• Fri. Dec 1st, 2023

Housing Finance Bank

Housing Finance Bank, The Real Thing

US bank branch closures widen social inequality | FT Film

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No other place like home.

It’s a small town. We just want to be able to take care of our own. Banks come and they go. Why this one is leaving is not being explained.

People were wondering, what are we going to do?

That’s just one more negative against us that we didn’t have anything to do with, that we can’t help.

You have to go back to how banks started and who they were created to serve.

Redlining basically isolated African-American people for almost 100 years.

When you have unequal access to the banking system, you end up with unequal outcomes.

In Mississippi, there are actually more payday lenders per capita than Starbucks.

There’s cash on the top, no credit checks, instant approval. Those are some of the terms that they use.

My banking is important. My dollars matter.

The social contract with banks has been broken.

Coffeeville is a great place to live. We have school systems. We have a courthouse. We have drugstores. We have other businesses that are keeping us alive and well. They just need more people involved with the growth process, the beautification process.

We got a notice early part of the year said we had 90 days. We’re closing. We’re moving out. They were to notify all people that had accounts there. It was very shocking in a sense. Elderly was really crying because of the commute. The businesses were complaining. It’s just difficult to handle business here when we don’t have banking.

So where are we going now?

This is The Ville. It’s the most recent restaurant that opened here.

I own the restaurant, The Ville, and that’s where we’re at here in Coffeeville. It’s a little hole in the wall, and we got really good food. We were voted in the top five best beef burgers in Mississippi last year. It’s very much a community place.

I like living in Coffeeville a lot more than I would probably like to admit. As far as the town, you can’t find better people that work together and mostly get along. It’s just hard when you’re losing everything, and you have to go somewhere else for everything.

Before the bank closed they were literally two blocks from us. So I could send somebody walking to go get change if we needed it. And now I have to drive 20, 25 minutes one way. It doesn’t seem like it would be that big a deal, but you can’t even just go to the other businesses and swap change because they have to keep what they’ve got. And then you have to be a female driving all that way with that whole week’s deposit by yourself. You get a little nervous. People pay attention. They know when you’re coming and going. They know where you’re going. So it’s definitely been a hardship.

How does that make you feel knowing that your community is a banking desert?

I am heartbroken for Coffeeville because that’s such a negative thing to have attached to our name when we really are good people.

Hello, Mr Taylor.

Hey, how you doing?

Got some visitors here.

All right. My name is Jermaine Taylor. I am a screen printer. I make bulk T-shirts. Everything is in bulk. I’ve been doing it self-employed eight years here in Coffeeville.

So tell us a little bit about the bank in Coffeeville.

Where my business is located is just actually footsteps away from the bank. I didn’t have to worry about spending money in gas or anything like that. I don’t make deposits every day or twice a day any more. Sometimes it’s once a week. Sometimes it’s the next week later, and that becomes a security issue. There’s plenty of money in this town, and it’s definitely not a desert town.

My wife and I own the local newspaper here in Coffeeville. It’s called The Coffeeville Courier. My business is a little different from everybody else’s. The hamburger place sells hamburgers. I sell advertising. Well, that depends on this town to advertise for different things to promote their business, to help promote our school. Well, if businesses are closing, or businesses won’t come here because of the banking issues, then that hurts our… it hurts everybody. And you take away the business side of it, and just look at the community itself.

It made it hard on the citizens, young and old alike. People were wondering, what are we going to do? What happens to our money that’s in this bank? We need a bank. If I wanted to buy a house, I need a bank to be able to go in and sit down and speak with a loan officer.

The federal government has designated Coffeeville as a banking desert. How does that make you feel?

Unimportant, neglected in some way, like a second class citizen. And I’m not. I am important. My banking is important. My dollars matter.

Banking is pretty well the lifeline of this community right now. Everybody’s wanting a bank. They want businesses. They want housing, but they’re crying about the bank.

