Tracking Access to Capital in Philadelphia August 2017
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This document summarizes lending trends in Philadelphia from 2007 to 2015. It finds that lending to African Americans, Hispanics, and low-to-moderate income borrowers decreased over this period, while denial rates for these groups increased compared to whites and middle-upper income borrowers. It also shows that certain neighborhoods had much higher rates of subprime lending. Additionally, it demonstrates through a natural experiment that lending dropped more sharply in Philadelphia neighborhoods that lost their eligibility under the Community Reinvestment Act during this time period. The document concludes by calling for going beyond the 40-year old CRA to address continued inequities in access to capital.
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Tracking Access to Capital in Philadelphia August 2017
- 1. Tracking Access to Capital in Philadelphia August 14, 2017
- 2. Responsible Banking Ordinances Continued Inequities in Access to Capital in Philadelphia A Natural Experiment Proves the Impact of CRA
- 4. Access to Capital = “The American Dream”
- 5. The City of Philadelphia as an Informed Customer…
- 6. …Not as a Regulatory Body
- 7. Continued Inequities in Access to Capital in Philadelphia
- 8. Philadelphia Lending Activity ($B) $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 Home Small Business 2007 2011
- 9. Philadelphia Lending Activity (#) - 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 # Apps # Prime Loans # Denials 2007 2011
- 10. % of Home Loans to Borrowers That Are… 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Afr-Am Hisp LMI 2007 2011 2015
- 11. Denial Rate Ratio 0 0.5 1 1.5 2 2.5 Afr-Am/White Hisp/White LMI/MUI 2007 2011 2015
- 12. Subprime Penetration in Philadelphia Neighborhoods (citywide avg: 6.5%) Organization Main Ethnic Grp HH Income as % of Regional Avg % Loans Subprime APM Hispanic 24.5% 11.1% HACE Hispanic 18.6% 16.2% AWF Afr Amer 30.7% 26.1% OARC Afr Amer 53.3% 15.9% Project HOME Afr Amer 25.5% 20.7% PEC Afr Amer 21.2% 6.8% American St EZ Hispanic 28.3% 3.6% North Central EZ Afr Amer 19.5% 9.8% West Phila EZ Afr Amer 21.3% 18.2%
- 13. Philadelphia vs. Other Cities – Home Loan Penetration Minority vs. Non Upper/Mid vs. Mod/Low Baltimore 2.7 2.9 Philadelphia 2.3 6.6 Pittsburgh 3.0 1.7 New York 2.7 4.7 Charlotte 2.0 4.7 Washington DC 1.0 1.7
- 14. Philadelphia vs. Other Cities – Denial Rate Ratio Minority vs. Non Upper/Mid vs. Mod/Low Baltimore 1.7 1.9 Philadelphia 1.7 1.6 Pittsburgh 1.2 1.8 New York 1.3 2.1 Charlotte 1.7 1.9 Washington DC 2.0 2.3
- 15. A Natural Experiment Proves the Impact of CRA
- 16. Change in Lending Activity in Newly Ineligible Philadelphia CTs
- 17. Change in Lending Activity in Newly Ineligible Philadelphia CTs
- 18. Going Beyond 40 Years of CRA
- 19. Thank You! Lee Huang Senior Vice President and Principal Econsult Solutions, Inc. 215.717.2777 huang@econsultsolutions.com @econsultsolutns 1435 Walnut Street, 4th Floor Philadelphia, PA 19102
Editor's Notes
- I’m thankful for the opportunity to present this morning and even more thankful for the opportunity to hear from so many other great presenters and to participate in such an important and rich topic. So it is in my interest and yours to be brief, so as to leave as much time as possible for my fellow presenters and for Q&A. Photo (left to right): Find Philly Real Estate, WMA Property
- But in the time I do have, I want to hit three things. One is the notion of a Responsible Banking Ordinance, which Philadelphia was an early adopter of and which have now been implemented or are being discussed in 20+ other cities. The second is to take a look at access to capital here in the city of Philadelphia, to see whether and where inequities are occurring. Lastly, I want to briefly share the findings from a colleague of mine and yours at the Philly Fed, Lei Ding, a fascinating natural experiment in CRA designation which proves the impact of CRA on low-income communities and communities of color in the region.
- Let’s start with the notion of Responsible Banking Ordinances.
