingcommissioner
of

Massachusettswas
thata great
dealofloans
forlowincomecensus
tractareasweremadewithprivatemortgage
lendersatmuchhigher
rates
on termswhichrequired
muchhigher
monthly
payments
be
causethetermwasshorter,much
higherdown
paymentsin
spiteof
thefact
shesaidherexperience
wasthatthedefault
ratewasthe
sameinallofthecensustracks
regardless
ofincome.

400

Mr.Shaw.Thatfigureisnearlyrightexceptthatthe
commission
er'sfiguresdid
showthat80percentofthe
homesales,
by herown
figures
thatshe
tookfora period
of ayear–80percent
of those

home sales
weremortgages.

Thepercentagetowhichsherefersgoingtootherthan
bankswas
thatsome
oftheloans
wenttoprivatemortgage
companies.
And I

thinkinallofthiswehaveto
realizethereare
peoplewho
donot

qualify
credit-wisefor
mortgages.
Unfortunately,
there
areseveral
companies
operatingwho
take
these
loanswithno credit
basis
whatsoever.
They takealmostany
loanimmediately.
It isa lucrative
operation.

Wearenotturningthesepeopleawaybecausewedon't
seethem.
We mighthave
toturnthemdown,butwe arenotseeing
these

peopleatall.

TheCHAIRMAN.
Idon'tinanywaydenythefactthatyou
haveto
tumdown somepeoplewho
apply.
Mr.Shaw.Weareone bankandoneareawhere
theregulatoris

over-sensitiveto
whatwe arediscussing-Commissioner
Greenwald.

Wedohavetoprovideallofthisinformationyousawinhe
Tothisdateshehasnotturneddownanapplication
forabranch.
I thinkthisrespondstotheinferencethatyouhadinyo
ques

tion- wearegettinglookedatinthisarea.

TheCHAIRMAN.
Thatisagoodpointonyourside.
Thankyouvery

much.

Iwanttothank
Ms.Hamilton
fortestifying.
We didn't
haveverymany questions
foryoubecause
we agree

morewithyou.

Ithinkthisisafinerecord,and
Iappreciateit.
Thecommitteewill
stand
adjourned.

[Whereupon,at12:55p.m.,thecommitteeheari

[Additionalmaterial
receivedforthe
recordfollows:]

401

AS
SO
C)

Mortgage
Bankers
Associationof
America

OF
SESAMEZID

1125Fifteenth
Street,
Northwest,
Washington,
D.C.20005

NERIC

(202)785-8333

April13,1977
Oliver H. Jones
Executite Vice President

The Honorable WilliamProxmire
Chairman

SenateCommitteeon Banking,
Housing
and Urban Affairs

5300Dirksen
SenateOfficeBuilding

Washington,
D.C. 20510
Dear Mr. Chairman:

TheMortgage
Bankers
Associationof
America
(MBA)welcomestheoppor
tunitytocommenton
S.406,the
Community
Reinvestment
Actof1977.
Itisourunderstandingthatthebillwouldencouragefinancialinstitutio
to meetthecredit
needsofthecommunities
inwhichtheyarelocated.

Specifically,
thebillwouldprovidethatfederalfinancialregulatory
agenciesrequire
theinstitutions
theyregulate
to reviewthecredit
needs
oftheirlocalcommunities
wheneverapproval
wassoughtformergers,

federalcharters,
insuranceofdeposits,branchingoranyotherrelocation
ofdeposit
facilities.

Anapplicantwouldberequiredtodesignate
thecommunityboundaries,
i.e.,a"primaryservicearea"
fromwhichitexpectsthedepositfacility
willdraw
morethanone-halfofitsdeposits;
toanalyze
thedepositand
creditneedsof
thatcon

inityandhowthoseneedswouldbe met

anewcharterorbranch;todetailhow
muchoftheconsumerdeposits
obtainedfromtheprimaryserviceareawouldbereinvestedinthat
community;and,
finally,
toshowhowtheapplicantwouldmeetthecredit
needsofthecommunitiesinwhichithasalreadybeencharteredtodo
business.

TheMortgage
CorrespondentSystem
Themortgagecorrespondentsystem
isacombinationofmortgage
com
paniesthat
originate
mortgages
forsaletoadiversified
bodyofinvest

inginstitutions,
oftenremotelylocatedfrom
themortgagedproperty.
Mortgagefundsflow
throughthisnationwidesystem
fromsurplusdeposit
areastoareaswherethedemand formortgages
exceedsthesupply
of

savings.
Thecorrespondentsystemprovidesavehiclethroughwhichthe
nation'shomesandotherrealpropertiesmaybefinancedpromptlyand
efficiently.
Itevensout
fluctuationsinthesupplyofmortgagefundsanditreduces
thecostofmortgagecreditbybringingcompetitionintocommunities
wheremortgagedemandsexceedthesupplyofsavings.

88-032 0.77

- 27

402

S.406wouldcontractthecorrespondentsystemand,thereby,
1)

makemortgagesalessattractiveinvestmentbyprevent
investors,suchasfederallyregulateddepositoryins
fromreachingoutoftheirprimaryserviceareasformor
loans;

preventthenationwidecreditmarketsfromcompetingw
locallendingneedsbylimitingthetransferofsavings
areasofcapitalsurplustoareasthatarecapitalshort

discouragehomeownershipandhomebuildingbyencoura
geographicdifferentialsin
mortgage
interestratesandsavings
deposit
interestrates.

Effectof
S.406
onSavings
Flows,
InvestmentandGrowth

Growingeconomicareasattractthedevelopmentofnewdeposito
tutionsandbranches.
Beinggrowthareas,depositflowsdonotequal
creditdemandsandlocalborrowersmustreachoutbeyondthecom
borders
forthefundsneeded.
Ifthesurplusareasare
cutofforrestricted

frominvestingoutsideoftheirprimaryserviceareas,thegrowi
willbestymied
intheir
efforts.

Notethat
thesurplusareasdonothaveanadequatedemandand,ift
surplus
fundscannotbe
moved,theymustpaysaversless
inordertoreduce
their
supplyoffunds.
Moreover,jobscreatedinthegrowthareasand
inallareas
wheretheymustpurchasethe
materialsneededto
expand
would diminishin number.

Whenagrowingareareachesmaturity,itwillpassthroughaperi
itssavingsand
creditdemandsareinbalance.
Inthisperiod,itsfinancia
institutionswouldnotneedandwouldnotusethesecondarymort
market.
Eventhen,theavailabilityofmortgagecreditfromdist
actsasacompetitiveforcetokeepinterestratesintheareafro
monopolisticconditions.

Oncegrowthiscomplete,thecommunitywouldfinditselfwithsa

exceedingthedemandforcreditandinneedofoutletsforf

itsprimaryservice
area.

Themortgagebankingcorrespondentsystemtiesthesephasesof
togetherandpermitsthenation
tobalanceitsrequirementsfromarea

toarea.Accordingly,itreducesinterregionaldifferencesini
rateson
mortgagesaswellassavings.
Itispartofahighlyefficientsys

ofmovingfundsacrossthenationtoplaceswheretheyarem

403

Effecton
BorrowersPerceived
tobeDisadvantaged

Theproposedlegislationwouldthwartthesevaluableeconomicfunct
andwouldnotprovidecredittomarginalborrowersormarginalproper
Theneedsofdisadvantagedordeterioratingneighborhoodswouldnot
met.Indeed,theywouldbefurtherdisadvantagedbecausethegrowthc
couldnotberegeneratedbyoutsidefunds.
Lendersarenottheprimecause,noraretheyblamelessinthe
deteriora

tionofthenation'scities.
Theyareoneimportantpartofaverycomplex
processofgrowth,
decline,
deteriorationandrebirthof
majorportions
ofourcities.
Inthisprocesshome
mortgagecreditisnot
thesolenor

eventheprincipalreasonforneighborhooddeterioration.
Lendersmerely
reacttoprecedentchangesintheeconomic
circumstancesofaneighbor
hoodinacomplexprocessinwhichlocalgovernmentofficials,reales
brokers,realestateappraisersandcitizensofthecommunityalsopl
importantroles.

A HUDpublication,
TheDynamicsofNeighborhoodChange,(1976)de
scribesthisprocess
ofneighborhoodchange:

"Thedecisionofindividualsandgroupsofpeople...determines
ofwhathappens.
Householdsintheneighborhooddecidetomove
out;householdspresentlylookingforahouse
decidenot
tobuyin

thatneighborhood;bankofficersdecidenottoloanmoneyforthe
area;ownersofapartmentshousesdecidetocutdown
onmainten
ancetokeepwhattheyconsidertobe
areasonableprofit.

