in a changing neighborhood. In one sense they are called racists if they want to stay in this changing neighborhood. In the other sense they are called racists if they want to get out of the declining neighborhood.

The real challenge is that if we lose the working class and lower middle class and homeowners in these older neighborhoods who happen to be white and heavily ethnic, if they leave the cities, then the cities are going to become black, brown, and broke and you have a new kind of American apartheid with the hostile suburbs and I think that would be tragic. I think the tragedy of the decline of our neighborhoods where people live is a more serious problem for the American society than the depression was. It's more complicated. It's more difficult when neighborhoods die.

If the center ward has cancer, then the other neighborhoods have cancer. It could be the small businessman that has trouble getting a loan or reinvesting. So the whole mentality, the personal mentality is that people are encouraged to move out to new subdivisions.

They should have all those options. I'm against blockbusting. I'm against redlining. I'm for open housing. I'm for a pluralistic kind of urban society. But if we don't help people change their attitudes personally about disinvestment, about staying or not staying to help revitalize an urban neighborhood, then there really isn't an urban policy. Then our cities will continue to decline and it will cost more in the long run.

Money is very scarce. We have had to raise the money. We have had to do research, neighborhood research-we went to work as partners, as a voluntary sector with the public sector government. In fact, we need less government in that sense. But we'd like to work with the Federal, State and local governments, with the banks, the industry, and the financial sector, but that third sector that makes life viable in the cities is those community groups, those associations, those voluntary associations that make life civil in a society, and if those voluntary groups can't participate as partners with the public and private sectors, then we'll cease to build domocracy and we'll have less participation. We'll have increased alienation and increased frustration. So the people do live in the neighborhoods and those neighborhoods are dying, yet the burden seems to be to do research, to try to get enough knowledge to work with bankers, to work with small businessmen, to work with industry, to work with the mayors, to negotiate to create viable communities, pluralistic communities, viable cities, to develop policy strategies and programs for reinvestment in our society. That takes the voluntary sector. But we have to go and get $100,000 from church money and I think church money is used for a lot worse things. So I don't mind at all trying to get money out of church groups or foundations to help community groups become partners. like in Baltimore or other places, to develop the background where NHS's and urban reinvestment task force programs can succeed, where people can get together and become partners with the public and private sector.

So it was the community groups and your interest that brought the issue of redlining up in the first place and it was the industry

there was even such an issue. That's why we're concerned, then, not only in terms of how this law works-and I don't think laws solve all the problems either-but there's an attitude. There's a mentality toward investment and disinvestment and reinvestment. We find in many of these neighborhoods, people do have money and they do have to make choices about reinvesting in their community, especially our older cities.

Therefore, we are interested in developing a neighborhood reinvestment strategy, a neighborhood reinvestment policy, and there ought to be those advocates not on the outside but they ought to be on the Federal Home Loan Bank Board. They ought to be in HUD. They ought to be at the community level to work with the neighborhoods. They ought to work with the banks-communities have to work together in this sense.

This legislation has been useful. It's been very helpful and in the long run the only problem I do have is that it's on the back of the weakest sector, the neighborhood sector, the community sector, to do its own little research, to find out what's in those big computers and how to use the data. That always has to be private money that you have to scrounge around-not to throw dirt on the mayor's lawn or desk or on the banker's desk, but to truly become partners in the whole attitude of reinvestment and whole attitude of redeveloping an urban society that has its civility where it's pluralistic, where we can deal with urban life.

The CHAIRMAN. Very good. I understand, Dr. Naparstek, you share that presentation and you'd like to add something to it.

STATEMENT OF DR. ARTHUR NAPARSTEK, UNIVERSITY OF SOUTHERN CALIFORNIA

Dr. NAPARSTEK. When we originally began to meet on the need for some type of disclosure legislation, we were concerned about providing a tool to community groups to counter disinvestment. In fact, in the earlier hearings on the proposed disclosure legislation, a major focus of community and public interest groups was on the need to document disinvestment in hopes to prevent it. Today, we are here before you, as many of the hearing's participants are, to examine disclosure in the context of how it is being and will be used by communities organizations. In addition to the documentation of disinvestment, we believe disclosure provides community groups the data and the vehicle to begin initiating neighborhood reinvestment programs with other community organizations, city officials, and local lending institutions.