- Access to capital is fundamental to the mythology and reality of the American way of life, and is an important part of a vibrant and inclusive Philadelphia. Whether it is personal borrowing to fund the purchase of a home or commercial borrowing to build wealth through business ownership, banks provide crucial services to households and neighborhoods, and it is of utmost interest to municipal governments as to whether capital access is reaching equitably into low-income communities and communities of color. Photo: Shutterstock
- 10+ years ago, Councilman Wilson Goode passed legislation here in Philadelphia requiring each bank that is authorized to hold deposits for the City (in other words, for whom the City is a customer), to be subject to an annual review of its home lending, business lending, and branch location decisions, and to respond to such a review with a statement about how it was going to improve performance going forward. Councilman Goode understood that having the City as a customer gave the City some leverage to advocate for equitable access to capital, and that accountability comes best through transparency. He also knew that since banks are so heavily regulated, there is a considerable amount of bank performance data that was publicly available. Crucially, he knew that it was within the City’s right to request such an annual review, because it came from the City’s desire to be an informed customer, just like you or I might want to know how a bank does on these issues before deciding to do business with it. Photo: Grassroot Institute of Hawaii
- The compare and contrast between Philadelphia and New York City is instructive. New York City modeled its Responsible Banking Ordinance after Philadelphia’s, and we were hired to conduct the annual study that emerged from this new legislation. Unfortunately New York City’s ordinance went too far on two counts. First, it requested information of banks that is not otherwise publicly available, imposing a burden on banks and requiring them to disclose information that could be seen as proprietary or sensitive. Second, it directly stated that poor performance would be grounds for dismissal as an authorized depository. The banks were able to successfully argue that these overstretches put the City in the role of regulator, preempting state and federal banking laws, and the US Supreme Court ruled in the banks’ favor, declaring the ordinance unconstitutional. Translation: no more responsible banking analysis. Which is a shame for New York City, because there is so much we could’ve learned without the legislation overstretching in these ways. Photo: CNBC
- Now I’m going to show you a series of visuals that give you a sense of what is happening here in Philadelphia and how that compares to other cities, all of which are based on publicly available data.
- First you can see that in terms of lending activity levels, we are still way down from pre-recession levels.
- Applications and originations are all down from 2007 peaks.
- A lot of how we look at this data is to see if there are disparities among low-income communities and communities of color. Here we see the relatively low and declining proportion of loans to African-American households, in a city that is 44% black.
- Denial rate is another interesting data point to look at, particularly whether it differs between different kinds of applicants. When we say “denial rate ratio” here we mean the denial rate for African-Americans and Hispanics, relative to the white denial rate; or the low- to moderate-income denial rate relative to the middle- to upper-income denial rate. So, as of 2015, African-Americans and Hispanics were being denied at a rate more than double that of whites, and that disparity has grown since pre-recession days.
- Here’s a quick dive into subprime penetration at the neighborhood level. Here are 9 neighborhoods, as defined by the main CDC that serves them, that are majority minority and have income levels well below the regional average. You can see subprime penetration well in excess of the citywide average in almost all of these neighborhoods.
- Here is the first of two comparative tables looking at Philadelphia’s results vs. other cities. Earlier this year, in conjunction with Next City, we calculating banking metrics for 25 cities around the country and put it on an interactive map, which I welcome you to explore on your own time. For now, take a look at how Philadelphia compares against some other nearby cities (and Ms. Gardineer, I understand you have a Carolina connection so I’ve included Charlotte, which of course is a big financial services hub on the East Coast). Here we have two sets of numbers, representing home loan penetration. So the 2.3 and the 6.6 for Philadelphia tells you that, on a per 1000 HH basis, non-minority neighborhoods receive 2.3 x more home loans than minority neighborhoods, and upper/middle income neighborhoods receive 6.6x more home loans than low/moderate income neighborhoods. The former number is middle of the pack vs. the comparison cities, while the latter number is the highest of the group.
- The 2nd comparative table looks at denial rates in different kinds of communities. So the 1.7 and 1.6 for Philadelphia tells you that denial rates in minority neighborhoods are 1.7x greater than denial rates in non-minority neighborhoods, and denial rates in low/moderate income neighborhoods are 1.6x greater than denial rates in upper/middle income neighborhoods. The former number is middle of the pack vs. the comparison cities, while the latter number is the lowest of the group.
- Since today’s topic is CRA, I was asked to comment briefly on some very interest performed by my colleague and yours, Lei Ding at the Philly Fed. A few years back, CRA eligibility, which is based on household income relative to the regional average, was recalculated for all Census Tracts in the region because what was considered “regional average” went from the 5-county region as a whole to being separately calculated for Philadelphia and Delaware counties as one unit, which had a lower household income level than the region-wide average, and Bucks, Chester, and Montgomery counties as another unit, which had a higher household income level than the region-wide average. As a result, in the city of Philadelphia, there were a number of Census Tracts that were once below the income threshold and therefore were CRA eligible, that once the lower region-wide household income level was used, became ineligible. This makes us economists really happy because it is a pure natural experiment – in other words, nothing changed about these Census Tracts in terms of household income levels, only that they were reclassified as CRA ineligible when once they were CRA eligible, so now we can see what effect CRA eligibility has on lending levels - although the results are anything but happy.
- Here we see that in the Census Tracts in Philadelphia that were once eligible that became ineligible, lending activity declined, particularly among minorities. Again, nothing about these Census Tracts or households changed except for their CRA eligibility. Hence, CRA ineligibility led to less lending activity.
- Here’s another look at lending activity, this time sliced by income level. Because CRA targets lower-income households as well as lower-income neighborhoods, you see that lower-income households in these Census Tracts suffered far less, whereas slightly higher income-level households saw significant declines in lending activity. So you can really see the difference CRA eligibility has on lending activity low-income neighborhoods.
- In conclusion, we have come a long way in 40 years but still have a long way to go, and I hope these data points I’ve shared with you have helped you understand the picture more clearly and motivate you to continue to play your part to get a better handle on how we can ensure equitable access to capital in all communities in the US. Photo: Enterprise Bank & Trust