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					                                                                                                 No. 55 Summer/Fall 2004


                   PUBLISHED BY THE

                                                    A COMMUNITY DEVELOPMENT PUBLICATION



                                                 CASCADE
                COMMUNITY AFFAIRS

                DEPARTMENT OF THE

               FEDERAL RESERVE BANK

                   OF PHILADELPHIA




INSIDE:
                                      Do the New COAH Rules Meet the Needs of
2 — Vera Bowders:                     New Jersey Residents?
A Remembrance
                                      No: They Are the Wrong                              Yes: They Encourage
6 — Arts District Revitalizes
Downtown in Millville, NJ
                                      Rules at the Wrong Time                             Affordable Housing and
                                      By Alan Mallach, Research Director,                 Smart Growth
9 — Church-Based CDC                  National Housing Institute
                                                                                          By Susan Bass Levin, Commissioner, New
Helps Delaware Residents
                                                                                          Jersey Department of Community Affairs
Build Assets                          Editor’s Note: The National Housing Insti-
                                      tute is a research center based in Montclair,       Last summer, the Council on Affordable
                                      NJ, that focuses on housing and commu-              Housing (COAH) proposed a sweeping
10 — PNC Bank, Delaware,
                                      nity development issues, with a particular          overhaul of the state’s existing afford-
Helps Unbanked Residents              emphasis on activities that support the             able housing system. In keeping with
Open Savings Accounts                 work of community development corpora-
                                                                                          Governor McGreevey’s bold plan to stop
                                      tions and community-based organizations.
                                                                                          sprawl and improve our quality of life,
11 — New Markets Tax Credits          It is the publisher of Shelterforce magazine.
                                                                                          this new system—the third-round meth-
Allocated                                                                                 odology—encourages sound local plan-
                                      The need for affordable housing in New              ning, promotes smart growth, and creates
11 — Wilmington Native                Jersey is growing steadily. Housing                 affordable housing opportunities for all of
Appointed Federal Reserve             production has slowed, while redevel-               our state’s citizens.
Division Director                     opment, immigration, and real estate
                                      speculation have pushed rents and sales             Through the proposed COAH rules is-
13 — Standard and Poor’s              prices upward in older cities as well as            sued in August 2003, the state encourages
                                      in suburban areas. The number of fami-
Revises MBS Criteria Owing to
Anti-Predatory Lending Laws
                                      lies in overcrowded housing has gone up             In the past, COAH assigned each
                                      50 percent since 1990, and according to
                                      the U.S. Census, nearly 400,000 renters
                                                                                          municipality an affordable housing
13 — District News
                                      spend over 30 percent of their income               obligation using speculative popu-
                                      for shelter. Meanwhile, thousands of                lation, employment, and economic
14 — Spotlight on Research:           families continue to move to New Jersey,
Predatory Lending: How                seeking opportunity in the state’s thriv-           growth projections.
Pervasive Is It?                      ing economy.
                                                                                          municipalities to plan in a comprehensive
                                      While the Council on Affordable Hous-               way that meets the needs and concerns of
                                      ing (COAH) can’t solve this problem                 our communities. The new methodology
                                      by itself, it can make a major contribu-            uses actual residential and employment
                                      tion to meeting these needs. By se�ing              growth to determine a community’s af-
                                      fair-share targets for low- and moderate-           fordable housing obligation. This sensible,
                                                                 ...continued on page 3                            ...continued on page 3


                                                                                                                                            1
w w w. phil.frb.org
CASCADE
No. 55
Summer/Fall 2004

CASCADE is published three times a year by the
Federal Reserve Bank of Philadelphia’s Com-        Vera Bowders: A Remembrance
munity Affairs Department. It is available on
the Bank’s web site at www.phil.frb.org/cca/
capubs/cascade.html.
                                                   Vera W. Bowders, manager and com-       also recently guided the redesign
Material may be reprinted or abstracted pro-
vided CASCADE is credited. Please provide the      munity development advisor in the       of the department’s community
Community Affairs Department with a copy of        Philadelphia Fed’s Community Affairs    profiles to make them more useful
any publication in which material is reprinted.    Department, died suddenly on July 26,   to bankers and others.
The views expressed are not necessarily those
of the Federal Reserve Bank of Philadelphia or     2004. Vera, who died of a pulmonary
the Federal Reserve System. Free subscriptions     embolism following surgery to sta-      Before joining the Philadelphia
and additional copies are available upon request
                                                   bilize a broken ankle                                Fed, Vera served as a
to: Federal Reserve Bank of Philadelphia, Com-
munity Affairs Department, 100 North 6th Street,   several days earlier,                                neighborhood spe-
Philadelphia, PA 19106-1574.                       was 51.                                              cialist for the Greater
Comments and ideas for future coverage are
                                                                                                        Philadelphia Economic
welcomed. Contact Keith L. Rolland at (215)        A central part of                                    Development Coali-
574-6569 (telephone), (215) 574-2512 (fax), or     Community Affairs                                    tion, helping nonprof-
keith.rolland@phil.frb.org.
                                                   since she joined the                                 its such as Advocate
                                                   department in 1990,                                  CDC and Philadelphia
COMMUNITY AFFAIRS DEPARTMENT                       Vera was—as she                                      Chinatown Develop-
                                                   described herself on                                 ment Corporation on
Dede Myers
Vice President and Community Affairs Officer
                                                   her resume—”a self-                                  affordable-housing
(215) 574-6482                                     motivated individual                                 feasibility analysis and
dede.myers@phil.frb.org                            who thrives on chal-                                 fund-raising. She also
Keith L. Rolland                                   lenge.” She had great                                worked with business
Community Development Advisor                      expertise in analyzing                               owners in Philadel-
(215) 574-6569                                     lending and demographic data and        phia’s Hunting Park West neighbor-
keith.rolland@phil.frb.org
                                                   trends in the Third Federal Reserve     hood and designed programs for
Christy J. Chung                                   District. She organized many confer-    the unemployed.
Community Affairs Analyst                          ences, conducted outreach meetings,
(215) 574-6461
christy.j.chung@phil.frb.org                       oversaw the department budget, and      Prior to that, she assisted small-
                                                   represented the department on Federal   business owners in North Philadel-
Andrew T. Hill, Ph.D.
                                                   Reserve System commi�ees.               phia as assistant director of Temple
Economic Education Specialist
(215) 574-4392                                                                             University’s small business develop-
andrew.hill@phil.frb.org                           In her early years in Community         ment center.
Marvin M. Smith, Ph.D.
                                                   Affairs, she prepared community
Economic Education Specialist                      profiles and organized “council”        Community Affairs staff members
(215) 574-6393                                     meetings of bankers and nonprofit       remember Vera as vibrant, outgoing,
marty.smith@phil.frb.org
                                                   and government representatives in       funny, spontaneous, and down-to-
John J. Wackes                                     communities throughout the Third        earth. She was a team player who
Community Affairs Analyst                          Federal Reserve District.               counseled new members of the
(215) 574-3810
john.j.wackes@phil.frb.org                                                                 department and one who willingly
                                                   In the past year, she organized “Re-    pitched in and helped out at various
Todd Zartman                                       inventing America’s Older Commu-        department events.
Economic Education Analyst
(215) 574-6457                                     nities,” a national three-day confer-
todd.zartman@phil.frb.org                          ence. She invited 55 speakers and       She had extraordinary organiza-
                                                   oversaw room, meal, and registra-       tional and computer skills, and she
Jeri Cohen
Secretary                                          tion arrangements for 423 a�endees.     de�ly organized and executed ma-
(215) 574-6458                                     Two years ago, she organized “Tools     jor projects. She could figure out the
jeri.cohen@phil.frb.org
                                                   for Building Sustainable Rural Com-     best way to analyze reams of data
Yvette Cooper                                      munities,” a major two-day confer-      to find significant trends and did so
Department Analyst                                 ence held in Wilkes-Barre, PA. She      with uncanny speed.
(215) 574-6037
yvette.cooper@phil.frb.org