Inotherwords,itisthedecisionsthatpeoplemake--individual
orcollectively--thathavethecriticalimpactonwhathappenst
thebuildings,streets,schoolsandparks...

"Manydecisionsaremadeduringtheprocessofneighborhoodchan
byhouseholds,buildingowners,bankers,realestatebrokers,s
boards.
Eachdecisionismadeinresponsetosomeeventorchange
incircumstances.That isthe cause. Once thedecisionismade it

hasconsequences--theeffect.
Asequence,cause--decision--effect.
Ofcourse,
asthesequenceprogresses
theeffectsbecomethecause

thattriggerthenextdecision,inakindofchainreaction."

Inthisprocess,itisimpossibletoisolateandtofixresponsibility
initialdecisionthatbeginsneighborhooddecline.
Indeed,itistheprocess
nottheinitialdecisionthatisimportant.
However,thisscenarioofchange
alsoimpliesthatdecisionsmaybemadetointerveneatalatertimein
theprocessandarrest
decline.

Understandably,
individuallenders,realestatebrokers,publicoffici

andevenneighborhoodresidentsare
typicallyreluctant
tointervene.
Nonefeelsresponsibleforthe
decline.
Eachfeelspowerlesstohaltit.

404

Actingalone,
nolender,
homeowner,broker,
orappraisercanaffect
the

process.
Spendingvastsumsofmoneywillnotbesuccessful,norwil
legislationlike
S.406,the
Community
Reinvestment
Actof1977revitalize
adyingneighborhood.
Conclusion

MBA believesthatenactmentof
S.406wouldbeunwiseandpremature.

Inrecentweeksthe
Departmentof
Housingand
UrbanDevelopmentissued
arequesttooutsideconsultantsforasix-monthstudytocatalog
tivewaysforlocalitiestoanalyzeandusedaterequiredunderth
Home
Mortgage
Disclosure
Act.HUDwasparticularlylookingforwaysto
use
thatinformationtosecure"privatereinvestment"
inneighborhoods.
S.406
wouldrequirelenderstocompilereamsofdatawhenthe
Federalgovern
mentisnotyetsurehowtomakeconstructiveuseofinformational
collectedat
bothpublicandprivateexpense.

Inaddition,the
Departmentof
Housingand
UrbanDevelopmenthasurged
theCongresstoawaitthe
Administration'sproposalsfora"compreh

approachtothesubject"ofurbanreinvestmentbeforemovi

S.406.MBA agreesthat
theproblem
ofurbanreinvestmentshouldbe

addressedinthismanner,ratherthanpiecemeal.
Thepurposeof
S.406toincreasetheidentificationofcreditneedsof

neighborhoodsiswellintentioned.
MBA,however,believesthatthebill'
delineationof"primaryserviceareas"andtheconcomitanteffortto

requireloanstobemadeinproportiontothedepositsinthatprim
servicearemisplaced.
Ourstudies,seeenclosure,indicatethatthe
wouldbebetterservedbyidentifyingthoseneighborhoodsthatc
cansalvagewiththejointcooperationofthefederalgovernment
officials,lenders,andtherealestateindustry.
Acommitmentbythese
groupscanbethecatalystthatgeneratesanewcycleofgrowth,th
attractsdistantaswellaslocalinvestors,andthatbenefitsth
economy.Tyinglenderstoaprimaryserviceareawithoutsucha
commit

mentandwithoutregardtothearea'sstageofgrowthanddevelopm

wouldharmthecommunity,thelender,andthesaver.
Sincerely,

silever
lover

OliverH. Jones

ExecutiveWice
President
OHJ/pab
Enclosure

405

MB)Mortgage
Bankers
Associationof
America
NERIC

FIGHT

1125Fifteenth
Street,
Northwest,
Washington,
D.C.20005

(202)785-8333

January12, 1977

Mr. Kennon V. Rothchild, President
Mortgage Bankers Associationof America
1125 15th Street, N. W.
20005

Washington, D. C.
Dear President

Rothchild:

It is our pleasureto transmitthe finalreportof the Redlining
StudyCommittee,
a TaskForceappointed
by President
WilliamEzzell
in July,1975.
The TaskForcewas givena charterto developa positiveprogram
on the subjectof redlining
thatwouldprovidefinancing
in inner
cityareasif certaincriteriadefinedby the TaskForceweremet,
and thatwouldinvolvemanysegmentsof the realestatelending
industry.
Our report responds to that charge and we hope it will be useful
to all members of MBA.
In its work, the Task Force concentrated
on the lender's underwritingdecision--shouldcredit be extended

to a loan applicant
or not--andon the community
socio-political
process that influences that decision.

of equalinterestto the TaskForce,but not addressed
in its field
visitsor its report,are the many innovative
techniques
usedby
lendersin recentyearsto providemortgage
financing
in inner
city areas. Althoughthesetechniques
weredesignedto meetindividual
needs, the Task Force believes other communities and other lenders

couldbenefitby a catalogthatprovideddetails,and encouraged
replication elsewhere. The Task Force believes the Association
should undertake this project as a complement to its own report.
The members of the Task Force worked hard and knowledgeablyon
this verydifficult
project. It was an honor and a pleasure to
serve as their Chairman.

Sincerely
yours,

Everett

EM/kg
Enclosure

Mattson

406

MORTGAGE

FINAL REPORT
REDLINING TASK FORCE
BANKERS ASSOCIATION OF AMERICA

December 31, 1976

Foreword

TheMortgage
Bankers
Association
of America
established
a TaskForcein
June,1975,in an effortto evaluateseriousallegations
made beforethe
SenateBankingCommitteeduringhearingson the HomeMortgageDisclosure
Act.

The allegations
includedthe following:
" Redlining. .refersto a processof purposeful
manipulation
of neigh
borhoods to bring about their deteriorationand destruction."

"It is the initialactionof localfinancial
institutions
in cutting

offloansfromthecommunity
thatledto a decline
in property
values."
In theirwork,the Task Forceheldfact-finding
meetingsin Chicago,Illinois,
Los Angeles,
California,
and Pittsburgh,
Pennsylvania.
In those cities, the Task Force visited neighborhoodsinvolved in the red

liningcontroversy
and visitedsimilar-looking
neighborhoods
wheremortgage
creditis plentiful.
Representatives
of localpublicofficials,
neighborhood
associations,
and
lendinginstitutions
met with the Task Forceand presented
theirviews
of redlining.
This report reflects the facts and conclusions drawn from those first-hand
field visits.

It definesthe natureand scopeof the problemand suggestsa solution
for the myriadproblemsthathave beenlumped--sometimes
erroneously--under
the term"redlining."
The Association
is indebtedto the membersof the TaskForcewho gavetheir
time and energies to this project. Members of the Task Force included:

EverettMattson,TaskForceChairman,
The Lomas& Nettleton
Company, Dallas, Texas

RichardA. Crissman,
Assistant
VicePresident,
RalphC.
Sutro Co., Los Angeles, California
James C. Fitzmaurice, Senior Vice President, First

FederalSavings& Loan Association
of Chicago,
Chicago, Illinois
Donald E. Goodman, Vice President, Kirk Mortgage

Company,Philadelphia,
Pennsylvania
Lawrence C. Humphrey, President, Premier Mortgage

Corporation,
Detroit,Michigan

407

-2

sidneyKaye,AdvanceMortgageCompany,Southfield
Michigan

RobertW. Larson,President,
LarsonMortgageCompany,
Plainfield,
New Jersey
Erwin A. Salk, President, Salk, Ward & Salk, Inc.,
Chicago, Illinois
Robert J. Spiller, President, The Boston Five Cents
Savings Bank, Boston, Massachusetts

RobertH. Wilson,President,
PercyWilsonMortgage
and FinanceCorporation,
Chicago,Illinois
PeterM. Williams,
SeniorDirector,
Management
Services
Department, Mortgage Bankers Associationof America,
served as staff representativeto the Task Force.

citizens,
lenders,appraisers,
realestatebrokersand publicofficials
in any community
shouldbe able to use the workof thisTask Forceas a

baseuponwhichto buildthemutual
understanding
andrespect
thatis
essential to solve this difficult problem.
Kennon V. Rothchild, President
Mortgage Bankers Associationof
America

Washington,
D. C.