As we all know, the Federal disclosure law is a direct result of community organizations' efforts to take stock in their neighborhoods. Disclosure provides community groups with a necessary tool to determine the relationship between investment in their neighborhoods and their housing and credit needs. Further, it can be supportive to cooperative ventures between community groups, lending institutions and city government to respond to the decline of their neighborhoods. It, therefore, makes sense to us that any evaluation of the legislation include:

How it is being used by neighborhood groups, and public officials; What it does not provide which is needed by neighborhood organizations;

What are the Federal responsibilities to monitor and strengthen disclosure.

We would like to address some of these issues today.

Even at this early stage we are familiar with several community groups which are using the disclosure data to better understand what their housing and credit needs are and to begin working on reinvestment programs for their neighborhoods.

The National Center, through a grant from the campaign to human development, works with four community groups which are organizing around disclosure and possible reinvestment programs. In Cincinnati, a survey of local lenders was taken to document their feelings. on disclosure prior to filing their reports. The research helped provide a basis to determine which lenders might be the most responsive to meeting with a community group after the disclosure reports were released. In Washington, D.C. interviews were conducted after disclosure reports were released to get a sense of how they felt disclosure was being used.

The New Jersey Citizen's Action Alliance is compiling and analyzing the disclosure data for several counties surrounding the Newark area. It also plans to develop specifics neighborhood analysis reports trying the lending patterns information with conditions of neighborhoods information. The alliance has been so aggressive about its role with disclosure that State and local public agencies have been using it as their central source for lending data. Given a little more time, more stories like these will be available.

There has also been supportive activity for the Federal legislation on a State level. While a few States have their own laws for disclosure, some are looking at the Federal law to see how it can be best utilized. The Michigan State Task Force on Redlining, administered through the Bureau of Financial Institutions, is planning to collect the disclosure data and analyze it in conjunction which the socioeconomic characteristics of each area. The State Department of Community Affairs in Pennsylvania is considering a range of options to evaluate disclosure data. They want to create a statewide analysis system which show the relationship between lending patterns and neighborhood disinvestment. Pennsylvania is currently considering a strong State regulation for disclosure of mortgage loans and deposits. There are also city agencies which are responsive to disclosure and how it can be used to insure reinvestment strategies and actions for their communities. Examples include the Seattle Task Force on Reinvestment, the NYC Commission on Human Rights' Neighborhood Stabilization Committee and the Neighborhood Reinvestment Commission in the District of Columbia.

The strength of these additional State and city actions is that they can enact and enforce policies to back up and move beyond the Federal disclosure legislation. Further, community groups have easier access to State and local agencies enabling them to work with their officials. While the Federal disclosure legislation is a victory for community

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borhoods, there are also weaknesses in the bill. The most immediate weakness is that the first year reports filed by lending institutions can be in ZIP code form. Obviously, the data is much more useful through census tracts because they are smaller areas which correlate more closely with neighborhoods. It is hard to really pinpoint disinvestment, in many cases, when lending information is grouped according to ZIP codes. This is especially so if a smaller city has only a few ZIP codes for the entire city. It becomes difficult to figure out if there are residential neighborhoods next to busy business districts within one ZIP code.

A serious problem also arises when the lending information, because it covers an entire ZIP code area, is analyzed in a misleading manner. An example of this happened in Washington after the release of the first disclosure reports. For some of the ZIP codes areas which have been redlined and are primarily black, there was an indication of increased lending by some of the financial institutions. A newspaper which ran an article on the disclosure information projected this "perception" and left many readers with the impression that perhaps "things aren't so bad after all." However, this perception is misleading because within these very ZIP code areas intense speculation is occurring. This is bringing in middle- and upper-income white people to "currently desirable" housing. The additional effect is the dislocation of the area's poor and black residents, primarily tenants, who don't seem to be on the receiving end of these "more responsive lending patterns." Further, the rest of the neighborhoods within these ZIP code areas are still severely redlined, and will probably remain so until speculation reaches them.

