The ICRC conducted 115 interviews of lending institutions,
advocacy groups/city officials, regulatory agencies, real estate
representatives, insurance agencies and appraisal companies during
the months of June and July of 1996. The semi-structured interviews
had three purposes: (1) to overview the mortgage lending industry
from the perspective of the interviewee, (2) to ascertain community
views and issues regarding minority home ownership, and (3) to
determine what efforts or programs, if any, were in progress to
promote minority home ownership.
The following are some of the issues and programs as related
to the ICRC via the interviews.
Lending institutions:
Cedar Rapids. The lenders who were interviewed stated the criteria they use to evaluate loan applications is made up of several different factors. Some of the factors the lenders look at are the applicant's income, stability of income, employment history, creditworthiness, source of down payment and the appraisal of the home. The main reasons given by the lenders for applicants being rejected were a bad credit history and the lack of down payment resources. Some of the lenders did say they had in place a second look policy to review rejected loan applications. One lender said they would look at mitigating factors such as length of time on the job and the savings pattern of the applicant in order to try to approve the applicant. Another lender stated they were there to give total counseling to applicants concerning their applications. The best way, according to one lender, to be approved for a loan was to pay all bills, have a good credit history and to have a steady income. The discretion the loan officer has in approving or denying loans varies upon the lending institution, with most of the institutions interviewed stating their loan officers do not have any discretion as the loan applications are sent on to underwriters for final decision making. One lender stated their senior loan officers do make the final decision on the applications submitted, basing their decision upon the underwriting guidelines in place. All of the lenders said they had Community Reinvestment Act (CRA) programs.
Council Bluffs. The lenders who were interviewed stated the criteria they use to evaluate loan applications is made up of several different factors. Some of the factors taken into consideration are employment, employment stability, funds for the down payment, income-to-debt ratios, credit history and home value. One lender stated their institution followed the Fannie Mae guidelines in evaluating loan applicants. The main reason given by lenders for applicants being denied loans was due to credit problems, with a secondary problem being an insufficient down payment. When the lenders were asked what an applicant could do to become a more attractive candidate, one lender responded the applicants need to improve their debt-to-income ratios. One lender expressed the concern lenders in Council Bluffs were not reaching out to minority borrowers. Several lenders believed another problem was the lack of education on the borrower's part. These lenders believed the borrowers were intimidated by the loan process and the image of the banker. According to the lenders, the borrowers need to be educated on the importance of their credit history, the consequences of late pays and overall debt management. Several of the lenders stated they did have second look policies in place to review denied loan applications. Several of the lenders also discussed programs in the Council Bluffs area to help low income buyers purchase homes, including a city program providing a forgivable grant.
Davenport. The lenders who were interviewed stated the criteria they use to evaluate loan applications is made up of several different factors. Some of the factors taken into consideration are the stability of employment, stability of income, the ability to save, credit history, the amount of money the borrower has and what the borrower has been paying for housing. Some of the lenders stated they follow the secondary market guidelines when evaluating a loan application. The lenders conveyed the basic reason for an application being denied was due to past credit problems. A few of the lenders stated they try to counsel the borrowers on how to become a better loan candidate, with the most common advice being given on how to clean up or improve the borrower's credit. Most of the lenders stated they did have a second look policy in place to review the loan applicants who were denied. One lender told of how they worked with an automated underwriting system linked to a Freddie Mac computer simulation that makes a determination as to usage and based on what level of approval they give a loan, then an originator has the discretion to make the loan approval. Another lender suggested advertisements be placed to encourage potential borrowers to meet with lenders well in advance in order to be better prepared to submit an application.
Des Moines. The lenders who were interviewed stated the criteria they use to evaluate loan applications is made up of several different factors. The factors these lenders look at include creditworthiness, collateral value and the income-to- debt relationship. Some of the lenders stated they follow secondary market guidelines in order to evaluate loan applications, such as the Fannie Mae guidelines. One lender stated they will expand the ratios and soften the credit requirements suggested by the Fannie Mae guidelines in order to qualify borrowers. Another lender stated their loan officers do not approve loans, as all of their loan applications are sent on to underwriters for approval or denial. However, this lender did say their loan officers would not forward an application if the loan officer knows it will not be approved so as to save the applicant the cost of the fees involved with the application. A different lender asserted loan officers who are paid by commission will not work as hard for borrowers on lower priced houses. The main reason for rejection of loan applications is a poor credit history according to the lenders spoken to. One lender stated they try to assess the credit of an applicant as soon as possible so they are able to establish the documentation needed to support the application. Another lender stated they will work with an applicant to stabilize their income and set priorities. A different lender stated they have worked with others in the community on home buyer training courses. Several of the lenders believed borrowers needed to be better educated about the banking system so they will know what the bank is looking for and why. By being better educated these lenders believe the borrowers will not be intimidated by the banking system.