408

Summary of Findings

The TaskForce'sfindingsrejectthe allegation
thatneighborhood
deteriora
tion is caused by lenders. Thisis a simplistic
and erroneous
conclusion.
Lendersare not the primecause,nor are they blameless
in the deterioration
of the nation's cities. They are one important part of a very complex

process
of growth,
decline,
deterioration
andrebirth
of majorportions
In thisprocess,
homemortgage
credit
is notthesolenor

of our cities.

even the principal
reasonfor neighborhood
deterioration.
The TaskForcebelievesthat lendersare justified
in refusingto extend
credit for conventionalfinancing of loans if:

Marketappealis low,
Residents
and the city government
are not organized
to
work togetherfor improvement,
Residents
are justifiably
displeased
withcity services,
Most housing is rental property,

Significant
maintenance
needsexist,
Eitherovercrowding
or high vacancies
exist,
Code violations
are rampantand no enforcement
program
is operating.

The Task Forcefindsthe firsttwo itemson the list are especially
impor
First,manyallegations
of redlining
are notablefor theirlack of
tant.
data showinga demandfor financing.The Task Force believes there is
an excesssupplyof deteriorating,
olderhousingin our citiesand that
thiswillcontinueto be true untilan increased
numberof buyerschoose
associations
to live in them. In manycities,spurredby neighborhood
and local-federal
cooperative
programs,
thisbuyerdemandis increasing.
The TaskForcebelieveslendersshouldbe on the lookoutfor opportunities
to providefinancing
to creditworthy
applicants
whereverthereis clear
evidenceof stability
and demandfor housing,even in areaswherethese
were lacking in the past.
Second, the Task Force finds compelling evidence that neighborhooddecline
is more likely to be stopped, or even reversed, when local government

officials,
neighborhod
residents,
lenders,appraisers
and realestate
brokers make a joint commitment to a neighborhood.

RedliningDefined
For this study, the Task Force adopted the following definition of red
lining:

"The identification
of a specificgeographic
areafor the
purposeof denyingrealestateloansor varyinglending
terms in a discriminatorypattern."

409

The phrase"in a discriminatory
pattern"refersto the use of underwriting
criteria to make credit unavailableor more difficult to obtain in a
particulararea.

For example,if a lenderwantedto avoidmakingloansto membersof a

race--a
practice
specifically
prohibited
by law--it
mightinvolve
a sound
underwriting
criterion,
for examplethe age of housesin the neighborhood,
to mask its discrimination.

Often,lendersare unjustlyaccusedof redlining
when theyapplysound
underwriting
criteriauniformly,
becausethe effectappearsto be discrimi
natory. For example,thereis a closecorrelation
in manypartsof our
nationbetweenfamilyincomeand race. If lenders'underwriting
rejections
for insufficient
incomeare predominantly
membersof one race,it may be
difficultto establish
that inadequate
creditwas the determining
factor,
rather than race.

The phrase"varylendingterms"doesnot implythat thispracticeis unsound
or necessarilydiscriminatory. Historically,
soundunderwriting
has called
for differences
in downpayments,
maturities,
and interestratesto account
for different
risks. If lenders are willing to accept risks of varying
degrees,theymusteitheruse varyingtermsor raisethe creditstandards
for the lowestqualityof loan acceptable. In the latter situation, the
goodcreditriskwouldhave no advantage
and the less worthyriskwould
have no loan. No other way exists to carry out lenders' fiduciary respon

sibilityto saversand to providesaverswithcompensation
thatrecognizes
the risks taken.

Historically,
lendershavealsoestablished
rigidand standardized
lending
policiesto placean outsidelimiton theirrisksand reducethe discretion
left in the hands of loan officers.

Examples of these policies include:

Exclusion
of properties
thatare morethana fixednumberof years
old;
Exclusion of loans below a fixed minimum amount; and

Exclusion
of properties
in neighborhoods
thatare judgedto be
"economically
obsolete,"
regardless
of the physical
condition
of a specific property.

The correlation
of age of propertyand obsolesence
of neighborhood
with
rejection
of loansmay make the availability
of creditappearto be an
overtpracticeof redlining.Clearly,somesoundloansmay be overlooked
or avoidedbecauseof rigidrulesbut the TaskForcedoesnot condonethis
result.

However,
theremaybelegitimate
economic
reasons
foravoiding

specificgeographic
areaswherepropertyvaluesare declining.

410

Certainly the property is important to the lender. A real estate loan
offered--the
is more than a credit loan to the borrower. The security
property--iscritical on its own merits because:

The propertyis the essential
collateral
neededto providehomebuyers
with the excellent loan terms they have traditionallyenjoyed.

The assumption
of an existingloan by a new homeowner
can occur
withoutthe lender'sabilityto insistuponadequatecredit
standards.

A borrower
may encounter
a financial
reversal,
whereloss to the
lendercan be avoidedonly if the property's
marketvalueat that

timeis greater
thantheoutstanding
loanbalance.
Wheremanyhouses
in a neighborhood
aretenant
occupied,
lenders
properly
suspect
thattheabsentee
owners
haveseveral
motives,
noneof whichgive
assurance of near-term stability. Suchownersmay be speculating
that

land use may change,or theymay be formeroccupants
who movedelsewhere
but were unable to sell their homes. Any lender must be assured that the

remaining
owner-occupants
are responding
to thesechangingownershipsin

a positive
way;e.g.,by forming
a neighborhood
association
andenlisting
the city'said to achieverehabilitation
and reversalof the trend.
In some neighborhoods,
thereare so many familieswho can not affordmarket
pricedhousingthat thosewho can moveelsewhere.More lending in these
areaswithoutgovernmental
subsidyof bothhousingand socialservices
willonly makethe generalcondition
worse.
This problemof housingthe pooris oftenlinkedmistakenly
with redlining.
Redlining,
however,refersto a refusalto makeloansto creditworthy

applicants
on soundproperties
forreasons
thatarediscriminatory,
but
has nothingto do withdenyingloansto applicants
who are not creditworthy.
The ComplexProcessof NeighborhoodDecline
The TaskForcefindsscantevidencethatfinancial
institutions,
by with
holdingfundsfrom healthyneighborhoods,
causepropertyvaluesto decline.
Instead, lenders react to changes in the economic circumstancesof a neigh
borhood in a complex process in which local government officials, real

estatebrokers,realestateappraisers,
and citizensof the community
also
play important roles.

The localgovernment,
throughits policiesof publicinvestment,
buildingcodeenforcement,
zoningdecisions,
and political
leadership,
has a greatimpact--either
goodor bad--onthe qualityof life and
economic stability of neighborhoods.

411

Realestatebrokers,intentionally
and unintentionally,
may let clients
knowtheirattitudesabouta neighborhood's
valueand influence
decisions
to purchaseproperty.
Realestateappraisers
directlyaffectthe amountof creditlenders
are willingor, understatuteand regulation,
are ableto provide.
If appraisers
misjudgethe processof neighborhood
change,including
the segmentof re-birth,theymay participate
in accelerating
decay.
Lenders are reluctant to encourage home buyers to invest in neigh
borhoods in which values are declining.

citizensof a neighborhood
affectthe valueof theirown propertiesand othersin the neighborhood--through
theiractionor inactionin
maintaining
and remodeling
of theirhouses,and theirsupportof
neighborhood
associations.
In essence,declineoccurswhen the interplay
of theseand less direct
forcesresultin the replacement
of higherincomefamilieswithsuccessively
lower income families. In the process,propertyupkeepsuffers,a neigh
borhoodoftenacquiresheterogeneous
typesof housing,and, moreand more,
prospective
buyerssee it as less desirable
thanotherpartsof the community.
Thisprocessis summarized
in the accompanying
tablewhichwas takenfrom,
TheDynamicsof Neighborhood
Change,published
by the Department
of Housing
and Urban Development. The characteristicsof each of the five types of

neighborhoods
are pertinent
to any discussion
of creditavailability.
As the processof declineoccurs,for example,lendersbelievethatmore
stringent
termsare justified
on the basisof long-established,
economically
sound underwritingstandards.

Underwriting
Standardsfor Conventional
LoansMade by Depository
Institutions
Depository
institutions
make the majorityof single-family
conventional
loans in America. Theseinstitutions
are supervised
by stateand federal

government
agenciesthat establish
lendingstandardsthe depositoryinsti
tutions must meet.

The TaskForcefindsthatthe underwriting
standards
of thesegovernment
agenciesplaceconsiderable
emphasison presentneighborhood
conditions
and prospectivevalue.

The FederalSavings& LoanInsurance
Corporation
in Section571.1(g)of
its regulations
permitsinstitutions
underits supervision
to "obtainthe
services
of a professional
appraiser.
. .to ascertain
whetherthe neigh
borhoodis improving,
stabilizing
or declining."