       2
                                      No: COAH Rules Are                            Yes: COAH Rules
                                      the Wrong Plan at the                         Encourage Affordable
She understood community-devel-       Wrong Time                                    Housing & Smart Growth
opment lending from the per-                             ...continued from page 1                      ...continued from page 1
spectives of both nonprofits and
banks. Her work with nonprofits       income (LMI) housing that reflect             long-overdue approach is known
in Philadelphia led her to feel a     the magnitude of the need and by              as a growth-share model. The
kinship with nonprofit developers     adopting rules designed to ensure             growth-share model has three
and CRA officers working in com-      that those targets are actually met,          main advantages over previous
munity development. She had a         COAH can increase the amount                  methods.
special interest in rural communi-    of affordable housing and make it
ties and felt that their needs were   happen where it is most needed—               First, this growth-share methodol-
o�en ignored or forgo�en.             in New Jersey’s growing suburbs.              ogy encourages municipalities to
                                      It is particularly unfortunate, then,         plan for growth while providing
Vera was born in Shirleysburg         that at a time when greater ef-               affordable housing opportuni-
(population 138) in Huntingdon        forts to provide decent affordable            ties. In the past, COAH assigned
County, PA. She held an under-        housing are needed, COAH last                 each municipality an affordable
graduate degree in music educa-       summer proposed new rules that                housing obligation using specu-
tion from Penn State and an MBA       not only fail to address the need             lative population, employment,
from Temple University.               but would also reduce affordable              and economic growth projections.
                                      housing production 50 percent or              Actual growth o�en varied widely
In addition to her many profes-       more below even the modest levels             from these projections. As a result,
sional skills, Vera was an ac-        of the 1990s.                                 affordable housing wasn’t always
complished cook, seamstress,                                                        provided in areas that experi-
and gardener. She is survived by      What exactly is COAH propos-                  enced significant growth, creat-
her husband, Tim, and daughter,       ing to do? The new rules repre-               ing much less affordable housing
Andrea.                               sent a dramatic departure from                than would have been produced
                                      past practice. Instead of se�ing              under a growth-share approach.
                                      “fair-share” obligations through              The growth-share methodology
                                      a formula that considers such                 allows a municipality to plan for
                                      factors as wealth, job growth, and            future growth and include the
                                      vacant land, COAH has adopted a               need for affordable housing in
                                      “growth-share” approach. Under                that planning. Under this plan, as
                                      this policy, municipalities must              a municipality grows and a�racts
                                      meet LMI housing needs only to                jobs over time, it will provide af-
                                      the extent that they grow overall.            fordable housing in proportion to
                                      If municipalities grow through the            that growth.
                                      construction of new homes, shop-
                                      ping centers, or office parks, they           Second, a growth-share approach
                                      must provide affordable housing               promotes smart-growth principles
                                      in proportion to their growth. If             by encouraging strategic, sensible
                                      they do not grow, they must meet              growth in the right places. By
                                      only the indigenous need of LMI               planning for the long term with
                                      families in their communities.                smart-growth principles, we can
                                                                                    work to reverse the years of dam-
                                      In principle, this approach is not            age that unplanned growth has
                                      unreasonable, although it runs the            had in our communities—damage
                                      risk that some municipalities could           such as pollution, loss of open
                                                          ...continued on page 4                         ...continued on page 4




                                                                                                                              3
     No: COAH Rules Are the Wrong Plan                                Yes: COAH Rules Encourage Afford-
     at the Wrong Time    ...continued from page 3                    able Housing and Smart Growth
                                                                                                             ...continued from page 3


                                   block all growth in order to       space, deterioration of our
                                   avoid building affordable          drinking water, and traffic
                                   housing. The problem is that       congestion.
                                   COAH has set the LMI growth
                                   share so low that, at best, few    For instance, we want to
                                   units will be built. Instead of    make sure the third-round
                                   requiring one LMI unit for         rules are consistent with
                                   every five new houses or every     the New Jersey State Devel-
                                   five jobs added through new        opment and Redevelopment
                                   construction, as proposed by       Plan and that affordable
                                   the Coalition on Affordable        housing sites are located
                                   Housing and the Environ-           in environmentally suit-
                                   ment, COAH would require           able areas. This will further
                                   only one LMI unit for every        protect our state’s wetlands,
                                   10 market-rate houses or for       historic sites, and environ-
  Alan Mallach, Research Director,                                                                  Susan Bass Levin, Commissioner,
                                   every 30 jobs added. COAH          mentally sensitive areas
  National Housing Institute                                                                        New Jersey Department of Com-
                                              has justified this      such as the Pinelands, the
                                                                                                    munity Affairs
                                              by systematically       Highlands, and the Mead-
The problem is that COAH                      underrepresent-         owlands while
has set the LMI growth                        ing housing needs,      increasing the        In the past, municipalities
                                              ignoring nearly         quality of life that sometimes participated in the
share so low that, at best,
                                              500,000 households      all New Jerseyans
few units will be built.                      living in overcrowd-    want, need, and       COAH process for years. By
                                              ed or substandard       deserve.              expediting reviews, more af-
         housing or spending more than 30 percent of their
         income on housing.
                                                                                           fordable housing will be built
                                                                      The third major
                                                                      advantage to the      more quickly.
         The inherent weakness of the new rules, however, is          COAH rules is
         compounded by the following two provisions, each of          that we have streamlined the way COAH works to en-
         which would have the effect of reducing the amount           sure efficiency and reduce bureaucratic delays by short-
         of affordable housing that will be built:                    ening mediation times, ensuring quick turnaround time,
                                                                      and se�ing firm deadlines for all participants in the
         • COAH proposes to grant over 16,000 credits to              COAH process. In the past, municipalities sometimes
         more than 150 municipalities against their future            participated in the COAH process for years. By expedit-
         growth-share obligations. In many cases, these credits       ing reviews, more affordable housing will be built more
         appear to have no basis in actual housing production         quickly.
         up to now in these towns. According to COAH’s own
         2001 annual report (the most recent available), Wood-        Creating quality affordable housing for all New Jer-
         bridge, NJ, had not produced one housing unit despite        seyans is crucial when planning for long-term growth
         a fair-share obligation of 1,351 units. COAH now             throughout our communities. That is why the
         proposes not only to find Woodbridge in compliance           McGreevey administration has made the provision of
         with its past obligations but also to grant it 281 credits   affordable housing one of its highest priorities.
         against its future obligations as well!
                                                                      For instance, we understand the need to provide rental
         • COAH proposes to provide bonus credits for ac-             and homeownership opportunities for low- and moder-
         tivities such as providing rental housing units, count-      ate-income families, people with disabilities, and seniors