There are less branches in black communities, less branches in low income communities. And so when a branch closes it has a disproportionate impact. We’ve seen about 7,000 branches close since 2017, about 4,000 since the start of the pandemic in March of 2020. So the pace of branch closures has really accelerated, which is partially driven by the fact that people are doing more banking online, but it’s also driven by profitability.

A lot of communities – especially in the southwest of the US, southeast, certain areas in the Midwest – that have generally been in decline have lost their banks. So as banks merge, they close up their inefficient branches. That’s part of the model for banking.

Banking deserts exist across the country, but they are more concentrated in places like the Deep South, in communities of colour, in inner city urban neighbourhoods.

Having a relationship – a good relationship – with a financial institution is really what paves the way and helps people build assets so that they can also build generational wealth.

The primary driver of wealth, the primary asset on most Americans’ balance sheet, is a home.

Most of the ways in which Americans build wealth involves borrowing money. So when you have unequal access to the banking system, you end up with unequal outcomes.

The inequality comes not from your great great great grandfather. It comes from who got to own a home in 1950. Who was being helped by the federal government? Who had access to that capital?

It’s historical. We have to get a good understanding of why people act the way they act.

I like to tell the story of the Freedman’s bank. When we look at inequality in America, we see pretty deep divides on the basis of race. A lot of that comes from access to banking services, both historical and in present day.

African-Americans have had a long history in this country of being denied opportunity to financial structures and institutions. So you can go to slavery. You could go to the post-slavery period, called Reconstruction in America, where there was the creation of the Freedman Bank and the creation of some institutions to help African-Americans.

The result of the Civil War was the collapse of the southern banking system. The United States Army still occupied the south. And so they had all of these soldiers, many of them who were African-American, and they had to figure out how do they pay them. So one of the things was to create a bank, the Freedman’s Bureau Bank, which allowed the government to pay these soldiers but also to set up a means for the newly freed to save their money.

It was a big name institution based right here in Washington DC, right next to the White House.

Millions of dollars were saved by these newly freed people.

A lot of the people in the community at the time were under the impression that their savings and their wages would be federally insured.

What happened was with the Freedman’s bank, it took a series of really risky bets on railroads, on other investments, and went bankrupt and lost everybody all their money. So there’s really good reasons why people distrust the banking system.

Why is there a gap between communities of colour and banks in this country? And I think what you find is that oftentimes there is a lack of trust.

I was born in 1940. People in my community, they didn’t trust the banks because the banks collapsed.

The urban development, though, is crucial to understand another dimension that banks played. This is where the wealth of the 21st century is being created, opportunity to access to land and capital in urban areas and the jobs that go with them. Part of that is to create these dividing lines that the banks underwrote and creating these segregated housing patterns.

How do we do that? Well, we build massive subdivisions which end up replicating the patterns that have been put in place at the beginning of the 20th century. And these maps that are drawn by the federal agencies charged with this have red lines to indicate these aren’t good neighbourhoods.

Redlining refers to the practise that banks and the federal government used to have of really drawing red lines on a map around certain neighbourhoods and grading every neighbourhood from more desirable to less desirable. Nine times out of 10, the places that were redlined that were deemed to be less desirable were minority neighbourhoods, immigrant neighbourhoods. And so banks in redlined communities would not make loans.

We’re not going to underwrite mortgages for this community. We’re not going to insure houses in this community. And we’re not going to give business loans in this community.

Racial segregation and discrimination was very much baked into the credit model, the banking model. The racial wealth gap, first of all, that wealth was very much about housing. It’s the entire Midwest, Southwest, Southeast, and in inner cities that were redlined.

The flow of capital repeated into white-only neighbourhoods, continued to cut off black neighbourhoods.

You would have banks saying, well, this is a risk decision. This is not a race decision.

Every single subsidy that built the middle class, whether it’s the homestead loans, the farm loans, the New Deal, mortgage, student loans, all of those – not accidentally but explicitly – exempted certain races, black predominantly, also Mexican, Japanese. Because 96 per cent to 99 per cent of all mortgages from 1934 until around 1970 were funded by the FHA, that those neighbourhoods never got mortgages.