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413
The FederalHomeLoan MortgageCorporation,
in its Single-Family
Under
writing Guidelines,
published
in April,1974,givesseveralexamplesof

neighborhood
characteristics
thatshouldbe treated
as weaknesses
when
consideringa loan application.They include: (1) mixed land use, (2)
changesin land use,(3) the needfor generalmaintenance,
(4) a predan
inanceof older(25+ years)properties
that havenot beenmodernized,
and
(5) belowaverageappealto prospective
buyerscomparedwithavailable
alternatives.
Theseweaknesses
are presentin almosteverycity in the
United Stateswherechargesof redlining
are voiced.
The FALMC Guidelines conclude:

*Alwaysrelateloan-to-value
ratioand loan termto the securityunder
consideration.
If propertyvaluesare fairlystable,but some
sign of weakness is noted, the term should be shortened, or the loan
to-value

ratio reduced.

Challengesto Traditional
Underwriting
Standards
Loan underwriting
is an art, not a mechanical
exercise,
and somestandards
that leadto rejecting
or varyingthe termsof a loan are subjective.
The Task Forceis not surprisedthatcitizengroupsor localgovernment
officials,not trainedas appraisers,
are criticalof the lender'sdeci
sions.
Even lendersmakedifferentjudgments
aboutthe acceptability
of

a specific
loanapplication.
The underwriting
decisionon an olderpropertyis oftenbasedon the len
der's judgmentaboutthe question:"Will or will not this applicant
maintain the house?" The decision is often based not on the present value

of the propertybut on the underwriter's
subjective
judgmentof the buyer's
motivation.The lendermay be hard pressedto justifyits decision,be
cause motivation is difficult to evaluate.
is a valid concern of the lender.

But, motivation of the buyer

Criteriasuch as "neighborhood
influences,"
"stability
of neighborhood
value," and "remaining economic life" are also vulnerable to criticism,

not only becausetheyare largelysubjective,
but becausetheyare based
on socialattitudesthathavechangedradically
in recentyears.
For example,Americanattitudes
havechangedperceptibly
on the following

factors
whicharedirectly
linked
to theunderwriting
criterion
of "neigh
borhoodstability:"
Racialintegration
Family size

The desirability
of existinghousingcomparedto new, becauseof cost,
location,
design,construction
qualityand estheticappealof older
dwellings
Restoration
and preservation
of historically
or architecturally
signi
ficantbuildings,
and the financialbackingof thisactivity.

414

As homeowner
attitudes
on thesefactorschange,theireffecton property
values changes also.

Most appraisal
testsdescribe
"healthy"neighborhoods
in termsof middle
classsuburbansettings.By contrast,
a neighborhood
witha mixtureof
kindsand sizesof houses,or one thatcontainsbothcommercial
or rental

property,
is putin an inferior
category.
Because
"healthy"
alsosuggests
relatively
new,theimplication
is clearthatanything
morethana gen

eration old is nearing the end of its "economic life." Furthermore,suburbs

havestreetwidthsthatmatchcontemporary
engineering
standards,
the
setbacksare uniform,and thereis architectural
samenessin the street
scape;anythinghavingotherqualitiesis not considered
standard. NO
one shouldbe surprised,
then,thatloanofficerssee old or mixed-use
neighborhoodsas unsuitable for "safe" loans.

Admittedly,
it is extremelydifficult
for an appraiser
to placea reasonably
accurate value on a house that is badly in need of repair, is scheduled
to be renovated with the loan proceeds, and is surrounded by other houses

in equallypoorconditionand with no prospects
for remodeling.
The Task Force finds that lenders in Pittsburgh, because of their commit

ment to the rejuvenation
of specificneighborhoods,
haveinstructed
appraisers
eitherto not use "remaining
economiclife"testsor to applythemin a
most flexible manner .

Loans are made on older houses built on 20-foot

lots--too
narrowto qualifyfor a buildingpermitunderPittsburgh's
current
zoningrules. As one lender told the Task Force "we determine a fair value
and make the loan."

The lender'sunderwriting
criteriashouldrecognize
the changesin attitude
and efforts to revive specific neighborhoodsin a way that assists the
process of change. The lenderalonecannotget the job done,but it should
work actively with others to bring about constructivechange.

TheRoleof FHA-InsuredLoanProgramsin Neighborhood
Decline
The TaskForcealsoconsidered
the chargevoicedby a Los Angelesofficial
that"studieshaveconfirmed
thatwhenFHA becomesthe only sourceof
financing, property values decline."
The Task Force, though it did not review any studies purporting to prove

thischargestatistically
and thoughit does not entirelyagreewith the
statement,
doesbelievethatFHA's"acceptable
risk"programs,
usedin
olderportions
of our citiessince1965,havecontributed
to the decline
of neighborhoods.
Prior to the late 1960s, FHA- insured loans were the only source of financ

ing in thousands
of city neighborhoods
containing
moderate-priced
houses.
The flow of fundsto theseneighborhoods,
basedon soundunderwriting
standards,
excellent
propertystandards,
and thoroughappraisals,
resulted
in appreciating
propertyvaluesthatequaledor betteredthe recordof
neighborhoods
withhigherpricedhousingthat,becauseof statutory
limits
on FHA loan amounts, were ineligible for FHA-insured loans.

415

However,Congressenactedseveral"acceptable
risk"FHA insurance
programs
in the 1960s.
Theseaimedat providing
homeownership
to personswho could
not meetthe traditional
underwriting
standards
of depository
institutions,
the Veterans Administration
, nor the "economic soundness" tests of previous
PHA programs.
At a Congress nal hearing in 1972, former Secretary of HUD, eorge Romney

testifiedthat"the substitution
of 'economic
soundness'
by 'acceptable
risk'thrustFHA into the inner-city
housingmarket... (in) an effortto
buck(deteriorating)
trends.
* Therewaswidespreadsentiment
at the time(1968)that homeownership.
..by

itself
couldreverse
advancing
decayandgrowing
social
andeconomic
problems,"
Romney told Congress,

TheseFHA programs,
principally
Section221(d)
(2) and 223(e)were designed
for neighborhoods in the "clearly declining" and "acceleratingdecline"
phase of deterioration. In these neighborhoods,the " economic soundness"

testsof conventional
lendersrequiredloan termsthatwere more conser
vative than normal.
Under the new FHA programs, however, loans were insured
with higher than normal loan-to-valueratios, lower credit standards and

longerthan normalterms(30 years).
The Societyof Real EstateAppraisers,
in its 1975 publication,
Inner-city
ValuationStudymade thisincisivestatement:
"Low incomefamilieswerealreadylivingin the community. The
result of the housing programs was to convert tenants of substandard
properties
into homeowners
of substandard
properties.In effect,
the Act assisted in the unloading of substandard property upon un
informed purchasers. Borderline credit was accepted. Thirty-year
loans were approved in communities with an economic life of 5 to 10
years.
.(and)assuredthe FHA a greatnumberof foreclosures
and
repossessions."

The FHA "acceptable
risk"programshad a devastating
effecton neighborhoods
in the "incipient
decline"typewheremoderate-priced
houseswereoccupied

byowners
whohadmetthemorestringent
"economic
soundness"
credit
tests.
For example,in a HUD circularFHA-400.2,
datedAugust1, 1968,the Section
223(e)programwas statedto have the following
purpose:
.to encourage
use of FHA mortgageinsurance
in older,declining
urbanareas,in orderto providehousingfor low and moderateincome
families and to contribute to the upgrading or stabilizationof such
areas.

The TaskForcefindsthat,althoughthe programfulfilled
the firstpurpose

andhasprovided
homeownership
opportunities
fortensof thousands
of urban
dwellers, the program failed to achieve the second when it was used in

neighborhoods
wherehomeowners
had previously
met higher,conventional
loan underwriting
standards.
The new FHA creditstandards,
permitting
a lowerdownpayment,
less employ
mentstability,
and a lowermonthlyincometo meet the same monthlymortgage
payment brought in buyers with less income than the sellers. This resulted
in a reduction in average neighborhoodincome--a clear indication of a
neighnahart

in decline.

416

Por these reasons, the Task Force finds it is inappropriateto lower credit

standards
andencourage
homeownership
by purchasers
whoareunable
to pay
the full economic costs involved.