Dubuque. The lenders who were interviewed stated they follow the criteria set out in the secondary market, specifically the Fannie Mae and Freddie Mac guidelines, when evaluating loan applications. One lender stated they will look at whether the borrower has the income to support the payments and the property must appraise at or above the sales price. A different lender stated they had limited discretion in their loan making-process because state and federal examiners were always checking to make sure this lender was not being too discretionary in their process. Another lender stated their vice president makes their loan decisions and if there is anything questionable the loan is then referred to the credit committee. One lender spoke of a state-sponsored program designating two areas in Dubuque as targeted areas where the state would like to see growth come into and pride of ownership. This lender stated by purchasing homes in one of these two areas, the borrower would receive benefits from the state. Several of the lenders cited the biggest reasons for applications being denied were the lack of down payment and problems with the borrower's credit. One lender stated they will advise the borrower how to become a more attractive loan candidate. Another lender stated they had a second look policy for applications which were denied.
Iowa City. The lenders who were interviewed stated the criteria they use to evaluate loan applications is made up of several different factors. Some of the factors the lenders consider are income, income to debt, employment stability, capacity to repay the loan and credit history. Several of the lenders stated the discretion their loan officers have in approving or denying a loan was dependent upon whether the loan was to be sold on the secondary market or kept in-house. One lender stated if the loan were to be kept in-house their loan officer would be able to approve it. Two of the lenders stated their loan officers have limited discretion in approving loans as these lenders had loan committees which met once a week to review loan applications. Several of the lenders also stated more exceptions to their lending guidelines are made for loans kept in-house. One lender stated for their in-house loans they would not fix the rate for a period longer than five years. Another lender commented their approach to making loans was to ask the borrower questions, probing for information to determine the best route and loan product for the borrower. The reasons for borrowers being denied loans, according to the lenders interviewed, were the lack of down payment, insufficient income, too much debt and a bad credit history. One lender stated the most important thing for borrowers to do is control their debt. Another lender stated a real estate company, along with four or five financial institutions, has held home buyer seminars in the community. Several of the lenders do have a second look policy for loan applications which were denied.
Sioux City. The lenders who were interviewed stated the criteria they use to evaluate loan applications is made up of several different factors. Some of the factors the lenders look at are income to debt, credit history, down payment amount and collateral. One lender stated for the loans they sell on the secondary market, they will use the underwriting guidelines of the investor. This lender commented their loan officers do have the discretion to deny a loan if the loan officer knows the loan does not fit into the investor's guidelines. Also this lender stated they had a "chop" loan for lower income applicants which allows for lower down payments and fixed rates. Another lender stated for their in-house loans they have a limit, otherwise they deal with the investor. The reasons given by the lenders interviewed for a borrower to be turned down for a loan were for a lack of cash for a down payment and credit problems. One lender stated they are willing to look at mitigating circumstances as they have greater discretion for loans which will be kept in-house. This lender has a second look policy allowing them to explore other avenues for the borrower. Another lender commented they will advise the borrower on how to become a more attractive candidate. A different lender stated lower income borrowers need to become aware of grants available to them.