What they got instead were things like contract loans, instalment loans. They were paying twice or three times as much in rent. Your school taxes were linked to your mortgage, the roads, the parks, all of the goodies of the sort of make America great was provided through those subsidised mortgages. And that is the American dream, and it was very much financed by the federal government. And if you were not a white male breadwinner, you did not get that loan.

Our studies have shown that 70 per cent of communities that were redlined in the 1930s are still low income today.

Land ownership sits at the basis of all capital. And so that history of not being treated equally or fairly in our system is what caused the racial wealth gap.

It starts at the root, I think, when you look at the disparities between communities of colour and those relationships with financial institutions, at the very foundation of relationships themselves have not been created or nurtured. And so you find that in many communities of colour, they rely on other alternative lenders.

And in the absence of a bank or credit union, the payday lenders, the check cashers, the financial predators come in and fill the gap.

I said that there were two banking systems. One that is incredibly federally subsidised that plugs in directly to the Fed. And that system largely serves those who have wealth or have enough money to put in a bank account. And then there’s this whole other Wild West system.

You look right across the street. There’s one here right on the corner. It says cash on the top, no credit checks, instant approval. Those are some of the terms that they use. I really believe that with the payday lending places, the advantage that they have is it’s instant, and they can just go in and get a loan and come right back out with it but not thinking long term how it really affects them and how it really puts them back in the hole.

In Mississippi there are actually more payday lenders per capita than Starbucks. Payday lenders, they are creative. They will pop up in the smallest of places. It is, simply put, a way for people to have access to small dollar amounts – they’re limited at $500 here in the state – on a short-term basis, typically 30 days or less, with incredibly high interest rates. In Mississippi that’s 521 per cent APR. That oftentimes the principal is never repaid, and people just end up in a spiralling trap of debt that can take years or decades to break out of.

Relying on these kind of piecemeal solutions instead of a one-stop financial servicer, i.e. a bank, means that you do end up spending a lot more money for basic services.

What is it about the Delta region that draws these predatory lenders here?

I don’t think it’s a secret when we look at Mississippi and how it’s ranked amongst everything – healthcare education – pretty much ranked last in a lot of things. So it’s not surprising to me that large employers or corporations would take advantage of a population that they think is not educated enough to understand what they’re getting themselves into.

We’re here to talk about financial planning, how to create wealth, how to keep your money, and the dos and don’ts of your money. It’s very important, especially coming from a small town, because we don’t have a whole lot here. And we’re actually trying to build the community up for the younger generation that’s coming along. And if they don’t ways to actually make money and be able to create generational wealth then the small town and the town surrounding will continue to go down.

For my experience, I don’t think most banks here in Mississippi are fair to a lot of loaners. I just think that if there is a system for loaners it should be a system for everybody and not for one group of people.

We use a lot of little community banks around here. Others prefer not to use banks.

Why do you think people go to the payday lenders instead of a bank?

Because it’s easier to get money from them than it is from the bank because if your credit is not a certain thing, sometimes the banks won’t let you get the money.

I tried to buy a house, and it was just one thing after another. We need your bank statement. We need your bills. What did you do in 2015? What happened? Why you weren’t working? I didn’t try to get a house in 2015. I tried to get a house in 2021. Why can’t we talk about what I’m doing now?

In areas that are rundown or have a lot of poor, not really middle class, people, they feel like they can feed off of that because they know that they don’t have the money, especially if you’re living paycheck to paycheck.

I don’t know. It’s just hard. It’s hard. And it hurts because you want to do so much for your family. And you know, your kids see you’re hurting, and they see you wanting to do better, and they see you struggling. And they’re, Mum, what’s wrong? What’s going on?

All of our products and services are regulated at both the state level and the federal level. What we offer is basic financial services that are transparent, that are convenient, that are cost-effective, and that provide a bridge for our customers.

There’s this facade of informality. They all have different signs, and it looks to be embedded in the community. They will have two payday lenders owned by the same company, on the same block, with different signs, pretending like they’re different companies. So that’s a model that is used.