Intervening
in the Processof Neighborhood
Change
The HUD booklet, The Dynamics
of Neighborhood
Change,describes
the process
of neighborhood
changeas beingcontinuous:

"the decisionof individuals
and groupsof people. .determines most
of what happens. Households in the neighborhooddecide to move out;

households
presently
lookingfor a housedecidenot to buy in that
neighborhood;bank officers decide not to loan money for that area;

owners
of apartment
houses
decide
to cutdownon maintenance
to keep
whattheyconsiderto be a reasonable
profit. In other words, it
is the decisions
that peoplemake--individually
or collectively--that
havethe criticalimpacton what happensto the buildings,
streets,
schoolsand parks...
"Manydecisions
are madeduringthe processof neighborhood
change,
by households,
building
owners,bankers,realestatebrokers,
school
boards.
Eachdecisionis made in responseto someeventor change
in circumstances.

That is the cause.

Once the decision

is made

it has consequences--theeffect.
A sequence, cause--decision--effect.
Of course, as the sequence progresses the effects become the causes

thattriggerthe nextdecision,
in a kindof chainreaction."
In thisprocess,the originof neighborhood
decline--the
initialdecision
thatbeginsthe process--is
not only impossible
to isolate,but relatively
unimportant. However, this scenario of change also implies that decisions
may be made to intervene in the process and arrest decline.

Understandably,
individual
lenders,realestatebrokers,publicofficials,
and even neighborhood
residents
are typically
reluctant
to intervene.

Nonefeelsresponsible
forthedecline.
Eachfeelspowerless
to haltit.
Acting alone, no lender, homeowner, broker, or appraiser can affect the
process.

Spending
vastsumsof moneywillnotbe successful,lif
it is

usedto attackonlyone partof the problem.Certainly,
the historyof
the federalurbanrenewalprogramand otherhousingprogramsthatfocus
on buildings is that public expendituresalone are not sufficient to arrest
neighborhooddecline.

The TaskForcebelievesthat the earlierintervention
strategies
are begun
in the processof neighborhood
decline,the morelikelytheyare to succeed.
The adage"an ounceof prevention
is wortha poundof cure"is extremely
relevant. The redlining
issueis mostexplosive
in neighborhoods
in the
Intervention
strategies should begin here,
"Incipient
Decline"category.
not in the "Accelerating
Decline"and "Abandoned"
neighborhoods
favored
by past federal urban renewal programs.

417

The Task Force believes a successful program must:
First, bring together all the intermediarieswhose decisions affect the
future of the neighborhood. Their views must be given an opportunity to
be heard and evaluated.

One writer, Roger s. Ahlbrandt, Jr., expressed it this way.
"Without a means of trading information,neighborhood deteriora

tion may becomea self-fulfilling
prophecyin neighborhoods
where
an earlyintervention
strategyof a comprehensive,
coordinated

nature
couldhavesucceeded
in preserving
an area.

It is un

fortunate,
but true,thatfinancialinstitutions,
Realtors,
appraisers,
residents
and neighborhood
insurance
companies,
city governments
often
all act
concerned.on poorto

mmation, and their actions

are then harmful

Second, a commitmentto the neighborhoodmust be made by lenders, local

government
officials,
appraisers,
realestate
brokers,
andtheresidents
who live there.

The commitment
by lendersshouldbe to providea flow of mortgagefunds
to buyers of houses in the neighborhoodand to present homeowners who seek
No single
All lenders must work together.
to rejuvenate their houses.
lender is willing, nor can afford, to be the only lender in a neighborhood.
The commitment to provide funds may be made in a variety of methods to
plans have

assure
theparticipation
of alllenders
in thearea.Many

evolvedas lendershave attempted
to respondto obviousneeds. This ex
perimentation
has producedmanyworthwhile
programsthatshouldbe con
tinued.

Thecommitment
by the localgovernment
shouldinclude:
Maintenanceor upgrading of those government support services that
improvethe livability
of a neighborhood.
These include schools,

crimeprevention,
streetmaintenance,
streetlighting,
garbagecol
lection,automobile
parkingfacilities,
publictransportation,
libraries and parks.

Accepting
responsibility
for coordinating
the effortsof homeowners,
realestatebrokers,
lenders,and othercity government
departments
to fulfill their commitments

to the program .

UsingfederalCommunity
Development
fundsunderspecialrevenuesharing
in ways thatrestoreand maintainthe socialand economicvitality
of the community.

Enactingand/orenforcing
a workablebuilding
code thatguarantees
buyerssafeand sanitaryhousing,but does not imposeneedlessre

habilitation
thatresults
in raising
thepriceof housing
beyond
the
reachof typicalresidents
of the neighborhood.

Roger
s.Ahlbrandt,
Jr.,
TheMortgageBanker,
March,
1976,
p.16.

88-032 0.77

- 28

418

Thecommitment
by professional
appraisers
shouldbe flexible
enough
to
ensure
thatthevalueassigned
to properties
forlending
purposes
reflects
the commitment
of the otherparticipants
to the neighborhood.

Thecommitmentby
realestate
brokers
should
include
wholehearted
compliance
withthespirit
of thefederalor
local
government
lawsthatforbid
racial
steering,
blockbusting,
fright-inducing
door-to-door
solicitations,
and
similarpractices
thatethicalrealestatebrokershaverepeatedly
repudiated.
The commitmentbylocalresidents
to theirneighborhood
shouldbe evidenced

by a formal,
active
community
orhomeowner's
organization
dedicated
to
maintaining
the desirability
of the communityas a placeto live. Neighbor
hoodgroupshavean essential
role to play. When theyare comprised
of
localresidents
who show interestand enthusiasm,
localgovernments
and
lendersshouldworkwith them in a positiveway.
Neighborhood
organizations
haveevolvedon a grassrootsbasisin almostevery
majorcity. They need the coordination
providedby cityofficialsand
the cooperation
of othergroupsto succeed.
Code Enforcement--A
Controversial
Intervention
Strategy
The TaskForcefindsthatenforcement
of buildingcodeshas sometimes
assistedthe recoveryof neighborhoods,
but has at timeshastenedtheir
decline. If property
ownersbelievethey willrecoverrepaircostsfrom

increased
rentsor highersalesprice,thenstrictenforcement
of codes
assistsa neighborhood.
If propertyownerscome to the oppositeconclu
sion,code enforcement
increases
abandonment
and furthersneighborhood
decline.

Code enforcement
worksbestwhen it is one elementin an overallneigh
borhood interventionstrategy. It provides the legal backing that is

neededto imposethe community's
desirefor propertyupkeepuponeach
individual owner.

Enforcing
codesin a neighborhood
of olderhouses
meanscostly
repairs.
In a neighborhoodof moderate-pricedhouses, many property owners are often
unable to take on additional debt obligations. This suggests that any
comprehensivestrategy to assist a neighborhoodshould provide home im

provement
loansat low interestratesto homeowners
who cannotafford
market rates.

The FederalRolein Intervention
Strategies
Federal government'srole in interventionstrategies requires that its

policies:
Be flexible enough to allow for variations in different cities to
respond to different needs,

Provideassistance
in restoring
properties
to goodcondition,
and
Subsidize
on a one-time,
front-end
basis,with no continuing
liability,
either direct or contingent.

419

Flexibility.
The Task Forcenotesthatsuccessful
intervention
strategies
in use acrossthe countryvarywidelyto reflectuniquelocalproblems
and the solutions
workedout by the localcommunity.The Task Force
believesthisis appropriate
and shouldbe encouraged.
Pederalexpenditures
are alwaysa welcomeadditionto localresources,
but theirimpactis likelyto be mostsuccessful
when usedto assista
local interventionstrategy. The Task Force believes that the Community

Development
blockgrantsofferthe bestmechanism
yet developed
to achieve
this goal.
For example,a communityplanmightdetermine
that new neighborhood
com
mercialbuildings
are badlyneededas partof an intervention
strategy.
Federalfundswouldbe helpfulto assistthe acquisition
and construction
costs.