     4
No: COAH Rules Are the Wrong Plan                                            Yes: COAH Rules Encourage Afford-
at the Wrong Time                                                            able Housing and Smart Growth

ing each such unit produced as up to two units. COAH                         throughout New Jersey and are discussing ways to
has never offered a scintilla of evidence to document                        make sure the rules provide a variety of affordable
that providing rental units is so difficult that developers                  housing choices for all of these constituencies. We also
or towns must be rewarded with bonuses. Each bonus                           recognize the needs of very low-income households—
granted reduces the number of units provided.                                those who earn below 30 percent of regional median
                                                                             income—and are looking for ways to assist them using
The latest COAH rules expired in 1999, but COAH’s pro-                       financial resources generated through the COAH
posed new rules will not go into effect until 2004 at the                    process. That is why we are looking at ways to provide
earliest, and they do not require municipalities to take                     incentives to municipalities to create more affordable
responsibility for growth-share obligations from 1999                        rental and homeownership opportunities for low-
to the present. This gives New Jersey’s growing town-                        income residents.
ships a “free pass” on affordable housing for a five-year
period during which LMI housing needs have increased.                        The COAH overhaul is just one way that the Depart-
Moreover, an analysis I’ve done finds that only 10,000                       ment of Community Affairs (DCA) seeks to fulfill
units—barely 1,000 per year—are likely to be built in the                    its commitment to affordable housing. In addition to
next decade under the proposed rules, rather than the                        the affordable units produced throughout the COAH
48,000 units projected by COAH.* This is less than half                      process, DCA—in partnership with the New Jersey
the number of units produced during the 1990s under                          Housing and Mortgage Finance Agency—has provided
COAH’s auspices and,                                                         more than $2 billion in funding to help finance 17,526
following the cur-                                                           affordable housing units in 499 municipalities through-
                            COAH proposes to
rent five-year de facto                                                      out New Jersey since January 2002. Clearly, we are well
moratorium on COAH-         make it easier for                               on our way to meeting—and exceeding—Governor
supported affordable        suburban munici-                                 McGreevey’s commitment to provide 20,000 affordable
housing production, is                                                       housing units by 2006.
an especially meager
                            palities to transfer 50
offering.                   percent of their fair-                           Since the proposed third-round rules were announced
                                  share obligations to                       in the summer of 2003, we have received feedback and
COAH further pro-                                                            suggestions from constituents, advocates, organiza-
poses to increase the        urban centers through                           tions, and individuals. A COAH task force has been
percentage of COAH-          regional contribution                           reviewing these comments in order to make the rules
supported units that                                                         work best for New Jersey’s families and seniors. Their
each municipality
                             agreements.                                     recommendations, based on the public comments we
can restrict to senior                                                       have received, will assist COAH in its goal of creating
citizens from the current 25 percent to 50 percent. As a                     quality affordable housing opportunities for all of New
result, the reduction in affordable housing production                       Jersey’s hard-working residents.
would have the greatest impact on LMI families with
children—the families that make up the great majority                        I hope that together we can move forward to realize
of those with the most severe and most urgent housing                        our goals for New Jersey: to provide more affordable
needs. COAH has proposed this change despite compel-                         housing, to provide smart planning in our communi-
ling evidence that senior citizens make up even less than                    ties, and to work toward improving the quality of life
the 25 percent of total LMI needs reflected in the previ-                    for all of New Jersey’s citizens.
ous rules.
                                                                             For information, contact the New Jersey Department of
Indeed, since COAH proposes to make it easier for                            Community Affairs at (609) 292-6055 or dca.feedback@dca.
suburban municipalities to transfer 50 percent of their                      state.nj.us; www.state.nj.us/dca/coah.
                                                    ...continued on page 6

*“How Many Units Will Get Built” (Nov. 2003), available on the web at
www.hcdnnj.org/policy/affordablehousing/index.htm.

                                                                                                                                        5
No: COAH Rules Are the Wrong Plan at the Wrong Time                                       ...continued from page 5



fair-share obligations to urban cen-     obligation to accommodate LMI               and most vulnerable members of
ters through regional contribution       housing needs. The proposed rules,          society: the state’s poorest families
agreements, the upshot of the rules      while claiming to be consistent             and their children. COAH has sug-
is clear. From now on, it appears that   with that principle, vitiate it—to the      gested that it will make changes to
New Jersey’s suburbs will be able to     point where it is hardly recogniz-          these rules before they are adopted.
comply with their fair-share obliga-     able—by reducing the number of              We can only hope that the changes
tions without ever having to build       units likely to be built and skewing        will be more than cosmetic and will
or rehabilitate a single affordable      those units toward the households           address these rules’ deficiencies
housing unit for a family with young     suburban officials are least likely to      forthrightly and responsibly.
children.                                object to. Many senior citizens have
                                         housing needs, but it is not accept-
The fundamental principle of the         able to take affordable housing op-         For information, contact Alan Mallach
Mount Laurel decision was that           portunities away from the neediest          at (609) 448-5614 or a.mallach@a�.net.
New Jersey’s municipalities have an




Arts District Invigorates Millville’s Downtown
By Keith L. Rolland, Community Development Advisor

Millville, a city of 27,000 residents
located on the Maurice River in
Cumberland County, NJ, is making
good progress in transforming a
moribund downtown into a vibrant
arts district.