Many of our customers are either subprime customers or have thin or no credit files so that they are somewhat of a greater risk.

Here’s what payday lenders do that banks don’t. So payday lenders and check cashers have their fees listed usually. And each week, you may pay $50 to renew that loan. Now that is an absurd interest rate to keep rolling over that loan, but it’s predictable. With banks, there are pages and pages of legalese and jargon that is purposefully meant to bury that APR rate or that they may change the fees one month to the next.

Our customers are intelligent. They understand their financial lives. To assume that our customers get trapped is a criticism of our customers. An annual percentage rate contemplates that a loan will be outstanding for a year. Our products are often paid off in a much shorter period of time. That annual percentage rate will distort the actual cost of the credit.

Also here with us today is the great Bill Bynum, the CEO of Hope Credit Union.

And Mr Bynum, as you know, has helped connect so many people in Mississippi and across the south with the opportunity and, yes, with hope.

We were very excited to be able to host Vice President Harris earlier this year. We invited her to come to the Delta to see first-hand the opportunities that exist and how the administration could leverage its efforts alongside community development financial institutions like Hope. In many of the towns that Hope is located, many neighbourhoods where we’re located, we are the only financial institution. 80 per cent of our branches are in communities of colour. 30 per cent are in rural areas.

Credit unions and banks differ in some fundamental ways, but mostly it’s who owns the institution. All credit unions are owned by their members, whether you have $1,000,000 or $10 in deposits, you have one vote for the board and for key policy decisions.

I think in many cases, financial institutions often don’t know their neighbourhoods or communities well enough, particularly communities of colour. And so they actually need CDFIs as partners to help them not only identify the need but to come up with solutions on providing affordable access and credit to underserved communities.

I’d describe the Delta region as an amazing part of this country. It produced some of the most innovative people, not just BB King or the writers and the musicians and artists. But just imagine people who do so much, who survive with less. So there’s systemic disparities in the banking system.

Black entrepreneurs are three times more likely to report that they did not apply for credit for fear of being turned away by a bank. Black and Latino homeowners are rejected at a higher rate when applying for home loans from traditional financial institutions, even when they have credit profiles similar to other applicants.

We’ve been fortunate to be able to go into communities, in many cases, where banks have closed and convert those banks into a credit union branch. One great example is Moorhead, Mississippi.

Hello, Taylor.

Hi. Thanks for having us.

Yeah. Well, it’s good to have you guys here in our small community. My name is George Holland, again, and I’m the mayor here in the town of Moorhead. I’ve been mayor for 14 years. I was born here. My family were sharecroppers. It was 13 of us in a small house two and a half miles east of Moorhead.

Moorhead is known for where the Southern crossed the Yellow Dog. Those two railroads cross here in Moorhead. And that was, back in the early 1900s, late 1800s, everything moved by rail. And Moorhead started out to be the largest community, the largest city in the Delta.

When I was a kid, this town was hustling and bustling. It was a real productive town. Friday evening and Saturday evening, you couldn’t hardly walk down these streets for the traffic, for people, but now it’s just dead.

When I went to Moorhead to talk to Mayor Holland and tell him that the bank branch was closed he invited me to get in his truck and drove me around the town. He showed me the community. He showed me a neighbourhood called Eastmoor, where homes had been built in the ’70s to bring the workers, the black former plantation workers, closer into town so that it would be more accessible to the businesses that relied on them. But it was built outside the city limits, interestingly, largely because they wanted to limit the impact of those residents on local elections.

And the houses were built. They were built terrible quality. And it didn’t take long before you saw running sewage in the streets. There were electrical fires. Some people died in some of those fires. So we were able to work with the mayor, work with some of our partners, and bring capital into that community. And we ultimately have renovated every home in that neighbourhood. That’s what a bank does. That’s what a bank should do. It is the primary economic engine for many communities, particularly in small towns.

And I believe it was 2015 that Hope filled the void that really, really changed things here in this community.