ProvideAssistance
to Rehabilitate
Existing
Structures.As noted earlier,

rehabilitation
ofolderhouses
oftencarries
a pricetaghigher
than
moderate-income
propertyownerscan afford. In manycasesinvolving
these
owners,the onlychoicesare to subsidizethe cost of improvements
or allow
the structures
to continuedeteriorating.
Subsidiesfor thispurposeshouldbe usedonly in neighborhoods
with com
prehensive
restoration
strategies.There are not enough funds available
to meet the totalneedfor restoration
of olderbuildings.Therefore,

subsidies
should
be directed
to neighborhoods
thathavemadethenecessary
commitments.Subsidydollarsalonewill not be helpfulin the long run.
The TaskForcenotesthat pastfederalsubsidyprogramshaveemphasized
construction
of new or substantially
rehabilitated
housing:Section235
program,GAMA tandemplans,Section202 (elderly)projectloans,and Section
236 apartments. The TaskForcebelieves
that housingfor low-and moderate
incomefamiliescan be obtainedat considerably
lesscost per unitthrough
subsidized
remodeling
loans. The loan amount will be less, and the ex
posureto loss will be dramatically
less than buildingnew units.
One-Time Subsidies. Interventionstrategies based on Federal programs

involving
long-term
paymentof subsidies
shouldbe weighedcarefully
becausethe budgetimpactis largeand the life of the subsidyprogram
is too uncertain
to supportcontinuing
neighborhood
and city programs.
For example,the Section235 programwas usedin some citiesto finance
substantial rehabilitationof older houses in declining neighborhoods.
The finished units sold for approximately$20,000 and mortgage payments
were subsidized down to 1 percent. This substantial reduction of monthly

paymentspermitted
personswith incomeas low as $8,000to $10,000to buy
housingthat,withoutthe subsidy,wouldhaverequireda considerably
higherincome. Other houses in the neighborhoodtypically had not been
rehabilitated,
and were valuedat $10,000to $15,000. Owners of these
unitshad incomescomparable
to the purchasers
usingSection235.

420

In its earlyyears,when the ownersof the rehabilitated
housessold the

units,
thesubsidy
continued
if thenewowner's
income
didnotexceed
the
allowable
limit.

Aftertheprogram
wassuspended
in 1973,however,
thesubsidy
stopped
when

the propertywas sold on termsrequiring
a new mortgage.This reduced the
valueof the property
substantially
sincepersonswith the averageincome
of thoselivingin the areacouldnot affordto make the monthlypayment
on a $20,000 mortgage, and higher income buyers were unlikely to move

into the neighborhood.
Facedwith a substantial
losson the saleof the house,the typicalseller
permitted
the lenderto foreclose,
and HUD took possession
of the property,
laterreselling
it at its reducedunsubsidized
value.
The TaskForcebelievesthis is an expensive,
administratively
complicated
method to rehabilitate houses.
A far less expensive method would be to sell the rehabilitatedunit for

a below-cost
figureof $12,000to $15,000--a
pricebuyerscouldafford
to pay--and pay the federal subsidy in a lump sum when the house is sold
to the first owner .

The TaskForcenotesthatsubsidies
havealwaysbeenin shortsupplyin

thepast,andthatcities
should
assume
thatprograms
requiring
continuing
appropriations
will ultimately
fail.
TheNationalNHS Program--An
Intervention
Strategy
One highly-regarded
intervention
strategyis guidedby the UrbanReinvest
ment Task Force (URTF), a joint effort of HUD and four federal financial
regulatory agencies. More than 25 communities have formed a "Neighborhood

Housing
Service"
underthisprogram
, andothers
arein theplanning
stage.
Neighborhoods
chosengenerally
are in the "Incipient
Decline"or "clearly
Declining" stages, as described above. The housing stock is basically

sound,but showingsignsof deterioration.
Owner-occupied
housespredominate.
To be eligiblefor assistance
by the URTF,neighborhood
residents
must
demonstrate
thatthey want to preservetheirneighborhood
and improvetheir
homes.

Residents must commit themselves to making the program work.

Components
of a Neighborhood
HousingService.As statedin the application
procedure
published
by the URTF,the mostimportant
components
of a Neighbor
hood HousingServiceare:
TheNAS organization
itself. It is a private,nonprofit
corporation,

whoseboardof directors
arepredominately
community
residents,
but
with significant representationfrom financial institutions. A staff,

typically
threepersons,
carriesout the NHS work of financial
counsel
ing,assistance
withrehabilitation
specifications
and bids,monitoring
of contractors,
administration
of revolving
loan fund and maintaining
liaisonwithcity agenciesand financial
institutions.

421
Financialinstitutions
that agreeto investin the neighborhood
by
makingloansat marketratesto all homeovners
who meetnormalcredit
standards. The financial institutions(and other local businesses)

normally
contribute
to theNHSto meetitsoperating
costs.
A "high-risk"
revolvingfundfor makingloansat flexibleratesand
who do not meet normal credit standards.
Capital
for theserevolving
fundshas beencontributed
by foundations
and
localcorporations
in past yearsthough,increasingly,
localgovern
mentshave usedcommunity
development
blockgrantfundsfor this
terms to residents

purpose.

A localgovernmentthat
agreesto reinvestin the neighborhood
by
makingnecessary
improvements
in publicamenities
and by conducting

an appropriate
housing
codecompliance
program
coordinated
withNHS
activities.

Pittsburgh's
Neighborhood
HousingService(NHS)--An
Exampleof a Successful
InterventionProgram

Although,
the Neighborhood
HousingServiceprogramsin somecitieshave
not yet demonstrated
greatsuccess,the TaskForcefindsthe NHS operating
in Pittsburgh
Pennsylvania,
to be an excellent
exampleof a coordinated
programthatshowsgreatpromiseof arresting
and reversing
neighborhood
decline.
Functions of the NHS. According to Thomas A. Jones, Pittsburgh's NHS

executive
director,
the mostimportant
functions
of the NHS havebeen:

Generating
objective
discussion
abouttheNHSneighborhood's
problems,
Providing
the mechanism
for all interested
participants
to reachjoint
decisions about actions to take and working together to implement
them.

The Pittsburgh
NHS was not "installed"
ready-made,
but evolvedovera two
year period, beginning in the mid-1960's. At that time several neighborhood

programswereoperating
in Pittsburgh
withfinancing
assistance
froma variety
of Federal and local government sources. These programs concentrated

different
issues,dependinguponthe needsof the community.

In theneighborhood
served
by whatis nowknownas theNHS,theprogram
focusedon maintaining
an on-goingmarketin existinghousingfor moderate
income residents. This decisionwas not imposedby the professional
staff,
but developed by the neighborhoodresidents. However, the staff assisted

thisprocessby first,arousinginterestamongthe residents
to working
together to improve their neighborhood. Next, the staff helped form "block

clubs"comprised
of localresidents,
providing
a mechanism
thatcouldbe
usedfor a jointeffort.Afterthe blockclubsdeveloped
"wantlists,"the

staffthenassisted
in forming
committees
to workon themostimportant
issues.

422

One comitteefocusedon the absenceof financing
for the rehabilitation
The houses were old and lacked modern
of the housesin the neighborhood.
kitchenand bathroomfacilities.Many unitswere in violation
of one or
more provisions
of the city'sbuildingcode.Typically,
lenderswere un
willingto makeloansin the neighborhood.
The deterioration
was almostuniversal
and eachlenderfelt the riskof
an individual loan was great. In addition,
many residents
livingin housing

that neededrehabilitation
were unwilling
to incurthe expensebecause
theycouldnot meet the market-rate
repayment
schedules
on theirlimited
incomes;they neededsubsidized
loans.
In addressing
theseproblems,
the committee,
with the assistance
of the
professional
staff,met withcity officials
and withlenders.

Reaching
a jointdecision.
For example,the committeeworkedwith the
citygovernment
to decide
whichpartsof thebuilding
codeshouldbe enforced
rigidly,whichpartsshouldbe enforcedflexibly.
The processwas slow becausethe residents
did not thoroughly
understand
The
the codeor the implications
of enforcement
versusnon-enforcement.
(and thishad beenthe city
NAS staff'spositionwas that no enforcement
to the razingof neighborhoods.
policyfor the most part)led ultimately
Agencyand was
This had occurredmany timesunderthe UrbanRedevelopment
acceptedas fact by residents
and the city government.To avoid razing
of houses,codeshad to be enforcedon some basis.
However,bothcityofficials
and neighborhood
residents
were determined
not to permitthe code enforcement
programto forceout poor peopleunable
to affordthe costof compliance.PreviousUrbanRenewalprojectsin that
city had beeninsensitive
to the socialproblemscausedby displacement
of local residents and everyone was determined to find a better solution.

When a detailedprogramwas workedout,its implementation
was relatively

simple
because
allparticipants
understood
andagreed
withitspurpose.
Thecommittee
alsoworked
withthecity's
lending
institutions
to agree
on a lendingprogramthatwouldmeetthe needsof the neighborhood
residents
and the lenders'regulatory
requirements
for prudentunderwriting.
The lendersformeda committee
also,believing
that the programdeveloped
shouldbe usedby all lenders,not one or two.
NAS Today. Ultimately,
the Neighborhood
HousingServicewas formedwith
the lenderscontributing
fundsto pay its operating
costs.
Fundsfor homerepairloansare obtainedfromcapitalgiftsfrom corpora
tionsand foundations,
the city'sFederalCommunity
Development
funds-

usedto establish
a special
low-interest
raterevolving
loanfund--,
and,
finally,HUD'sSection312 program--including
directfederalhomeimprovement
loans at 3 percent interest.