Kim Warker, Ph.D., Millville’s plan-
ning director, recalled that six years
ago, city officials conceived a home-
grown strategy to persuade visi-
tors to spend a full day in the area
instead of a half-day touring Whea-
ton Village or the Army Air Field
Museum. Wheaton Village contains
many examples of fine glass pro-
duced when Millville was the center         High Street between Mulberry and Pine Streets in Millville’s arts district.
of a thriving regional glassmaking          (Photo by Melissa Kinney)
industry in the late 1800s.
                                         sance Center for the Arts. Fur-              Marianne K. Lods, coordinator of
                                         thering revitalization of the same           the Glasstown Center Arts District,
In 1998, the Millville Development
                                         block, the city enlisted Cumberland          which organizes Third Fridays, a
Corporation, a nonprofit city affili-
                                         County College to open a ceramic             monthly event that regularly draws
ate that oversees the arts district,
                                         studio and the Cumberland County             1,500 to 2,000 people, said: “It’s like
acquired a department store and
                                         Improvement Authority to renovate            an old-fashioned town on these
an adjacent building, which were
                                         a vacant bank building into the              Friday evenings, and it has a really
converted by a local developer into
                                         authority’s offices.                         good community feel to it.” The
a gallery and community center
                                                                                      district also holds free concerts and
known as the Riverfront Renais-
                                                                                      a fine arts festival.
6
                                                 Since 1998, 48                                            Well before the arts
                                                 new businesses
                                                                              Since 1998, 48               district was conceived,
                                                 have located in              new businesses               the city had taken ac-
                                                 the arts district,           have located in              tions to improve the
                                                 a two-block by                                            area’s infrastructure
                                                 six-block area that          the arts district, a         and maximize the
                                                 is mostly dedi-              two-block by six-            beauty of its riverfront
                                                 cated to the visual                                       location. In the mid-
                                                 arts. These busi-
                                                                              block area that is           1980s, the city used
                                                 nesses—primarily             dedicated mostly             state funding to add
                                                 galleries and retail         to the visual arts.          new sidewalks, street
                                                 stores—include                                            lights, parking, and
                                                 eight that relocated                                      landscaping and to ac-
                                                 from other parts of Millville. The         quire, demolish, and remediate a gas
                                                 arts district has flourished despite       station and recycling center along
                                                 the presence of a nearby regional          Millville’s waterfront. The city then
                                                 mall, which includes a Wal-Mart            used funds from a state-designated
                                                 and several other “big box” stores.        urban enterprise zone program to
                                                                                            pay for brick sidewalks and light-
                                                 Last year, business openings in            ing and help owners repair business
                                                 the arts district consisted of six         facades.
                                                 galleries or studios, three retail
                                                 stores, three professional offices,        “The pieces of the puzzle we had
 Kim Warker, Ph.D., planning director for        and five restaurants, including the        been working on for years came
 the City of Millville, NJ, stands in the arts
 district that she and other local leaders
                                                 upscale Winfield’s, located in a           together at the same time,” Warker
 conceived six years ago.                        former Woolworth’s building.               explained. “The infrastructure was
                                                                                            there. But we never envisioned how
                                                          Downtown property                 big this would get. The market of
                                                          values have risen three           artists that Millville was trying to
                                                          to four times since 2000,         a�ract was a tremendous one, but it
                                                          and private investors are         was hidden under a rock. The artists
                                                          showing strong interest,          were desperate for a common venue
                                                          Lods said. In a promising         where they could be together. Once
                                                          sign for Millville’s future,      we reached out to them, the response
                                                          the district is a�racting a       was overwhelming. This invigorated
                                                          new generation of business        us to go on.”
                                                          owners in their 30s and
                                                          40s, she added.                   Warker said that the artists viewed
                                                                                            Millville’s century-old downtown
                                                          In a community develop-           buildings “as irreplaceable pieces of
                                                          ment offshoot of the arts         history, not as white elephants—the
                                                          district, the city is requir-     older and more dilapidated the
Marianne K. Lods, coordinator of the
Glasstown Center Arts District since 2000,       ing artists who receive “pioneer           buildings, the be�er. The artists
relaxes while a band plays at the Looking        artist” grants to paint murals and         looked at the buildings and saw
Glass Café in the Artisans’ and Design-          engage in beautification activi-           positive features, while most people
ers’ Walk in Millville, NJ. A retrospective      ties in the city’s neighborhoods.          saw negative things.” Most of
of paintings and prints by her late mother,      Warker added that “both the city           Millville’s new artists live and work
a professional artist, was displayed at the
time. The café is owned and operated by          and the neighborhood associations          in the same properties.
Lods’s son and his wife. Lods is a former        are considering additional ways
executive director of the Greater Vineland       in which public art can become a           Local residents were not easily
Chamber of Commerce. (Photos above by            significant part of the center-city        impressed. “When we worked on
Craig Terry)
                                                 neighborhoods.”                            the first block, they thought it was a
                                                                                                                ...continued on page 8

                                                                                                                                         7
Arts District Invigorates Millville’s Downtown                                            ...continued from page 7



waste of public money,” Warker said.        challenge is downtown property        tion among city leaders, residents,
“With the second block, they admit-         speculation, which is pricing         and business owners. The city is
ted that the downtown was starting          some artists out and is leading       exploring prospects for renovating a
to look be�er. With the third block,        the city to                                                   96-year-old cin-
they understood there was a method          explore the      Still a challenge is downtown                ema once used
to our madness. In time, the resi-          feasibility                                                   for vaudeville as
                                            of develop-
                                                             property speculation, which is               a multi-purpose
dents and the city government real-
ized that Millville could be extraor-       ing afford-      pricing some artists out and is              facility.
dinary—not just average or OK.”             able artists’    leading the city to explore the
                                            housing.                                                      Warker, who
Residents got more enthusiastic as
                                                             feasibility of developing afford- holds a doctor-
their children benefited from the arts      In January,      able artists’ housing.                       ate in urban af-
district. Early on, the city created        the city                                                      fairs and public
an annual summer arts program for           started a                                                     policy from the
young people and arts and cra� pro-         pilot program to provide low-         University of Delaware, observed
grams linked to the schools. Some           interest loans of up to $10,000 for   that during the district’s develop-
students are now pursuing arts-             establishment of bed and break-       ment “we all changed our idea of
related education, partly with the          fast lodging in the arts district.    art. We’ve come to see the value of
help of federally funded job-training       The program is targeted to own-       art in and of itself, rather than as
programs.                                   ers of single-family residences       just another redevelopment tool.”
                                            located in residential areas sur-
A substantial marketing campaign            rounding the commercial district.     Noting that the arts district appeals
has been funded largely through                                                   to people who grew up in the area
state grants, including several from        The city also plans to expand the     and are returning as retirees, Lods
the New Jersey State Council on             boundaries of the district this year  concluded: “One of the most impor-
the Arts. Last fall, the state and city     and create a farmers market that      tant things about the arts district is
approved $215,000 for an annual             features local seasonal produce       the sense of pride that residents feel.
district marketing and advertising          for tourists and residents alike.     This is a pre�y neat place to live.”
campaign.                                   Biking and walking trails are
                                            being constructed along the river,    For information, contact Kim Warker at
Now that the district has been estab-       while a marina that should a�ract     (856) 825-7000, ext. 329 or kwarker@
lished, maintaining its interesting         many boaters will open next year.     ci.millville.nj.us, or Marianne K. Lods
and vibrant character is a long-term        An artists’ guild is also being       at (856) 293-0556 or marianne@
challenge, Warker noted. Another            formed to improve communica-          glasstownartsdistrict.com.




     CRA Investments Posted; Cascade Becomes Quarterly Publication
       Updated Community Affairs web pages include a new section on CRA investment opportunities. In addi-
       tion, a resources/links section contains useful web sites for data, government agencies, small-business as-
       sistance sources, and other areas. The Community Affairs home page is at www.phil.frb.org/cca/index.html.

       Starting in 2005, Cascade will be published four times a year, instead of three. Cascade readers are encour-
       aged to sign up for e-mail notification, which will enable them to see the latest issue as soon as it becomes
       available. To receive this notification, go to www.phil.frb.org/phil_mailing_list/dsp_user_login.cfm.




