Congress moves against red-lining

IN WASHINGTON, the term "red line" means two things. Depending on your perspective, the "Red Line" is one of two branches of Washington's costly, troubled but badly needed subway system. Or the "red line" refers to the practice by savings and loan associations of denying loans to inner-city neighborhood residents — drawing a "red line" around them on the map. The federal government is having difficulty deciding what to do about the subway, but it is having little difficulty in deciding to move against the savings and loans.

Under pressure from the National Urban League and the Congressional Black Caucus, including Illinois Democrats Cardiss Collins and Ralph Metcalfe, the Carter administration announced an anti-redlining program last November 9.

The 1st and 7th Congressional districts that Collins and Metcaife represent in Chicago contain many areas possibly victimized by redlining. The anti-redlining rules, announced by Vice President Walter Mondale, are the first step in Carter's proposed new urban policy to halt inner-city deterioration. Similar anti-redlining rules were proposed in a bill introduced in the Illinois House by state Rep. Ellis B. Levin (D., Chicago),

The administration's rules give the Federal Home Loan Bank Board (FHLBB), a central bank for the savings and loans, power to force the S&Ls not to discriminate against people seeking home loans on any basis, including race, religion, national origin or neighborhood location.

The FHLBB recently released a 1974 study of housing loan patterns in 50 cities with substantial minority populations. The study showed that 40 percent of the savings and loan associations which discriminated in home loans on a neighborhood or racial basis were in just four cities — Cleveland, St. Louis, Baltimore and Chicago.

The federal rules forbid denial of loans on the basis of: (1) age of a house or neighborhood, (2) arrest records or education of applicants and (3) lack of previous home ownership by applicants. The administration feels all these reasons have been used to deny otherwise valid loans. "We firmly believe that there are many loans to be made in urban areas, and they can be made on a prudent basis," said FHLBB chairman Robert H. McKinney. His agency guarantees a substantial amount of the $118 billion in housing loans to be made this fiscal year.

In reaction, the United States League of Savings and Loan Associations said that a concentration on redlining "diverts attention" from other major urban problems. One local savings and loan group executive contended, "We have not discriminated by either location, dwelling, or against the individual, and we want to make loans to qualified applicants." He did not specify who was qualified. Community groups are taking a wait-and-see attitude towards the administration's rules. "The key is going to be in enforcement," one leader said.

As notable as the Carter initiative is — especially in its potential for reviving older-but-still-serviceable neighborhoods in Joliet, East St. Louis, Cairo, Chicago and other cities — the administration action lagged behind anti-redlining moves taken by the rest of the federal government.

Last November 11, the Justice Department reached an out-of-court settlement with the American Institute of Real Estate Appraisers in an important redlining case. The suit, settled after several weeks of argument as far as the appraisers were concerned (four related organizations are still being sued), showed that appraisal of a house's value was a key factor in loan eligibility. The lower the appraisal, the less the chance for a loan. In the settlement, the appraisers group agreed to stop operating with "preconceived negative expectations" about racially integrated neighborhoods. These expectations, according to the Justice Department, resulted in low appraisals, tough loan conditions and consequent selling of homes at depressed values, which led to neighborhood resegregation.

But both Carter and the courts have lagged behind the Congress in attacking redlining. Over the objections of then-budget director Bert Lance, among others, the Senate first inserted — and on October 1 — retained anti-redlining provisions in the Housing and Community Development Authorization Act of 1977. The bill became law October 13. The anti-redlining provision told the FHLBB to determine if savings and loan associations meet the credit needs of their entire communities "including low and moderate-income neighborhoods" whenever permission was sought to open branches. Recent controversy in Chicago has swelled around several inner-city savings and loan associations attempting to open suburban branches, while rejecting housing loans in their own city neighborhoods.

Illinois Sens. Charles H. Percy and Adlai E. Stevenson voted against an amendment knocking out the anti-redlining provision. The amendment failed 40-31. They both then voted to pass the bill. In the House, the anti-redlining provision went unchallenged. When the bill came to a final vote, 19 out of the state's 24 House members supported it. Reps. John B. Anderson (R.) and George E. Shipley (D.) were absent. Reps. Marty A. Russo (D.), Phil M. Crane (R.) and Edward J. Derwinski (R.) opposed it. 

35/ February 1978/ Illinois Issues