423

Loans may be made directly by a lender without NHS staff involvement.
Generally, however, the staff pre-approves the case and refers it to a
lender.

The entirerehabilitation
and financing
transaction
is difficult
for the
borrowerto understand
and the NHS fillsa vitalrole representing
the
homeownerwith the city,the contractor,
and with the lender.
Financingthesale of Properties.AlthoughFHA and VA financing
are used
in many cases,the NHS staffwouldobjectstrenuously
to lendersif no
conventional
loanswere made. According to Mr. Jones:
Termsof conventional
loansare moreflexible.FHA's rules are more
rigid,especially
on propertyrequirements.Unusual conditions are
rarely acceptable.

The minimumdownpayment
on FHA and VA loansreduceshomeowner
equity
and providesless motivation
to care for the property.
Sellers balk at FHA -VA financing because of the discount points they
must pay .

The Need to identify Neighborhoods

The messageof today'surbanneighborhood
groupsappearsto be:

"We don't

want our bank to make unsound loans and lose our savings, but we want the

reasonsfor rejection
to be basedon criteriathat fit today'ssociety."
The findingsof the TaskForcestronglyindicatethat the balanced
approachthisstatement
impliespoirtstowarda needto identifyneighborhoods
that can be saved.

This mustbe done in cooperation
withall partiesand a full sharingof
the reasonsfor the decision.Accordingly,
the Task Forcebelievesthat
resolvingthe redlining
issuewill requirecontinuing
objective
analysis
of the physical,
economic,
and socialcharacteristics
of neighborhoods
to evaluatewhetheror not soundloanscan be made in each particular
area.
In mostcitiestoday,no formalstudyhas beenmade. Instead,decisions
to lend or not to lend in an area are based on limited facts and each

lender'sinability--acting
alone--to
influence
the overallneighborhood
environment.

Although
lenders
should
be involved
in theanalysis
process,

othersshouldbe included.The localgovernment
and neighborhood
groups
cannot be expected to agree with the results unless they participatein
the work .

Neighborhood
boundaries
are alreadywell-established
in mostcitiesas
partof the planningprocess.Censustractsusuallyconformto neighbor
hood boundaries
and CensusBureaureportsprovidemanystatistics
that
couldbe usefulin such an analysis.

424
TheTaskForceurgesthatgreater
publicity
be givento neighborhood
trends
in salesprices,trendsin occupancy
by ownersvs. renters,levelsof
maintenance
and upkeep,adequacyof municipal
services,
crimerates(es
peciallystreetcrimeand othercrimesof violence),
and similarunderwriting
criteria. This willhelp prospective
borrowers
understand
why one area
is favoredand anotheris disadvantaged.
The TaskForcebelieveslenderscan assistpublicunderstanding
of their
positionby publicizing
the marketdemandfor loansand the reasonswhy
loansare rejected.Althoughthe HomeMortgageDisclosure
Act requires
reportsof loansmade in each neighborhood,
the numberof applications
(demand)and rejections
are not partof the report,thoughtheyare equally
important
in evaluating
lenders'performance.
The TaskForcenotesthat
the EqualCreditOpportunity
Act requireslendersto provideeach rejected

applicant
withthespecific
reason
forrejection.
Thus,it should
be
relatively
simple
to provide
aggregate
statistics.
The TaskForcebelievesthatthe bestlong-term
methodlenderscan use
to provetheyare not rejecting
loansin a neighborhood
for discriminatory
reasons--i.e.,
redlining--is
to publicize
theirunderwriting
standards,

thefactsabouta neighborhood
thatmakeit ineligible
forloans,
andthe
reasonswhy individual
applicants
(in aggregate)
are rejected.
It is essential
thatall lendersin a community
havethe information
and
neighborhood
supportnecessary
to makea publiccommitment
to lend or not
to lend in a given area. If loanscan be madein a neighborhood
on a sound
basis, then all lenders should be prepared to make them. However, if the
facts support a decision that loans cannot be made on a sound economic

basis,then--and
only then--isit appropriate
to rejectloanson the basis
of the neighborhood's
condition.
If lendersadoptsuch a strategyand publiclyadvisethe community
of their
reasons--especially
if theydo so as a group--the
TaskForcebelievesthe
issue of redlining will be replaced by constructiveefforts between lenders,

localresidents,
and localgovernments
to work togetherto removethe con
ditionsin the neighborhood
thatproducedunacceptability.
If such a commit
mentfrom all partiesis lacking,long-term
rehabilitation
of a neighborhood
is unlikelyunderany circumstances.
Changesin attitudeare an important
partof the neighborhood
rehabilita
tion process,
and thiscan occuronly by workingtogethertowarda common
objective,
not throughnew laws,subsidies,
and courtinjunctions.

425

..The
National
GenoBaroni,
President

Centerfor

An Independent,
Non-profitOrganization

UrbanEthnic
Affairs
152116THSTREET,N.W.

WASHINGTON,D.C.

20036

AreaCode202/232-3600

April4, 1977
Senator WilliamProxmire
Chairman

Senate Banking Committee
5300 New Senate Office Building
Washington, D.C.
Dear Senator Proxmire and Members of the Senate Banking Committee:

The NationalCenterfor UrbanEthnicAffairssupportsthe CommunityReinvest
ment Act of 1977(S.406)whichif passed,will provideregulatory
incentives
to
meet neighborhood
creditneedsby lendinginstitutions.We are pleased with
developingfederallegislation
addressing
the concernsof reinvestment
in the
neighborhoods.

One of the moreimportant
aspectsof S.406is that nothingnew is requested
from financial regulatory agencies. This authorizationwould permit review of
lending policies and practices of private institutions prior to their merging,

openinga branch
office,
relocating
thehomeoffices
andestablishing
bank
holding companies.This bill, in effect, focuses on how to best use this
authorization
to ensurethat the local(currentand proposed)
creditneeds
both are being met. Whilethe Community
Reinvestment
Act of 1977 attemptsto
focus on investment
patternsin neighborhoods
and is complementary
to the Home
MortgageDisclosure
Act of 1975,still,theseare someweaknesseto bill S.406.
First,the bill is restricted
to effectonly thoselendinginstitutions
which undertake
activities
specifiedin the bill(mergers,branching,
reloca
tion, etc.). Those which do not choose any of these activities will not be

affectedby the Community
Reinvestment
Act of 1977. A mechanism should be
providedto checkthesebanksand S & Ls for theirrecordof meetinglocalcredit
needs as well.
Perhapsa reviewof thesepractices
can be includedin bank
examinations.

Secondly,the bill callsfor the lendinginstitutions
to determine
the
" local credit needs" and how to plan to meet them. We would suggest that stronger

languageand examplesbe includedto identifycommunityparticipation
in this
Thereis onlyone sectionin the billwhichdirectlyaddressesthe

process.

consumer role and which is through the traditional channel of public testimony.

Whilethismay be sufficient
in some cases,the Center'sexperience
withneigh
borhood organizationsis that there is often times disagreementbetween con

and lendingrepresentatives
on:
what are the local credit needs?

426

what are the possibleways of meetingtheseneeds?
whatare the definitions
of the primaryserviceareas?
what are the criteria for credit-worthiness?

Withoutcommunity
inputfrom the beginning,
thereis no guaranteethata

report
on thecredit
needsprepared
by a lending
institution
willbe sensitive
to the varyingneedsof an urbanneighborhood.
Provisions of this bill should

offerincentives
to lending
institutions
to prepare'tredit
needsreports"
and

proposals
for actionin conjunction
with localorganized
efforts.If we are all
in agreementthatsuccessful
neighborhood
reinvestment
effortsrequireactivity
of the public,privateand community
sectors,thenit makessensefor the bill
to outlinein greaterdetail,the roleof community
and neighborhood
groups.
The earlierHomeMortgageDisclosure
Act is a steppingstoneto this three
sectorprocessof workingtowardreinvestment.
The proposedCommunity
Reinvestment

Act,if strengthened,
canprovide
stillanother
vitalpartof theefforts
to re
vitalizeour nation'suncleanneighborhoods.
As additional
background
and supportinformation
to S. 406,we are entering
the draftof a Center'spublication,
"Neighborhood
Reinvestment:A Citizen's
11

Compendium for Programs and Strategies.' This covers a variety of efforts to

establish
reinvestment
programsthroughout
the countrywith particular
attention
paid to the involvement of community groups. We hope this informationis of

If we can be of furtherassistance
to you in the development
of
S. 406 or otherreinvestment
initiatives,
pleasedo not hesitateto notifyus.
use to you.