8
Church-Based CDC Helps Build Assets and Skills in Delaware
By Keith L. Rolland, Community Development Advisor


Nehemiah Gateway Community                information and referrals for
Development Corporation, a church-        financial-education courses, a com-
                                                                                 The CDC greatly ben-
based organization in Wilming-            puter-purchase plan, individual
ton, has organized one of the most        development accounts (IDAs), and       efits from the unique
successful earned annual income           public-benefit programs.               banking environment
tax credit (EITC) campaigns in the
country and has begun to strengthen       Similarly, Nehemiah Gateway re-
                                                                                 in Delaware. About 40
home-based child-care providers in        quires residents who want a com-       percent of its budget is
Delaware.                                 puter to take a financial-education    funded by banks.
                                          course. In this program, residents
The community development corpo-          must open a bank savings account
ration (CDC), a four-year-old affiliate   and save $250, of which $175 is       the providers care for low-income
of Shiloh Baptist Church in Wilming-      matched by the CDC for purchas-       children and accept state-subsidized
ton, has organized EITC campaigns         ing a computer. Nehemiah Gate-        payments that are far below market
during the past three years, includ-      way buys reconditioned computers      rates. In response, Nehemiah Gate-
ing statewide campaigns in 2003 and       from PerScolas, a New York-based      way designed tax and record-keep-
2004. This year, 300 volunteers pre-      nonprofit.                            ing courses that now count toward a
pared tax returns at 15 IRS volunteer                                           state continuing education require-
income tax assistance (VITA) sites for “There has to be a hook or incen-        ment. During the process, the CDC
about 4,800 residents, of whom about   tive to interest residents in finan-     walks participants through applica-
35 percent applied for EITCs. Last     cial education,” says Mary Dupont,       tions for business loans from the
year, 120 volunteers prepared returns  executive director of Nehemiah           First State Community Loan Fund.
for about 2,850 residents at 12 sites. Gateway. “You must give residents
                                       something of value that they re-         Nehemiah Gateway’s training center
John Wancheck, EITC campaign           ally want. You also need a great         has provided computer instruction,
coordinator at the Center on Budget    teacher, ideally a community             life skills, and job placement services
and Policy Priorities in Washington,   person who knows how to work             to 140 disadvantaged adults, about
says that the                                                 with people.”     65 percent of whom have stayed in
Delaware           “There has to be a hook or                 The CDC           permanent full-time positions. Its
campaign                                                      provides its      IDA program has 75 participants,
has been
                   incentive to interest residents            own six-hour      and the CDC has held two “business
one of the         in financial education,” says              financial-        expos”—the second of which at-
best in the        Mary Dupont, executive di-                 education         tracted 1,000 people and involved 21
country. He                                                   course, which     churches and 170 small businesses.
a�ributes the      rector of Nehemiah Gateway.                has served        Early this year, the CDC started a
campaign’s                                                    more than         car loan program that has made 12
success to its extensive planning and  400 EITC program participants,           loans to working parents.
organization, its ability to engage    and sometimes refers residents to
leaders in the business, educational,  Delaware Money School classes.           The CDC, with a staff of nine full-
and governmental sectors, and its                                               time equivalents and an $800,000
comprehensive approach.                Some home-based child-care               budget, greatly benefits from the
When Delaware residents came to        providers arrived at EITC sites in       unique banking environment in
VITA sites seeking free tax prepara-   2003–04 with “bags of receipts,”         Delaware and the presence of
tion and EITC refunds, site manag-     Dupont recalled, and the CDC             many limited-purpose and whole-
ers assisted some of the residents     gradually became aware that there        sale banks. About 40 percent of its
in opening savings accounts with       are 2,000 home-based child-care          budget is funded by banks. Dupont
PNC Bank (Delaware) and provided       providers in Delaware. Many of                               ...continued on page 10




                                                                                                                          9
Church-Based CDC Helps Build Assets and Skills in Delaware
                                                                                                ...continued from page 9


notes that several CRA officers have    Shiloh Baptist Church, which was       than is normally possible through
played a valuable role in “brain-       founded in 1876 and is the oldest      traditional church food, clothing,
storming and helping to design          African American Baptist church in     and other human-service programs.
programs and innovations.”              Delaware. Before earning a doctor-     He said that churches thinking of
                                        ate in urban ministry and becom-       starting CDCs should form a small
Dupont, who previously was director     ing Shiloh’s pastor in 1997, he was    planning group within the con-
of the YWCA of New Castle County’s      a managing partner at Marsh and        gregation prior to incorporation,
Women’s Center for Economic Op-         McLennan Companies in New York         build capacity in-house, learn from
tions and a consultant to the Corpo-    while he also served in a part-time    the successes and failures of other
ration for Enterprise Development,      position as a minister.                church-based CDCs, and emphasize
noted that two Nehemiah Gateway                                                integrity in operations.
programs that explicitly enlist the     Reverend Johnson, who is the
spiritual motivation of residents are   CDC’s president and CEO, said that     For information, contact Mary
funded by a local family foundation.    he founded Nehemiah Gateway be-        Dupont at (302) 655-0803 or
                                        cause he wanted to have more “im-      mary@marydupont.com.
Rev. Clifford I. Johnson is pastor at   pact in transforming communities”




Delaware Bank Takes Flexible Approach for EITC Savers
PNC Bank, Delaware, expedited           file tax returns electronically. The   in 2003, according to Norma H.
the opening of savings accounts at      bank subsequently contacted Chex-      Zumsteg, a PNC Bank community
volunteer income tax assistance sites   Systems to identify any applicants     consultant and vice president. She
(VITA) in Delaware during the 2003      who had a history of mishandling       says about 40 percent of the 140
and 2004 tax seasons through a part-    accounts and mailed signature          accounts begun in 2003 were still
nership with Nehemiah Gateway           cards to approved applicants. The      open in March 2004. In 2002, EITC
Community Development Corpora-          accounts were actually opened once     filers were instructed to go to local
tion.                                   the EITCs were deposited by the        branches of PNC Bank, but few did.
                                        U.S. Treasury.
The accounts were opened at the                                                “We have been excited to participate
VITA sites, instead of at bank          PNC Bank, Delaware, provided the       in this initiative because it’s a cre-
branches as is PNC’s normal prac-       accounts without charge for a year     ative way of serving the needs of the
tice, by low- and moderate-income       and waived its $300 minimum-bal-       unbanked,” says Zumsteg. “It takes
residents filing tax returns and        ance requirement for that period.      a special nonprofit for a bank to have
applying for federal earned income                                             such a level of trust that it will make
tax credits (EITCs). The site manag-    The bank opened more than 112          exceptions to its policy.” She says
ers called an 800 number established    accounts totaling $144,582 from        PNC offers this expedited opening
by the bank specifically for this       January to April in 2004 and 140       of accounts only in Delaware but is
purpose and received temporary          accounts totaling approximately        exploring ways to apply its experi-
account numbers that were used to       $110,000 for the comparable period     ence in other markets.




