In a year when one out of every five blacks trying to buy a home in
Erie County was turned down for a mortgage, Omego Stafford and his family
of five bucked the odds.
Stafford, his wife, Yolanda, and three children moved out of a subsidized
apartment in 1993 and into their own four-bedroom home on Courtland Avenue,
near Delavan and Bailey avenues.
Lillian Warren and her elderly aunt did the same thing, buying a house on
Ruhland Avenue near Walden Avenue, even though they did not meet
traditional income or credit standards.
Ms. Warren and the Staffords achieved their home ownership dreams through
new programs designed by several local lenders to increase their lending to
low-income home buyers. Their homes are in sections of the city that have
benefited the most from the new lending policies.
Innovative approaches to lending have improved the minority lending records
dramatically at several banks and mortgage companies.
M&T Bank, Erie County's largest lender, has enhanced its minority lend
ing by combining minimal down payments, increased marketing in low-income
neighborhoods and a willingness to make smaller loans, which it keeps in
its own portfolio, rather than selling to investors, as do most lenders.
As a result, M&T's lending to blacks is spread throughout the East Side,
starting with newly built neighborhoods near downtown and moving in a
northerly direction toward the University at Buffalo City Campus.
M&T gave out at least half of the loans in 15 inner-city census tracts
where it or the other banks made at least 10 loans, an analysis of lending
patterns shows. The core area is bounded by Main Street on the west,
Broadway to the south, Bailey Avenue to the east and East Delavan Avenue to
the north.
M&T's efforts illustrate what lenders must do to increase their loans to
minorities, fair housing advocates say. That is because the problem is more
subtle than outright racism -- few believe that applicants are rejected
solely because of their race.
"M&T's lending record has provided proof that if neutral underwriting
criteria are used and fairly applied, that blacks are every bit as
credit-worthy as whites," said Scott Gehl, executive director of Housing
Opportunities Made Equal in Buffalo.
Credit rating holds key
Minority applicants often do not fall into the "typical" borrower profile,
which is slanted heavily in favor of the white middle-class borrower with a
good income, steady job and good credit history, experts say.
The modern mortgage market has exacerbated the problem. Lenders no longer
make mortgages and hang onto them; instead, they sell them to
government-backed agencies that pool hundreds of mortgages and then sell
pieces of those pools to investors. To reassure the investors, the mortgage
pools demand that borrowers meet standardized criteria that often work
against minorities.
Those standards do not fit low-income borrowers, who include a
disproportionate share of minorities.
"The key to the issue is credit," said Frank Parlato at Parlato Real Estate
on Grant Street. "In many instances, these people have never owned a house
before, and no one in their family has ever owned a house. For low-income
people, it is very difficult to get into the mainstream of credit. Most of
these people don't understand the credit system or how records are kept.
Many also have had legitimate problems in their life that have caused
credit problems."
Despite past problems paying bills, many already handle high rental
payments responsibly and would do the same with mortgage payments, experts
said.
To sell inner-city homes to lower-income buyers, Parlato's firm has found
it has to buy houses, fix them up, do credit counseling with individuals
and let them move into the homes and accumulate down payments before
applying for a mortgage.
Little money down
Ms. Warren did not meet traditional credit standards because her husband's
bankruptcy filing hurt her credit rating, even though she and her husband
are separated. Her only income is a support payment from her husband, and
her aunt's only income is a Social Security check.
She talked to Neighborhood Housing Services when she began looking for a
suitable double home.
"Their program was pretty good," Ms. Warren said, "but with our income we
didn't qualify."
She bought through Parlato and moved into her home -- without paying rent
-- four months before the mortgage was granted. Now she shares the home
with her aunt, her elderly father and several grandchildren. Parlato calls
her "a stabilizing influence" for the neighborhood who inspires others to
maintain their properties.
Although the Staffords had virtually no down payment, their first bid at
home ownership was aided by a mortgage company seeking to increase its
lending to low-income buyers.
Buying his own home "was always just a thought; basically the main fear was
coming up with the down payment and closing costs," said Stafford, 34, food
service manager at Longview Niagara, a family services center on Niagara
Street. "I've talked about it with Realtors at one time or another, but
they started throwing out fees. And I was told I wasn't in a certain
financial category, so pretty much I just gave up the thought."
Then Stafford talked to Parlato.
"They said that I was paying the same for rent as I would pay for a
mortgage," Stafford said. "He sat down and talked about my financial
obligations, my credit obligations and so on and talked about my savings
and spending habits and my priorities."
Stafford said he decided saving for a house was more important than buying
"a pair of sneakers." In four months he saved $ 500 to buy the $ 42,000
house through a new program at PNC Mortgage Corp. of America that helps
low-income applicants obtain mortgages.
John Young, who operates his own radio program on WHLD, decided he had to
get his own place when his rented house on Goodyear Avenue was burglarized.
He had a problem, however.
"When I was younger, I abused my credit," he said. "As I got older, I tried
to pay off everything."
He never declared bankruptcy -- "I don't believe in it," he said -- and he
eventually managed to secure credit access by depositing money in a bank
and using a credit card secured by the deposit.
Besides not having a perfect credit history, Young, 29, could not save the
necessary down payment.