Sincerely,

Teholt

Robert

J./Corletta

President

Selling
Karen

Kollias

Director, Disclosure and ReinvestmentProject

RJC :KJK :1mm

Encl.

427

LEGISLATURE OF MICHIGAN

TULO

WASHINGTON

OFFICE

444NorthCapitol
Street,
Suite214
Washington,
D.C.20001
202/624-5490

March 22, 1977

The HonorableWilliamProxmire,Chairman

SenateCommittee
on Banking,
Housing
andUrbanAffairs
5300 DirksenSenateOfficeBuilding
Washington,D. C. 20510
Dear Mr. Chairman:

We in theMichigan
Legislature
havebeencarefully
researching
waysto
dealwiththeeconomic
crisis
in ourcities.We havestudied
thephenomenon
of urbandisinvestment
andaredeveloping
legislation
at thestatelevelto
promote
neighborhood
conservation
and tocombat
theproblems
of insurance
and mortgageredlining,
unemployment
and crime.

Michigan,
alongwitheveryotherstate,
needshelpin theformof

federal
legislation.
Byourselves,
we lack
thepower
tosuccessfully
attacksucha severe,broad
andall-encompassing
issue.It ismy under
standing
thatat theStateStrategiesforHousing
Conference
in Chicago,
February
25-27,1977,
Mr.Kenneth
McLean,
StaffDirector
fortheU.S.Senate
Banking,
Housing
andUrbanAffairs
Committee,
emphasized
thatstate
government
resources
areinadequate
to meettheneedsof urbanreinvestment.
I couldn'tagreemore!

We welcomed
theNational
HomeMortgage
Disclosure
Actof 1975asa
firststepin arresting
thedecayof neighborhoods--but
it is onlya first
step. We must not onlystop the flow of capitalout of cities,butmust

encourage
capital
to flowintoourcities.

Disinvestment
causes
theoppressive
conditions
ofhighunemployment,

highcrimeandabandoned
housing
in urbanareas.It

causes the loss of

business,
industry
andretailing
fromcenter
cities
andneighborhoods.
Detroit
isincritical
condition.
Thecities
of Flint,
Grand
Rapids,
Saginaw,

Lansing,
Kalamazoo
andBattle
Creekarein serious
condition.
Regulated

financial
institutions
havea continuingand
affirmative
obligation
to
help meet the creditneedsof the communities
whichtheyare chartered
to

serve.Therefore
I strongly
urgepassage
of S. 406,theCommunity
Reinvestment
Actof 1977,withamendments
recommended
by National
People's
Action.With
theseamendments,
S. 406canprovide
a basison whichto buildsuccessful
stateprograms
to revitalize
ourdyingcities
Sincerely,

BollyAli

Bobby D. Crim

Speakerof the Houseof Representatives

428
NATIONALASSOCIATIONOF REALTORS,

Washington,
D.C.,
April7,1977.
Hon. WILLIAMPROXMIRE,

Chairman,
Committee
onBanking,
Housing
and UrbanAffairs,
Dirksen
Senate
Office
Building,
Washington,D.C.

DEAR MR.CHAIRMAN:At thedirectionofthe
Realtors®
Legislative
Committee,

I submit
thefollowing
comments
concerning
S.406,
“ TheCommunity
Reinvest
ment Act of1977”,
and ask thattheybemadepart of thehearing
record.
The NationalAssociation
of Realtors®
sharesthe concernfor community
reinvestmentwhich is the basisfor S.406.We have long voicedour alarm over

theincreased
deterioration
of our cities,
with untoldnumbersof structurally
soundexisting
housingunitsgoingunder-utilized,
denyingadequate
shelter
for
millions
ofunderhoused
Americans,
whileevermorecostly
new housingis
being
builtelsewhere.
In the very near future,
thisAssociation
willpresent
the
public,
and the Congresswithitsdetailed
proposal
for revitalizing
ourcities
and communities.

While we sharethisgeneral
concernwiththephilosophy
behindS.406,
we
must,however,
stateouropposition,
on bothphilosophicalandoperatinggroun
fortheapproachrequiredbythisbill:

1. TheCongresshas
decreed
that,
forthesafety
ofthepublic,
thatdeposi
toryinstitutions
must be regulated
in termsofentry,
(and sometimes
exit),
in
surance,
branching,
and similar
matters.
That is,unlikenon-regulated
indus

tries,
theusual
hallmarks
required
by economic
theory
regarding
competition
areabsent,
but,
absent
because
ofgovernment
regulation.
To now requirean

institutionwhich
petitions
fortherequired
governmental
action
on a requested
depositfacility,
to undergoadditional
requirements
is akin to a Catch-22
proposition.
2. As expoundedin the statement
introducing
S.406 on January24,the
regulatory
agencyreviewwhich would be required
is likenedto thecurrent
FCC reviewof radioand TV license
applications
and renewals.
We feel
that
thisisa fallacious
economic
theory,
akintocomparing
apples
and oranges.
The

airwaves
area public
resource,ownedand
licensedas
a monopoly
bythe
Federalgovernmentfor the publicgood.By contrast,
a basicrationale
for

government
involvement
withfinancial
institutions
istheprotection
ofdeposi
tors'
funds.

3. The veryphilosophy
underlying
S.406seemstobeatoddswiththeconcept
of encouraging
mobility
of capital.
In themortgagemarket,
in particular,
this

isofcrucialimportance,
asitsinstitutions
andinstruments
areless"sophist

cated”thanin otherfinancial
markets.
The Congress
created
FNMA, FHLMC,

and GNMAspecificallyto
enhancethe
mobility
ofmortgage
funds.
S.406miti
gatesagainstthatmobility.

4. Whileweareawarethatthepresentbilldoesnotrequiremandat
allocation,
nevertheless,
wearefearfulthatif
S.406wereenacted,
thenextstep
wouldbesucharequirement.
Ourcurrentsystemofspecializedthriftin
serves
thecredit
needsofourvarious
housing
markets
quite
well.
To further

refine
suchallocationon
thebasis
ofspecific
localities
isboth
unnecessaryan

inimicaltothebasic
systemoffreeenterprise.

5.Implementationof
S.406couldwellnecessitate
increased
costs
forthese
institutions,
resulting
in lowerreturns
fordepositors
and stockholders,
whoare

alsoconsumers.
Itisunfairtoimposeononeclassofsocietytheallege
enjoyedtheentirepopulation.

6.Creditisnotaright,asimpliedin
S.406,butaprivilege.
Under
S.406,the

institutionisassumed
guiltyofnotmeetingthe
(non-defined)
creditneedsofit

(ill-defined)
communityandthenaskedtobearthe
burden
ofprovingitsinn
cence.

7.No provision
ismadeforfailing
institutions.
Currently,
when a financial

institutionis
indanger
offailing,theregulatoryagenciesgener
thatinstitutionto
beinvestigated
oracquiredbya
strongerone,
thuspreservi
theexistingfacilitiesforits
currentsaversandcustomers,
yetS.404,makin
noprovisionforthis,wouldobviouslybothdiscouragestrongeri
agreeingtosuch
takeovers,andindefinitelydelaytheacquisit
therebydepri
ingthecommunityoffinancialservices.

429
As statedabove,whilethisAssociation
sharestheconcern
forthe problems

whichprompted
S.406,
we feel
thatthisbill
approachesthe
matter
ina nega
tiveratherthana positive
manner.For example,
as an alternative,
we suggest,
to encourage
communityinvestment,
thatthe"shared-risk”
proposal
ofFederal
coinsurancebe seriously
considered,
and alsothat "Mortgage Review Boards”

with a pooledhigh
riskfundcould
bea possibility.
Buttospecifythat
Federally
charteredor insuredfinancial
institutions
must carrythe burden of what should

be an overall
communityrevitalization
and reinvestment
programis,in our
opinion,grosslyinequitable.

We appreciate
theopportunity
tocommenton S.406,andlookforward
to
presenting
youwithourdetailed
proopsals
on revitalizing
thecities
shortly.
Thankyou.

Sincerely,
ALBERT E. ABRAHAMS,

Staff
VicePresident,
Government
Affairs.