10
New Markets Tax Credit Allocations Made to NJEDA, TRF, and
GSA Management
The Community Development                TRF received a $38.5 million allo-      nesses and franchise-focused real
Financial Institutions (CDFI) Fund       cation to provide real estate financ-   estate projects in a 14-state region
has made second-round allocations        ing to small businesses, financing      that includes Delaware, New Jersey,
of new markets tax credits (NMTC)        to nonprofit community facilities       and Pennsylvania.
to three entities in the Third Federal   such as day-care centers and char-
Reserve District: the New Jersey         ter schools, and financing for retail   For information, contact
Economic Development Authority           centers. TRF will serve southeast-      Caren Franzini at (609) 777-4471 or
(NJEDA), The Reinvestment Fund           ern Pennsylvania, central and           cfranzini@njeda.com,
(TRF), and GSA Management, LLC.          southern New Jersey, and northern       Jeremy Nowak at (215) 574-5899
                                         Delaware, with a special focus on       or jeremy.nowak@trfund.com, and
NJEDA received a $125 million            communities more distressed than        Michael J. Kelley at (302) 658-9230
allocation for statewide use for eco-    NMTC-eligible areas, according to       or mkelley@gsamanagement.com.
nomic development loans to busi-         the CDFI Fund.                          Further information on the allocatees
nesses and real estate development                                               and the NMTC program is available at
projects and construction loans for      GSA Management, LLC, received           www.cdfifund.gov.
the development of for-sale hous-        a $35 million allocation to provide
ing.                                     capital to franchise-oriented busi-




Wilmington Native Is Appointed Federal Reserve
Division Director
Sandra F. (Sandy) Braunstein has         cilitates community development,
been appointed director of the Divi-     and promotes access to banking
sion of Consumer and Community           services in underserved markets.
Affairs (DCCA) of the Board of
Governors of the Federal Reserve         Braunstein, who was born and
System.                                  raised in Wilmington, DE, joined
                                         the Federal Reserve System in
In her previous position as senior       1987. She previously served as
associate director and community         executive director of the North-
affairs officer in DCCA, she oversaw     east Community Development
implementation of community and          Corporation in Washington, DC,
economic development policies and        director of commercial revitaliza-
programs and held consumer-educa-        tion for the city of Alexandria,
tion and research responsibilities.      VA, and a management consul-
                                         tant. Earlier, she held several posi-
                                                                                      Sandra F. (Sandy) Braunstein
DCCA, which has 85 staff members,        tions in which she administered
implements federal banking and           federal programs for the city of
credit consumer-protection laws, fa-     Wilmington.




                                                                                                                     11
Calendar of Events                                                                   10 Ways to
                                                                                     Reinvent Rural
Congress of the New Urbanism Regional Council
September 23–24, 2004, Union League of Philadelphia
The meeting will focus on a presentation and critique of new urbanist projects
                                                                                     Regions
in Philadelphia and the region; an analysis of new urbanist techniques, codes,
and financing; and a discussion of new urbanist opportunities in Philadelphia
and the region.                                                                      An article on 10 ways to
For information, contact Jennifer Hurley at (215) 988-9440 or                        reinvent rural regions ap-
JLHurley@hfadesign.com; www.anupa.org.                                               peared in the November
                                                                                     2003 issue of The Main
U.S. Conference of Mayors’ National Dollar Wi$e Campaign
September 27–October 1, 2004 — The campaign culminates with Dollar Wi$e              Street Economist, produced
Week when participating mayors will promote new financial-literacy pro-              by the Federal Reserve
grams or highlight existing ones.                                                    Bank of Kansas City’s
For information, see dollarwiseonline.org.                                           Center for the Study of
                                                                                     Rural America.
Building Blocks for Inclusive Communities
October 21–23, 2004, Cherry Hill Hilton, Cherry Hill, NJ
A national conference on creating racially and ethnically diverse, economical-       Another noteworthy
ly thriving communities, sponsored by the Fund for an Open Society (OPEN).           article, which appeared
For information, visit www.opensoc.org or call (215) 546-0511.                       in the publication’s March
                                                                                     2004 issue, suggests that
Vacant Property in Pennsylvania Cities and Towns—Implementing
                                                                                     rural stakeholders need
Reinvestment Strategies: Successes and Challenges
December 7, 2004, Radisson Penn Harris Hotel and Conference Center, Camp             new forward-looking
Hill, PA. This, the third annual conference on vacant property reclamation in        measures of competi-
Pennsylvania, will feature discussions with legislative leaders, a report from       tive capacity, gauging,
the administration of Governor Edward G. Rendell on its economic stimulus            for example, a region’s
program, and presentations on community-revitalization successes and chal-           workforce, lifestyle, inno-
lenges.
For information, contact Elizabeth G. Hersh of the Housing Alliance of Penn-         vation, and financial and
sylvania at (215) 576-7044 or liz@housingalliancepa.org.                             informational capacity.
                                                                                     These measures will be
Promises and Pitfalls: As Consumer Finance Options Multiply,                         discussed in future issues
Who Is Being Served and at What Cost?                                                of the publication.
April 7–8, 2005, The Capitol Hilton, Washington, DC
For information, contact CA-Researchconference@clev.frb.org.
                                                                                     The Center for the Study
                                                                                     of Rural America tracks
                                                                                     rural and farm economic
                                                                                     trends and focuses on
     Temple University Initiatives                                                   rural economic and
                                                                                     policy issues. The ar-
     Spur Development                                                                ticles may be viewed at
                                                                                     www.kc.frb.org.
     Temple University initiatives are sparking a renaissance at the university’s
     main campus in North Philadelphia. Temple has conceived and executed a
     series of public-private partnerships that have created more than 700 stu-
     dent housing units, partly through the conversion of old industrial build-
     ings. It has also embarked on a $400 million capital improvement program
     for the construction of several major teaching and research facilities.

     An excellent article on these initiatives appeared in the May 20, 2004, issue
     of The Temple Times. Entitled “Temple Growth Spurring North Philadelphia
     Development,” it may be viewed at www.temple.edu/temple_times.


