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Report: The Failures of Equitable Home Lending in Chattanooga

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The First Tennessee Bank building is located between Market and Broad Streets in downtown Chattanooga.

Chattanooga banks award only a fraction of the home purchase loans they originate to black families, and black families' applications for home loans are rejected at a much higher rate than those of white and Hispanic families, according to a new study released today.

While white families in Chattanooga dominate the lending market, Chattanooga Organized for Action found in its report that from 2011-2014, predominantly black neighborhoods were lending deserts — barring families from the most common way to build wealth. The report — "Whose Reinvestment? The Failures of Equitable Home Lending in Chattanooga" — took a four-year snapshot of the city's mortgage lending practices.

"Our banks aren't even dealing with the working class," said Michael Gilliland, COA board chairman. "It's not just a lack of loans, but the total absence of banks in black neighborhoods. Banks don't have a plan. They are required to do this, but nobody is calling them out on it."

The findings in the report, compiled using the public records banks report to the Community Reinvestment Act and the Home Mortgage Disclosure Act, show wide racial disparity in the community and that race matters when getting a loan.

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People gather outside for a ceremony to change the name from Capital Mark Bank to Pinnacle Bank. The building was formerly the main branch of Pioneer Bank at 801 Broad St.

For example, while one-third of the population in the city of Chattanooga is black:

- First Tennessee, one of the largest banks in the area, gave only one conventional home loan to a black family in four years.

- CapitalMark, now Pinnacle Bank, gave only one joint-filed conventional loan to a black family within the same time frame.

- And between 2011 and 2013, banks approved white applicants for home purchase and refinance loans 64 percent of the time, while black families had an approval rating of just 50 percent. When those numbers were adjusted reflecting population size, the disparity grew, showing black families are approved for loans only one-third of the time that would be expected compared with white families. They received a total of 430 of the 8,464 loans awarded in that time period.

Several representatives from the major banks said the report doesn't paint an accurate picture of the banks' involvement in the community.


Many banks make most of their home loans through government-backed and other secondary markets acting as loan origination offices. While the data in COA's report includes government-backed loans, such as FHA and VA loans, it doesn't include other secondary market loan information, which isn't available as a public record.

For example, at First Tennessee, the institution sold its mortgage company in 2008 and has partnered with other companies to meet many of their customers' mortgage needs, said Keith Turbett, First Tennessee's senior vice president. Therefore, the loans most popular with low- to moderate-income borrowers aren't reflected in the data the bank reports to the Home Mortgage Disclosure Act that is available to the public, he said.

Pinnacle's Chattanooga chairman, Craig Holley, said his institution sold most of the mortgages that were originated to a secondary market, because the terms and rates are often more competitive for consumers. He said the underwriters for the secondary market investors, not originating banks, make the decisions about which loans to approve and decline.

Holley also said the report doesn't reflect the bank's partnerships with nonprofit organizations and its commitment to community investment, particularly to affordable housing and small business lending. For example, he said, CapitalMark, which later merged with Pinnacle, was the lead bank funding the Douglas Heights development that is helping revitalize the Martin Luther King district.

"We're currently partnering with Habitat for Humanity in Chattanooga and Cleveland to provide more home ownership opportunities, and we are actively reaching out to other community partners that work to preserve and develop affordable housing," Holley said.

First Tennessee received a satisfactory performance rating, while Pinnacle received an outstanding performance rating under the Community Reinvestment Act, which evaluates banks' records of meeting the credit needs of the entire community, including low- and moderate-income neighborhoods.

The National Community Reinvestment Coalition, a Washington, D.C.-based organization representing consumer interest groups, said it's clear from the report that Chattanooga's banks aren't doing enough to invest in the low- to moderate-income communities, even though they are mandated by the federal government and the Fair Housing Act to do so.

In June 2015, the Supreme Court ruled that governments and lending institutions can be sued under the Fair Housing Act for housing and lending practices that have had a "disparate impact" on protected classes of people, even if that impact was unintentional.

"If I were president of one of Chattanooga's local banks, I would be really worried," said John Taylor, president of the coalition.

And while the challenge exists across the country for low-income residents to build their credit scores and save enough money for down payments on homes, some communities are finding creative and sustainable ways to help residents in low-income neighborhoods buy homes, Taylor said.

He said one action banks can take is to look at whether they have diverse staffs and if they are intentionally marketing to low-income neighborhoods and producing loan products that educate community members on their available options.

Even among the banks that are offering greater loan services to low-income city residents, the Chattanooga Organized for Action report found that most loans still are not going to black families.

For example, 26.8 percent of Regions Bank's conventional home mortgage loans went to low- to moderate-income applicants from 2011-2014. But only 2.7 percent of them were awarded to black families, the study found.