We raise this example to stress the importance of community groups and public officials to document the need for lending pattern information on a census tract basis which is necessary for more reliable analysis of our neighborhoods. Without such documentation, the requirement for census tracts in the second year may weaken especially if it is heavily petitioned by lending institutions.

Another weakness of disclosure is the information it doesn't collect. While the general information required by disclosure is of use to all community groups and public officials, there are specific types of information which may further benefit the needs of various neighborhoods: Reporting the number of applicants who approach lending institutions, the number of rejected applications, should provide significant information to neighborhoods, in determining whether these are "consistent reasons" for loan rejections. Lending institutions may be denying loans on the basis of the age of the housing stock, availability of public services in the neighborhoods, the racial makeup of the area and its average income, or any future predictions on the change of the neighborhood.

It seems logical to obtain reasons for rejections by lending institutions, before neighborhoods are totally written off. Therefore, it is not unreasonable to considering requesting disclosure of appraisal criteria. There is a relationship between the role of appraisers and whether or not loans are made by lending institutions. Appraisal guidelines require looking at the racial makeup and income levels of the neighborhood in which a property is located. These guidelines also imply that "homogeneous" groups provide more stability to neighborhoods

to "racially changing" groups. Appraisers are also required to estimate the age of the property and project the future of the neighborhood. From these guidelines, it is not surprising to find discriminating outcomes in terms of who gets loans and where. The people subjected to these practices are our neighborhood residents in the cities.

The Department of Justice, Civil Rights Division, has filed a suit against the Society of Real Estate Appraisers and two other organizations because of the discriminatory nature of the materials appraisers depend on. The criteria which appraisers use is important information to have. It would also be beneficial to document whether the appraisers are retained by the specific lending in situation or whether they operate as independent agents.

Mortgage bankers; life insurance corporations, and realty companies are making a large proportion of mortgage and home improvement loans. However, they are not affected by the Federal disclosure legislation. This becomes particularly important for the areas which are redlined where residents can only get loans through a mortgage banker. An example of this is Washington, D.C., where nearly 70 percent of mortgages made in 1975 were through mortgage bankers. While some States and local-initiated regulations are taking these "additional agents" into account, the Federal law should be reexamined to see how it might respond to this need. Perhaps the "loans purchased" column could be broken down to reflect transactions with mortgage bankers. Another vehicle to consider is HUD. It has the authority to regulate mortgage bankers who do business with it. And HUD has never exercised this authority.

Additional information which would help community groups gain a better sense of what is happening in their neighborhoods include: percentages of foreclosures and default rates experienced by the lending institutions, depository information, and the underwriting criteria private lenders use to determine who is creditworthy.

These additional types of information may exceed beyond the intent of the Federal disclosure examination, thus warranting consideration for a national antiredlining law. Such legislation could be more specific with what it requires. Several State and local ordinances suggest models which are worth considering for any proposed Federal legislation.

Another weakness of Federal disclosure is its lack of collecting and/or analyzing the data to help assist community groups in understanding what these disclosure reports mean for their neighborhoods. If any analysis of lending patterns accompanies disclosure reports, it is totally voluntary. However, some State and local agencies are collecting reports from their areas and will provide an analysis of the data as it relates to housing stock and other socioeconomic characteristics of their neighborhoods. It is out of such analysis that recommendations for new or additional programs benefiting the neighborhoods can occur.

We are aware of the fair housing lending pilot survey which is being conducted by the Federal Deposit Insurance Corporation (FDIC) for 30 cities. The information which it is requesting goes beyond disclosure information providing a better base for evaluation of lending policies. This pilot survey requests lending institutions to provide information