12
Standard and Poor’s Revises Criteria for Mortgage-Backed
Securities
Standard and Poor’s Ratings Servic-      40 federal, state, and local anti-       jurisdictions, including Pennsylva-
es has announced that it will require    predatory laws, said it anticipates      nia, in which existing anti-predatory
additional credit enhancement for        that an increasing number of loans       lending laws do not impose any ad-
certain loans that are governed by       governed by these laws are likely to     ditional assignee liability.
anti-predatory lending laws and that     be included in its rated transactions.
are included in its rated mortgage-                                               The rating agency said that it may
backed securities.                       It said it will continue to exclude      waive additional credit enhance-
                                         from its rated pools high-cost home      ments if a seller of loans meets
Standard and Poor’s said on May 13,      loans as defined in New Jersey’s         financial-capacity requirements. It
2004, that it will require additional    anti-predatory law.                      noted that in assessing risks from
credit enhancement for loans cover-                                               anti-predatory lending laws, it looks
ed by anti-predatory lending laws        The additional credit enhancement        for clear language that enables
that it believes contain subjective or   is based on Standard and Poor’s          originators or sellers to comply with
unclear standards—such as poorly         assessment of potential losses in        the law.
or undefined net tangible benefit        the securitization, including such
and repayment-ability tests—in           factors as the number of success-        For information, contact Sco� Mason at
determining whether loans are            ful lawsuits likely to be asserted       (212) 438-2539 or sco�_mason@
“predatory.”                             against the issuer, statutory borrow-    standardandpoors.com, or Susan Barnes
                                         er rights, and the maximum poten-        at (212) 438-2394 or susan_barnes@
Standard and Poor’s, which made          tial damages that could be awarded.      standardandpoors.com; www2.
the changes following a comprehen-                                                standardandpoors.com.
sive year-long review of more than       Standard and Poor’s identified some



District News
C. Sean Closkey, former executive        president of community develop-          an affiliate of The College of New
director of the New Jersey Hous-         ment at JP Morgan Chase; and             Jersey that will help municipalities
ing and Mortgage Finance Agency          Terri Hasson, vice president and         in Hunterdon, Mercer, Middlesex,
(NJHMFA), has become director of         CRA officer of Citibank Dela-            Monmouth, and Somerset coun-
neighborhood investment strategy         ware.... Woodie A. Pagan of Rural        ties to implement smart-growth
at The Reinvestment Fund.... Marge       Opportunities, Inc., recently start-     plans. He may be reached at (609)
Della Vecchia, previously chief of       ed identifying affordable-housing        771-2831 or bierbaum@tcnj.edu;
staff in the New Jersey Department       and other real estate development        www.tcnj.edu.... Carlos Peraza,
of Community Affairs, has become         opportunities for farmworkers in         former director of the Philadelphia
NJHMFA’s new executive director....      rural areas of Pennsylvania and          office of the Local Initiatives Sup-
Three Delaware bankers joined non-       New Jersey. Based in Philadelphia,       port Corporation (LISC), has joined
profit housing leaders earlier this      Pagan is an a�orney who previ-           the Society Hill office of Pruden-
year in speaking before Delaware         ously was CEO of a community             tial, Fox and Roach Realtors.... Art
legislative commi�ees recommend-         development corporation in Puerto        Garcia, previously administrator of
ing adoption of a five-year afford-      Rico, COO of the State of New            USDA’s Rural Housing Service and
able-housing plan and funding to         York Mortgage Agency, and an             a former lender, is the new direc-
support the plan. The bankers are        administrative law judge. He may         tor of the CDFI Fund.... Two reports
Lorraine deMeurisse, vice presi-         be reached at (215) 203-3168 or          on the New Markets Tax Credits
dent of community development            wpagan@ruralinc.org.... Martin           program produced this spring by
at Deutsche Bank Trust Company           Bierbaum is executive director of        CEOs for Cities can be found at
Delaware; Helen M. Stewart, vice         the Municipal Land Use Center,                                ...continued on page 16



                                                                                                                          13
Predatory Lending: How Pervasive Is It?
In 2003, a landmark se�lement was                       lenders, community groups, and
reached in a mortgage-lending ac-                       consumers. However, the study
tion brought by multi-state a�or-                       did not go unchallenged. Econo-
neys general and financial regula-                      mists at the Mortgage Bankers
tors against Household Finance                          Association (MBA) took issue not
Corporation (HFC) and Beneficial                        only with the general findings
Finance Corporation (BFC). HFC/                         but also with the nature of the
BFC, which were charged with en-                        analysis used in the study and
gaging in various predatory-lend-                       the consequences of the proposed
ing practices, agreed to make avail-                    recommendations.
able up to $484 million to resolve
consumer complaints.1                                   Premise of the Study
                                                        The NCRC begins the report on
That predatory lending exists is                        its study by making a distinction
not disputed. What is at issue is the                   between a subprime loan and a
degree to which it is widespread.                       predatory loan. The former is a                       Marvin M. Smith, Ph.D.
Activists who champion the rights                       loan that has a higher-than-                          Economic Education Specialist
of consumers claim that predatory                       market rate of interest to compen-                    Community Affairs Department
lending is pervasive in our lending                     sate for the risk of lending to a
marketplace. However, industry                          borrower with less-than-perfect
officials maintain that it is not so                    credit. The la�er is defined as a                   The MBA takes exception to this
prevalent. Notwithstanding the                          subset of subprime loans and, as                    characterization of the analysis,
previously mentioned se�lement,                         stated in the report, includes one                  since it believes the NCRC’s results
the accurate documentation of the                       or more of the following a�ri-                      merely describe the presence and
extent of predatory lending remains                     butes: a lender charges more in                     a�ributes of subprime lending
a bone of contention. What follows                      interest and fees than is required                  without proving the existence of its
is a summary of a recent study on                       to cover the added risk of lend-                    predatory lending criteria. This fun-
mortgage-lending practices that                         ing to borrowers with credit                        damental difference is the basis of
focuses on this issue and an oppos-                     imperfections, does not take into                   the disagreement between the two
ing view of the study’s methods                         account the borrower’s ability to                   organizations’ views of the validity
and conclusions. The discussion                         repay the loan, or violates fair-                   of the study.
underscores the difficulty in reach-                    lending laws by targeting wom-
ing a consensus on the magnitude                        en, minorities and communities                      Data and Methodology
of predatory lending in the U.S.                        of color; or the loan contract                      The NCRC conducted separate
                                                        contains abusive terms and con-                     analyses for home-purchase and
In December 2003, the National                          ditions that trap borrowers and                     refinance lending in 10 metropoli-
Community Reinvestment Coali-                           lead to increased indebtedness.                     tan statistical areas (MSAs) selected
tion (NCRC) released a study of                         Then, the NCRC summarizes its                       from different regions of the U.S.
subprime lending in 10 large met-                       primary finding: “Using the best                    It used information for home lend-
ropolitan areas.2 On the basis of its                   available industry data on credit-                  ing from the 2001 Home Mortgage
analysis, the NCRC contends that                        worthiness, NCRC uncovered                          Disclosure Act (HMDA) database,
“the credit system is broken and                        a substantial amount of preda-                      1999 credit-scoring data from one
discrimination is widespread in                         tory lending involving rampant                      of the three large credit bureaus,
America.” The NCRC offers several                       pricing discrimination and the                      and demographic information from
recommendations covering pro-                           targeting of minority and elderly                   1990 census tracts. To identify a loan
posed legislative initiatives and ac-                   communities.”                                       as subprime, the NCRC relied on a
tions that should be undertaken by

1
  HFC/BFC were alleged to have overcharged borrowers with fees and interest and to have misled customers about other loan terms, such as balloon notes and
credit insurance.
2
 “The Broken Credit System: Discrimination and Unequal Access to Affordable Loans by Race and Age.” The metropolitan areas were Atlanta, Baltimore,
Cleveland, Detroit, Houston, Los Angeles, Milwaukee, New York, St. Louis, and Washington, DC.


