New Haven Savings Bank

Total Amounts

conventional home mortgages and home improvement loans Redlined neighborhoods vs. Non-redlined neighborhoods. Figures below per institution in each city surveyed by NPA (in order of graph presentation).

Non-Redlined
Neighborhoods

$

49,800 115,000

$ 1,411,000
1,116,000

626,200

4,438,000

251,000

2,409,000

28,377

1,986,923

80-991 - 77 13

The CHAIRMAN. Thank you, Ms. Cincotta.

Our next witness is Prof. Pierre de Vise, from the University of Illinois.

STATEMENT OF PROF. PIERRE DE VISE, UNIVERSITY OF ILLINOIS

Mr. DE VISE. Senator Proxmire, Senator Garn, my rame is Pierre de Vise, and I teach at the College of Urban Sciences at the University of Illinois at Chicago Circle. I represent no one but myself. I am not associated with any of the groups with an interest in this legislation. In support of my testimony and in addition to my opening statement, I'm submitting three studies that I have recently completed. One is "The Thin Red Line."

The CHAIRMAN. How long a study is that?

Mr. DE VISE. About 12 pages.

The CHAIRMAN. We would be happy to have that printed in the record in full (see p. 261).

Mr. DE VISE. This study plots the location of conventional and FHA home mortgages issued in Chicago in 1975. I perhaps could mention two others with page numbers, since that seems to be a criterion for insertion in the record.

The second study is called "The Anti-Redliners." This is a 20page study which is a critique of the doctrines and strategies of community activists who have attempted to identify redlining as a major cause of neighborhood decline.

The third is another 20-page study called Housing Construction in the Suburbs and Housing Demand and Prices in the Inner City, which lays the blame for neighborhood decline where it belongs.

I first would like to respond to the charge made with respect to implementation of the Mortgage Disclosure Act. I believe I share the misgivings of many previous witnesses about the lack of usefulness of the act as it stands now. I believe this act will not disclose what it is intended to disclose. It will not disclose whether redlining exists. It will not even disclose whether FHA activity improves the private market of the neighborhood. I say that because I find glaring deficiencies in the act.

One is that there is no empirical framework provided for testing the hypotheses that redlining exists, that it contributes to the decline of neighborhoods, and that the FHA does not improve the private market. Key terms such as "qualified applicants," "decline of neighborhood," "sound lending practices" and "disinvestment" are not defined.

The information to be disclosed about FHA loans, as Ms. Cincotta has indicated, is incomplete. About three-fourths of these loans in Chicago are made by people who do not have to report under this act because they are not depository institutions. There are no provisions in the act for retrieving or analyzing the information.

I might indicate what the demand for this information has been so far in Chicago. The First Federal of Chicago, which is the largest savings and loan in the city and the eighth largest in the country has been bombarded by five requests so far for this information and Talman Federal, the third largest savings and loan in Chicago, has

I'm suggesting that there are much simpler and more direct ways than this to investigate the existence of redlining and whether it plays a role in neighborhood decline.

If I may refer to the first study, "The Thin Red Line," and the two maps before you as exhibits, my findings for the city of Chicago are as follows. There were about 18,000 conventional home loans made in Chicago in 1975. For the city as a whole, there were 57 sales per 1,000 homes in 1975, with 16 percent of the loans FHA. The average loan-to-value ratio was 74 percent for conventional loans and 94 percent for FHA loans; the average downpayment was $9,700 for conventional loans, and $700 for FHA loans; and the average sale price was $37,700 for conventional sales and $20,000 for FHA sales. Sales per 1,000 homes reached a low of only six in the inner zone of the older black ghetto. In the communities that were predominantly black in 1960, there are hardly any FHA loans and practically no conventional loans in the older communities.

These are communities in which there's no demand even for FHA loans. Many of the home buyers who can pay 3 percent down are not looking in that market. They are, however, in the market in the area which is becoming black and, as you see, these areas are concentrated on some of the edges of the 1970 black ghetto-Austin on the west side, Gage Park on the southwest side, West Pullman on the far south side.

Examination of sales and loan-to-value ratios for each of the 830 census tracts did not yield any evidence of discriminatory redlining. It was assumed that a creditworthy buyer rejected by conventional lenders would be forced to purchase a home with an FHA loan, and that it would be in his interest to make the equivalent of a conventional downpayment. Not a single one of the 2,200 FHA sales reported, however, showed a downpayment exceeding 20 percent of the value-the minimum downpayment usually required by conventional lenders for single family housing in Chicago. I remind you that the average age of our housing is about 50 years old.

I further checked this finding by asking FHA officials in the Chicago office, who examine the credit information of all applicants, about the extent of creditworthiness of prospective buyers. These FHA officials conceded that barely half the applicants could qualify for the minimum 3 percent downpayment and that virtually none had sufficient assets to make a downpayment exceeding 20 percent of the value. John Waner of the FHA office felt many of the applicants had negative equities, since they were borrowing the 3 percent and that virtually none had assets that qualified them for the conventional loan. Indeed, one official said that in her experience, only one applicant out of the tens of thousands who applied for such loans in the northern Illinois district had sufficient assets to raise a downpayment exceeding 20 percent of the value.

I believe, on the basis of this study, that there's some confusion about the redlining issue. I believe that sometimes the absence of conventional loans in neighborhoods is interpreted as redlining even though there may be no demand for loans in these areas. I'd like to define redlining a little more strictly-as a denial of a conventional loan to a creditworthy buyer in certain neighborhoods--and I use a 20 per