Waterloo/Cedar Falls. The lenders who were interviewed stated the criteria they use to evaluate loan applications is made up of several different factors. Some of the factors mentioned were income, employment history, credit history, source of down payment, income-to-debt ratio and condition of the house. Several of the lenders commented their guidelines were similar to the secondary market guidelines, with one lender stating they use the Fannie Mae and Freddie Mac guidelines. One lender stated their loan officers do not have any discretion in making decisions regarding loans as all applications are passed on to the underwriting department. Another lender stated their loan officers have limited lending authority based upon their experience level. The reasons the lenders gave for loans being denied were bad credit history and bad income-to-debt ratios. All of the lenders interviewed stated they either had a second review policy or were moving toward implementing such a policy. One lender stated when their loan officer felt a loan would not be approved, this loan officer would forward the loan to the department manager or to another loan officer for review. Several of the lenders had suggestions as to how to improve minority home ownership. One lender stated they wanted to see lenders make these kinds of loans without a mandate from some agency. This same lender suggested there should be coordination between state and federal agencies to make resources available and make lending institutions aware of what community groups or programs are available to assist them in making loans to lower and moderate income and minority applicants. Another lender recommended for borrowers should be as prepared as possible so if they do have a problem with their credit history, the borrower will be able to explain it. A different lender stated the biggest problem is the lack of education on the borrower's part, with a language barrier being another possible problem.
Advocacy groups/City officials:
Cedar Rapids. Home ownership courses are offered every other month by the Metro Area Housing Program, Inc. This course assists people in budgeting their income, improving credit history, tells the participants about home ownership assistance programs and helps them evaluate loan programs in order to take advantage of the best programs available to them. Beginning in 1991 the local branch of the NAACP began holding meetings with all of the banks. The NAACP canvasses the banks, speaking with the presidents and their staffs. These meetings led to the formation of an advisory committee representing all the different groups in the Cedar Rapids community. The committee advises lenders on issues and concerns facing minority and low-income families in securing mortgage loans.
Council Bluffs. Before 1996 home buying seminars had been held in Council Bluffs, but none has been offered since then. In 1995, two community home acquisition forums were held to address the problems associated with securing home loans. A foundation was established to provide grants for such things as home inspections. The City of Council Bluffs also offered a $10,000 forgivable grant to first-time home buyers.
Davenport. In Davenport, a DREAM program has been established to help low to moderate income borrowers obtain homes. This program offers borrowers a home buyer's course. After completing the course, borrowers become "certified" and receive incentives to help with their home purchases. These incentives include money to go toward the down payment and closing costs. DREAM has also enlisted the help of a local law firm and appraisal company which provided their services at a reduced rate for program participants. United Neighbors of Davenport offers free home inspection services and the Agenda for Black Quad Citians has worked to establish a formal dialogue process with mortgage lenders. Quad Cities Interfaith Housing rehabilitates houses, helps low-income buyers find satisfactory financing and has created the Reinvestment Task Force to work with lenders and real estate agents. One advocacy group representative stated lenders simply do not want to make low-income loans while a city official stated it was difficult for African Americans to get loans.
Des Moines. In Des Moines, ANAWIM helps low-income borrowers purchase homes through its rehabilitation and new home building programs. In most cases, the houses ANAWIM receives to rehabilitate are abandoned houses the county owns from delinquent taxes and is willing to give to ANAWIM. ANAWIM then rehabilitates these houses and sells them on the open market to people who earn eighty percent or less of the median income for the Des Moines area. The service ANAWIM provides not only benefits low-income families by providing affordable housing, but also the county by having these properties return to the tax rolls. CCI of Des Moines offers a Home Buyers' Club session once a month to prepare new borrowers for home ownership. CCI also does neighborhood organizing and through this effort is able to learn the needs and concerns of the neighborhood members. The Neighborhood Housing Services of Des Moines provides home improvement loans to high-risk borrowers, grant money to neighborhoods to support neighborhood improvements, such as new sidewalks or trees, and a tool lending library. The City of Des Moines has received a grant from the Federal Home Loan Bank Board to help tenants in city rental housing units to purchase homes rehabilitated by the city. An advocacy group representative stated lenders are not as flexible with minority borrowers as they are with white borrowers and a lender may act appropriately on one loan and then act in a discriminatory fashion on another. Another advocacy group representative stated lenders do not want to lend in low-income census tracts.
Dubuque. In Dubuque there is the Dubuque Area Mortgage Lenders Group comprised of appraisers, lenders and real estate agents which meets socially every month over lunch. A DREAMS program has been established to rehabilitate houses in distressed areas to be sold to first-time home buyers. The City of Dubuque offers training classes for first-time buyers and $5,000 grants to help with down payments and closing costs. Heartland Housing brings housing issues to the attention of the community through public forums, which include members of the legislature, members of the realtors board, other social service agencies and members of the Dubuque community. The Dubuque Chamber of Commerce has created a task force aimed at expanding affordable housing.