14
Predatory Lending: How Pervasive Is It?
list of subprime lenders compiled                         substantive changed in credit con-                      NCRC’s Recommendations
by the U.S. Department of Housing                         ditions, markets, neighborhoods,                        On the basis of its analysis, the
and Urban Development (HUD). For                          or individual financial conditions                      NCRC makes several recommenda-
a lender to be included on the list,                      during this period. Since the NCRC                      tions, among them: Congress should
more than 50 percent of the loans in                      cannot identify any specific loan as                    enact comprehensive anti-predatory
its portfolio had to be subprime.                         a subprime loan, the MBA ques-                          lending legislation; bank regulatory
                                                          tions the NCRC’s use of HUD’s list                      agencies should expand coverage of
A key set of variables used in the                        of subprime lenders that self-re-                       the Community Reinvestment Act
NCRC’s study were credit scores.                          ported that over 50 percent of their                    (CRA) to include independent mort-
These scores measure the likeli-                          loans are subprime. According to                        gage companies and all non-deposi-
hood of future delinquencies and                          the MBA, this implies that up to                        tory affiliates of banks; the Federal
foreclosures. In the NCRC’s study,                        50 percent of the loans of some of                      Reserve Board of Governors should
scores ranged from 0 to 1000, and                         the lenders classified as subprime                      intensify its anti-discrimination and
lower scores indicated a lower risk                       are really prime loans. Likewise,                       fair-lending oversight; and federal
of borrower default.3 For use in the                      some of the lenders not classified                      agencies should be more diligent in
analysis, the NCRC constructed five                       as subprime (i.e., less than half of                    enforcing the fair-lending laws in
equal categories of risk or quintiles:                    their business consists of subprime                     the case of nonbank lenders.
very low, low, moderate, high, and                        loans) also make subprime loans
very high. The NCRC adjusted the                          but are excluded from the analysis.                     The MBA contends that the imple-
database for each census tract to                         Thus, the data may well misrepre-                       mentation of the NCRC’s recommen-
include the number and percent of                         sent the true marketplace.                              dations would result in deterioration
neighborhood residents in each of                                                                                 in the efficiency of credit markets,
the five risk categories.                                 The MBA also has reservations                           which, in turn, would lead to a rise
                                                          about the NCRC’s decision to                            in the cost of credit for everyone,
The NCRC used multivariate regres-                        separate credit scores into quin-                       including those the policy proposals
sion analysis to explain the percent-                     tiles. Such a division suggests that                    are designed to help. Thus, a whole
age of subprime loans in a census                         one of the quintiles contains credit                    group of borrowers might be locked
tract while controlling for various                       scores between 600 and 800. The                         out of the market because they can’t
demographic, economic, and risk                           MBA indicates that based on its                         afford the cost of credit necessary to
factors. It found that a�er it took into                  information, this range contains                        compensate for the risk of lending
account risk, housing-market condi-                       not only the majority of prime                          to them.
tions, and other factors, the level                       loans but also a large share of
of subprime lending for refinance                         subprime loans. Consequently, the                       Epilogue
increased in nine of the 10 MSAs as                       MBA doubts that the credit-score                        No doubt the NCRC would have
the proportion of African-Ameri-                          variable adequately distinguishes                       some responses to the criticisms
cans in a neighborhood increased                          between the prime and subprime                          raised by the MBA. However, the ex-
but in only six of the 10 MSAs for                        markets.                                                change, as presented, is informative.
home-purchase lending. Similarly,                                                                                 One important lesson learned from
the portion of subprime refinance                         Finally, the MBA suggests that                          the preceding discussion is that
lending increased in seven of the 10                      when the NCRC interprets the re-                        although predatory lending might
MSAs when the number of residents                         sults of its analysis, it confuses cor-                 be a subset of subprime lending,
over 65 increased in a neighborhood                       relation with causality. Correlation                    the two should not automatically
but in only three of the 10 MSAs for                      indicates a relationship between                        be considered the same. Specific
home-purchase lending.                                    two variables. Causality implies                        actions by lenders must be identified
                                                          a cause-and-effect relationship                         as abusive before their behavior is
The MBA raises several concerns                           between two variables such that                         considered predatory. Nonetheless,
about the data and analytical ap-                         a change in one variable causes                         it is fair to say that the issue about
proach used by the NCRC. First, it                        a change in the other variable.                         the extent of predatory lending in
questions the use of data (HMDA,                          Thus, the MBA maintains that the                        the U.S. has yet to be resolved.
credit scores, and census) collected                      NCRC is overstating its findings if
more than 12 years apart by various                       it claims to have demonstrated cau-
sources. The MBA doesn’t believe                          sality when it is presenting only a
the implicit assumption that nothing                      correlation.

3
  The NCRC’s use of credit scores differs from their use by credit reporting agencies in two main respects. One, the NCRC’s study includes individuals with no
credit score. Therefore, the NCRC’s range starts with zero while the range for credit reporting agencies starts at 300. Two, the NCRC’s interpretation of the
range of scores reverses agencies’ interpretation. According to the agencies’ scores, a lower score indicates a higher risk of borrower default and a higher score
means lower risk.

                                                                                                                                                                 15
District News                ...continued from page 13



www.ceosforcities.org/research/                   hood Reinvestment Corporation         approval and pre-qualification. See
index.htm.... The U.S. Conference                 and LISC.... Wachovia Corpora-        www.phil.frb.org/src/srcinsights/
of Mayors has started a national                  tion received Fannie Mae’s Com-       index.html.... LISC’s electronic
campaign to encourage mayors to                   munity Lending Hero Award             newsle�er has useful information
participate in financial-education                for outstanding commitment to         on conferences, funding opportuni-
campaigns through community                       community lending and demon-          ties, and resources. To subscribe, go
coalitions. Mayors are to promote                 strated excellence in helping reach   to www.lisc.org/resources/register....
local financial-education programs                underserved markets.... Project       The Housing Alliance of Penn-
during Dollar Wi$e Week from                      H.O.M.E. in Philadelphia received     sylvania has published Addressing
September 27 to October 1, 2004. For              an award from the National Law        Community Opposition to Affordable
information, call Carolyn                         Center on Homelessness and            Housing Development: A Fair Housing
Merryweather at (202) 861-6759 or                 Poverty for addressing root causes    Toolkit and has held a conference on
see dollarwiseonline.org.... A Practi-            of homelessness.... The latest is-    this subject. To obtain a copy of the
tioner’s Guide to Combating Preda-                sue of the Philadelphia Fed’s SRC     publication or to learn about ongo-
tory Lending, which describes                     Insights contains articles on the     ing work in this area, contact the
nonprofit and public prevention                   final rule amending Regulation        alliance at (215) 576-7044 or info@
and intervention strategies, may be               B, which implements the Equal         housingalliancepa.org.
accessed at www.lisc.org. The report              Credit Opportunity Act, and on
was compiled by the Neighbor-                     the difference between loan pre-                           — Keith Rolland




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