Jeremy King, a spokesman in the Regions corporate office, said the financial institute has been committed to lending to a diverse range of customers and has strategies for doing so, such as establishing a Consumer Lending Diversity Chapter to assess and develop ways to better reach more community members.

"As one example, Regions has invested in various affordable housing communities to help meet needs in the greater Chattanooga area," King said.

At First Tennessee, Turbett also said the bank could be doing more in the community. That's why First Tennessee is meeting with community groups and individuals, he said, and the bank plans to introduce a new affordable lending program early next year.

"We will continue looking for ways we can expand and improve our products and services for low- to moderate-income members of our communities," he said.


Local community leaders who have worked to provide affordable housing in low-income neighborhoods and have called for more accountability within financial institutions said they aren't surprised by the findings.

They said it points to a systemic problem in the community: no one taking ownership of the challenges that exist and hurt the poor the most.

"I just think this is so unfair," said James Moreland, a black community leader in East Chattanooga. "There needs to be more thoughts [by the local government] about how do we service all the community, not just concentrate on what we're going to put downtown to make that a greater attraction to tourists."

For the last three decades, some residents in Chattanooga have seen the local housing nonprofit Chattanooga Neighborhood Enterprise as a bridge between low-income communities and banks.

But over the years, CNE's budget has significantly shrunk, it has been rocked by scandal, and it has significantly scaled back its third-party lending for home loans in lower-income neighborhoods.

Even as CNE's latest director, Martina Guilfoil, has worked over the last three years to rebuild relationships, she said she faces an uphill battle finding banks willing to substantially support the organization in its educational classes that teach families how to improve their credit scores and save for down payments for homes.

On the other side, many people who come to CNE asking for help have insurmountable debt and low credit scores, she said. So it's going to take communitywide ownership of the problem and education on the part of financial institutions and community leaders on their role, she said.

"We're just not doing a good enough job," she said, speaking of the community as a whole. "There's not a great understanding of how you move the needle on the issues that were raised in [COA's] report."

Some local leaders say the challenge is more nuanced and will take creative thinking and key leadership within the community to make lasting changes.

For instance, black families have significantly less wealth in Chattanooga. While the average household income in the metro area is $65,805 a year, the average black household income is only $39,774, according to the American Community Survey compiled by the U.S. Census Bureau.

And most banking branches aren't present in the communities in the most dire need of lending, COA's report found.

Banks have closed 33 branches in the Chattanooga metro area since 2009, falling from 179 units to 146 units as of June.

There is a balance where banks have to be profitable and the community has to support a bank for it to stay in an impoverished area, said Councilman Moses Freeman, who represents downtown and East Chattanooga.

He, along with Moreland, worked with the East Chattanooga Suntrust last year when the bank announced its branch would close, and the bank reversed its decision. At the time, officials argued the branch was crucial for the community and closing it would make banking more difficult and expensive for seniors who didn't have transportation.

Freeman said he sees both the community and the banks at fault.

Banks tend to make loans to people with whom they have formed relationships. Many bank employees are part of corporate institutions, and they aren't active members of churches and civic groups within the neighborhoods where they work who know the residents and can attest to their character, he said.

Yet even when a bank is willing to keep its doors open, the community isn't rallying around in support and many churches and families take their business elsewhere.

"I'm frustrated," Freeman said. "There has to be a leader to emerge to say enough is enough. It has to be a unified community effort."

James McKissic, director of Chattanooga's Office of Multicultural Affairs, said while the city has no direct impact on lending practices and regulations, his office works in many ways to build a more equitable and inclusive city.

For example, McKissic is a member of First Tennessee's newly formed Community Reinvestment Act Committee to ensure locals are aware of how the community reinvestment dollars are being use.

Mayor Andy Berke's Minority-Owned Business Task Force also is talking with diverse leaders in the financial sector around issues that impact home loans and access to business capital, he said. The task force will present its findings to the community in a few months.

While it does take an entire community to change the culture, Taylor said, the local government can often have more impact to affect change than it realizes.

City governments, hospitals and major public institutions are some of the largest users of local banks and have enormous sway over where they choose to do their own banking, Taylor said.

In some cities, local governments have pressured financial institutions by passing ordinances to keep report cards on banks in their cities. Those who are reinvesting in the local community are rewarded and cities put more of their funds in those banks, he said.

"The government has a key role in their cities," he said. "And elected officials probably shouldn't run for re-election if they don't see it as their mandate."

In the COA report, the group also presented a list of solutions that include:

- A push for an increase in moderately priced housing development in the Chattanooga area;

- Creating community loan pools where multiple banks invest in more at-risk communities to lessen the financial risk;

- A call for banks to approve third-party loan originators that are reliable and trusted partners in the community.

Contact staff writer Joy Lukachick Smith at or 423-757-6659.

A previous version of this story referred to one-third of 'the Chattanooga metropolitan region' as black, but has been changed to say 'the city of Chattanooga.'