Iowa Bankers Association. The Iowa Bankers Association (IBA) is a trade association representing 490 banks in the state of Iowa. The IBA representative interviewed stated banks have the ability to focus on types of loans they wish to make. If there is a problem, according to the representative, it will lie with the individual loan officers who have their own biases. The representative stated not everyone will look at the same information and come to the same conclusion. One concern expressed by the representative was with the Community Reinvestment Act and the effect it has on smaller banks. The representative stated in order to do a proper study of discrimination in mortgage lending it is necessary to do more than just look at the raw loan numbers, it is necessary to go behind the numbers and look at the reasoning for the decisions being made.
Iowa City. The Greater Iowa City Fair Housing Fellowship has a program to buy lots in the city and build houses for low income, first-time home buyers. This program builds a single family house and then sells just the building, holding a long- term land lease. This helps to reduce the cost of the home for the first time home buyer. The Iowa Valley Habitat has also built homes in the Iowa City area.
Sioux City. In Sioux City, the La Casa Latina has helped Hispanic residents in the home-buying process by providing translators for a Fannie Mae home buyer program and tries to educate their clients on why it is important and how to establish credit. The AID Center offers a consumer credit counseling service and other educational services regarding credit and housing. The Sanford Community Center helps home buyers find resources and other assistance necessary to buy homes. The Housing Services Division of Sioux City administers a down payment assistance program. One advocacy group representative mentioned lenders focused on traditional credit histories and Hispanic borrowers often lack traditional credit histories but are excellent credit risks nevertheless. This person also stated most Hispanic residents she works with would prefer to buy a home rather than rent, but they so not see buying as an option. She also mentioned many of the Hispanic residents who buy a house buy on contract instead of doing a traditional mortgage.
Waterloo/Cedar Falls. Operation Threshold is a program offered by the Waterloo Community Development where houses are rehabilitated and then sold to first time home buyers. This program also has classes on credit repair, credit education and home maintenance. The City of Waterloo also has a rehabilitation program funded by Community Development Block Grant funds in which existing homes are brought up to the city code. Under this program, homes in certain targeted neighborhoods have a shorter wait for rehabilitation, so people may buy homes in these neighborhoods in anticipation of having the homes rehabilitated by the city. A city official suggested redlining might be occurring in the city and enforcement of the Community Reinvestment Act was needed, but there were not enough people who are knowledgeable with the CRA to know how to approach the financial institutions to address these problems.
Regulatory Agencies:
Department of Housing and Urban Development (Des Moines Office). The local HUD office has not received any complaints regarding these issues, but would welcome complaints as well as any input from the industry.
Department of Justice. DOJ has not received any complaints from Iowa in this area, but they do not operate normally on a complaint system. DOJ handles mostly large pattern and practice cases or individual cases referred to them by HUD. The kinds of cases DOJ handles are underwriting/processing cases and price discrimination cases. DOJ suggested one area to focus on was the pricing of loan products.
Office of the Comptroller of the Currency. OCC regulates 60 institutions in the state of Iowa, but has not received any complaints about possible discriminatory practices by mortgage lenders. The OCC has conducted testing for race and national origin discrimination, but did not conduct any of these tests in Iowa. If the OCC were to find a problem, they would analyze the rejections first, then the procedure is expanded to a full scope review of the bank records.
National Credit Union Administration. The NCUA regulates federal credit unions and insures both federal and state credit unions. The NCUA operates a complaint desk and complaints are handled by counseling or investigation of the complaint on sight. The NCUA was working on a study and no problems had been found at the time of the interview.
Credit Union Division, Iowa Department of Commerce. This division regulates 211 credit unions in the state of Iowa. The division does not currently track the complaints they receive by type. Complaints regarding discrimination are routinely forwarded to the appropriate state or federal agency.
Banking Division, Iowa Department of Commerce. This division regulates 400 state chartered banks in the state of Iowa. When it comes to regulating loans, the Fair Housing Act and other federal acts, this division is not involved. If they do receive a complaint, they will forward it to the appropriate agency. The representative of the division did state if there were a problem with minority borrowers being approved, it would most likely be due to the individual loan officer. This representative advised caution when examining Home Mortgage Disclosure Act numbers because a bank which is reaching out and encouraging more minority applications might also have a higher rejection number which in turn would skew the HMDA numbers. On the other hand a bank which is not reaching out to minority applicants and has good HMDA numbers might actually be discriminating.