When a bank leaves, we’ll try to negotiate a contribution, both of the facility and of financial resources to help us to invest in getting that branch to a level where it can perform as a community development finance institution. And in some cases, we’ve been able to work with institutions that have been open to that. In other cases, we’ve had to go to the Senate and to the House and ask policymakers to hold them accountable because there are laws that require that banks reinvest in communities where they extract a profit.

I think banking is a utility, just like water. Nobody would think about cutting off water that goes to everybody’s house. If you don’t have access to credit, you really can’t fully participate, not only in the financial system, but in the democracy.

The social contract with banks has been broken. We give you the Federal Reserve liquidity. And in return, you serve the communities. If we’re going to support the system, let it serve everybody. I don’t think this is a problem that the market should fix. It was a problem created by policy. Banks run on policy. We manage banks through a variety of different regulations and laws. We should make sure that those laws are serving the communities that are most vulnerable.

So there’s something called the Community Reinvestment Act that’s a long-standing obligation on banks to serve low and moderate income communities. It ensures that they both provide basic banking services, there are other tests that go along with lending and investment. That actually is undergoing a big review right now in the United States. And so it’s really going to be modernised to take into account the very different way that banking services are both delivered and consumed.

It was written in 1977, and it was to reverse redlining. We hardly had the globalised digitised system that we have today. So it certainly needs an update.

It’s easier to tweak something that exists than it is to create something new because we need to really just take a look at what’s tried and true, what’s in place.

We are encouraged by the trend, which shows a steady decline in the total share of unbanked households. Banks around the country through American Bankers Association is really determined to make progress in bringing, not just the total number down, but making sure that communities of colour all across the nation have a lower percentage of being unbanked.

It is still the case that the average American lives within proximity of 25 bank branches. That is not to say that is everybody, and we are working hard and acknowledge the problem. It is also true that the digitisation of banking services means that there is less demand, in some cases, for customers to go into bank branches.

The pandemic forced a change in consumer behaviour. Banks have been talking about digitisation for years and years and years. They want more people to use their app. It’s cheaper for them.

The goal is to get everyone on digital. The problem is that those very same communities that are banking deserts don’t have broadband. We’re talking about elderly populations. We’re talking about tribes. We’re talking about places where there aren’t the same kind of systems.

I think banks will benefit by really expanding how they look, not only at those populations that have been traditionally unbanked or underbanked, but also the opportunities that are available if they bring them into that system and help grow the customers themselves.

Everybody who’s outside of the banking system is a potential customer, and banks want customers. One of the most important solutions we see that’s really bearing fruit is encouraging our banks to offer what are called Bank On certified accounts, a basic bank account that is fully functional, but it also has a special set of guardrails so that people who are not experienced with having a bank account can be completely confident.

This really starts with the inability to access capital and credit. There need to be a number of solutions.

Saying financial literacy is something needed is not to say that you’re illiterate. It is just to say that you can’t be no more than what your experiences allow you to be.

By the time they get out of high school they should know how to do a checking account and a savings account and et cetera because this is core to how you build wealth in America.

More financial education and addressing some of that distrust would go a long way towards creating a smaller unbanked and underbanked population.

The banks ought to take a hard look at whether or not they can create mechanisms within themselves to deal with helping to repair things that are awry in our system. More than anything else, ownership closes the financial wealth gap.

Can we create an instrument here that says we can put people in housing with no downpayment?

As we become a nation that’s more diversified in terms of our demographics, you can’t make it if you have 50 per cent homeownership among black and Latino families.

If African-Americans are excluded from that financial mainstream, more than likely, they don’t have a savings plan to provide even greater benefit for their children. That becomes then a community problem.

The belief of this country is that if people work hard and do the right thing, we all should succeed, and we should all be able to have economic mobility. But that contract isn’t true for everyone because when people don’t feel like they can be part of the society – the social contract is broken for them – then they operate outside of that society.

If the market isn’t benefiting a majority of people, then we need to rethink what kind of market we have.


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