Finally, by working with Parlato and using a program for low down payments,
he was able to buy a house on Keystone Avenue in the Bailey-Kensington
neighborhood.
For $ 46,000 he got four bedrooms and 11/2 bathrooms.
"It's gorgeous," he said. "It's a quiet neighborhood with a majority of
older people who keep the noise down. It is a family neighborhood,
something I haven't seen in a while."
White families helped too
Minority home buyers are not the only ones to benefit from these lending
programs. White buyers with low incomes or no money for down payments also
have gained easier access to loans.
Robert Hodas, a calibration technician at Niagara Gear, said he never
thought he would own a home because his income did not allow him to save $
7,000 to $ 8,000 for closing costs and a down payment.
He heard about a low down payment program administered by West Side
Neighborhood Housing Services and found he was able to buy a $ 74,500 house
on Bird Avenue with only $ 500 down. M&T made the loan.
"It's got five bedrooms and was built in 1904 -- it just takes your breath
away," said Hodas, 45. "You put this house in North Buffalo, and it's a $
135,000 home."
M&T and other lenders are looking beyond credit histories when dealing with
low-income applicants, said James Beardi, a senior vice president.
"We ask, what are their other demonstrated successes; have they paid their
rent; how are they handling their problems today?" Beardi said. "We have
tried to find something to rely on to make us comfortable about the credit.
We are satisfying ourselves that we are making a riskier loan, but a loan
we think is do-able."
Lenders who want to make more minority loans have to expand their
definitions of credit risk, fair housing advocates say.
Buyers should be able to establish credit by presenting letters from
landlords, rental centers and utilities showing they have made regular
payments, said Barbara Mervine, executive director of West Side
Neighborhood Housing Services, which has developed lending programs with
M&T.
Marine Midland Bank has adopted similar practices, said LuAnne Kingston, an
executive vice president.
"We haven't reduced our underwriting standards, but we have made them more
flexible," she says.
Are loans sound?
Some lenders have thrown out the standard debt-to-income ratios used in
determining whether an applicant qualifies for a loan because those
standards are not applicable to low-income borrowers, said Donna Burge,
senior vice president at PNC, an Illinois-based lender that has joined the
ranks of Erie County's top lenders.
"We have found that lower-income people in higher housing cost areas often
have to spend 50 to 60 percent of their income for housing costs in order
to survive," she said.
Most major lenders also have begun to review rejected minority loan
applications a second and third time in an effort to make the loan.
Key Bank improved its minority lending record because "we very actively and
seriously pursued the second and third review of minority applications,
where if the minority application isn't approved it is then further
reviewed by a more senior person in the mortgage company," said Robert
Bartkowski, community reinvestment officer for Key Bank in Buffalo. "If the
loan still doesn't meet secondary market rules, then we ask Key Bank to
review it for possible purchase by the bank."
Some question how serious the banks and mortgage lenders are about the
minority loan market.
One inner-city real estate agent who declined to be named worries about the
future of the low down payment programs. Key Bank, for instance, committed
a specific dollar amount to its program, and that money is used up, he
said.
Key Bank plans to introduce "a new product that will be equally attractive
and effective" in 1995, Bartkowski said.
Marine Midland already has exceeded the original limit on its low down
payment program but is still offering it and will expand the program to
include two-family homes, Ms. Kingston said.
Another real estate agent who asked to remain anonymous believes banks like
M&T are making loans indiscriminately so that charges of biased lending
cannot be raised to stop expansion plans. Community groups recently have
used the Community Reinvestment Act, a federal law that requires banks to
invest in their own communities, to pressure expansion-minded banks into
making additional lending commitments.
"M&T has a whole portfolio of loans that were definitely liberal and will
end up in foreclosure," the agent said.
"That's silly," countered Beardi at M&T. "If it's not a good loan for the
customer, it's not a good loan for the bank. You don't make any money if
you end up having to deal with a problem or a foreclosure. We are taking
risks, but we are taking them for the right reasons."
Critics also say few independent mortgage companies, which are bound by
fair lending laws but not the Community Reinvestment Act, are making an
effort to lend to minorities.
Outreach programs
Some lenders say they are making efforts to reach out to minorities.
Sibley Mortgage Corp. in Rochester, which is one of Erie County's largest
mortgage lenders, will start an outreach effort this year to find
individuals not currently in the market for a home "but who potentially
would be able to move toward home ownership," said Gregory A. Samp,
Sibley's president.
"We want to extend that effort to people who get rejected now," he says.
"We want to make sure that does not send them away and make them feel that
there is no hope."
Local banks have appointed urban loan officers to work in low-income city
neighborhoods. Several are working through local Neighborhood Housing
Services offices, which provide home ownership seminars, credit counseling
and referrals to lenders, said Nancy Fohl, interim director of Buffalo
Neighborhood Housing Services.
A pilot program at PNC seeks to prevent borrowers who have missed mortgage
A payments from losing their homes. It offers financial counseling and a
refinanced mortgage at a lower interest rate to borrowers who miss payments
because of isolated events such as loss of income or divorce.
Rose Ciotta, The News' specialist in computer-assisted reporting, gathered
and analyzed data for this story.