Insurance Division, Iowa Department of Commerce. This division stated there are no mandatory standards which they set for the state of Iowa. The only things agencies are not allowed to do are to redline and discriminate.
Real Estate Commission, Professional Licensing & Regulation Division, Iowa Department of Commerce. All realtors are licensed in the state of Iowa. The commission does not get involved in business practices as realtors are considered independent contractors. Therefore, as long as it is not illegal, the realtors are allowed to do it.
Real Estate Appraiser Board, Professional Licensing & Regulation Division, Iowa Department of Commerce. For appraisers Iowa is a voluntary state, meaning any property over $150,000 is required to have a certified or licensed appraiser. Appraisers must follow the Uniform Standards of Professional Appraisal Practice. The commission stated one major problem is for properties less than $150,000 because an unlicensed or uncertified appraiser may be used. To solve this problem, licensing should be mandatory for all appraisers.
Real Estate Representatives:
The real estate representatives interviewed across the state expressed the same fundamental views on their industry. Real estate agents receive their business in many different ways, some of them being through advertisements in the newspaper, referrals, signs on property, some cold-calling, seminars and cable real estate seminars. The real estate agents try to find the buyers needs and then match their needs with the appropriate housing. Some real estate agents use customer profiles to match the customer with the property. Typically real estate agents will work with a buyer to determine what type of financing the buyer is eligible for. One real estate agent stated they personally take their buyers to the lender. Most real estate agents will not turn down a listing as the real estate industry is highly competitive.
Insurance Agencies:
Cedar Rapids. The insurance agents who were interviewed stated, when asked about underwriting guidelines, they look at wiring, maintenance of the property and the pride of ownership. One agent said they used the standard guidelines of the industry.
Council Bluffs. One insurance agent responded they look at the quality of the property and the individual when deciding whether to insure someone or not. Another agent stated the most significant aspects of the property and home buyer for insurance purposes are the location of the home and the buyer's credit history.
Davenport. The agents who were interviewed stated the most important thing they look for is the house must be in tip top condition.
Des Moines. The agents interviewed stated they look at the customer's prior losses, credit reports and the condition of the home. An insurance agent's paycheck may be affected by their profitability, so if the agent does not feel comfortable about a property or the customer, the agent is not obligated to write a policy.
Dubuque. One agent who was interviewed stated they only looked at the wiring of the house and the roof to assess the property. Another agent stated they look at the pride of ownership, liability exposure, physical condition of the home and they have a minimum value requirement. This agent commented there were areas within the city where insurance is harder to acquire because of the condition of the property and the pride of ownership.
Iowa City. One agent who was interviewed stated they will consider the house itself, the amount paid for the house, the year the house was built and how much the loan is for when deciding whether to insure the property or not. Another agent stated they consider whether the property is occupied by the owner or is being rented, what the fire rating is for the territory the home is located in and the age and structure of the home.
Sioux City. One agent who was interviewed stated the important considerations from an insurance perspective are the age and condition of the home. This agent also stated their company is putting a little more emphasis on roofs. The agent commented the main reasons for denial of insurance are prior claim history, insurance history, vicious dogs, credit history and landscaping of the property. Another agent stated they look at the age and condition of the home, with the condition of the home being the most important characteristic.
Waterloo/Cedar Falls. One agent who was interviewed stated when they are evaluating a property for insurance purposes they will look at the overall condition of the home, the general housekeeping around the home and the credit report. Another agent listed several factors they will look at, including pride of ownership, condition of the property, whether it has 100 amp electrical service and the roof. The two most important factors according to this agent are the condition of the property and the pride of ownership.
Appraisal Companies:
The view of appraisers from around the state was fundamentally the same. All of the appraisers interviewed stated they use a standard form, the Uniform Residential Appraisal Report. Most appraisers will document how and why they came up with the value of the property they did. A common practice for performing an appraisal is to use comparable homes, whereby the appraiser will try to find a comparable home to the home being appraised and use the comparable to compare and contrast the home they are appraising. The appraisers will look at the neighborhood and make-up of the house. However, the appraisal form states, "[r]ace and the racial composition of the neighborhood are not appraisal factors." A common suggestion to rid the industry of potential bias is keeping all of the appraisers educated and up- to-date with the current industry standards.
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