The Leadership Conference on Civil and Human Rights

Volume 4 Number 3

SAVINGS AND LOAN BAILOUT BILL CONTAINS IMPORTANT LOW INCOME HOUSING AND ANTI-REDLINING PROVISIONS

On August 9, 1989 President Bush signed into law the Savings and Loan Bailout Bill which provides billions of dollars to save the savings and loan industry. The bill contains provisions to assist low-income renter households, and low and moderate income persons seeking to buy a home for the first time. The bill also amends the Home Mortgage Disclosure Act to require lenders to disclose the race, sex, and income level of loan applicants and recipients in an effort to combat discrimination in mortgage lending, and amends the Community Reinvestment Act to require federal regulators to disclose their evaluations and ratings of institutions covered under the Act.

Asset Disposition

The bill provides for the establishment of a new agency, the Resolution Trust Corporation, to manage and dispose of the assets of insolvent thrifts. In disposing of single family residential properties (selling for less than $67,500), the RTC must give state and local governments, non-profit housing agencies, and families with incomes of less than 115 percent of the median income in the area a "90 day right to purchase" before offering the property to for-profit buyers.

In addition, "State and local governments and non-profit housing agencies will also be given a 45-day right to purchase certain low-cost multifamily residential properties, provided that a sufficient number of units are maintained for low income persons at very low rents for the life of the property" (Congressional Quarterly, August 12, 1989).

This provision states that "RTC may offer these properties [to non-profit buyers] with below-market rate financing and at prices below what might otherwise be possible to help these buyers maintain some of the units for low and very low income use, at restricted rents, for the remaining useful life of the property" (Low Income Housing Information Service, Special Memorandum, Summary of the Financial Institution Reform, Recovery and Enforcement Act, HR 1278 (LIHIS, Special Memorandum)).

Low Income Mortgages

The bill requires the twelve regional Federal Home Loan Banks to set aside a portion of their earnings to subsidize low-income mortgages. The total amount will be 5 percent of the earnings or at least $50 million each year for years 1990-1993, 6 percent or at least $75 million in 1994, and 10 percent or at least $100 million for each subsequent year. Each FHLB is to establish a "cash advance program with subsidized interest rates that would be available to member institutions making loans for 'long-term affordable low and moderate income housing' at subsidized rates" (LIHIS, Special Memorandum). The funds can only be used for:

" loans to finance home purchase or rehabilitation by families with incomes below 80 percent of AMI [the area median income]; and

" financing the purchase, rehabilitation and development of rental housing in which at least 20 percent of the units must be rented to households with incomes below 50 percent of the AMI for the remaining useful life of the property or the mortgage term. With regard to this last requirement, the Conference Report states: 'The conferees expect that the Board will encourage the use of the longest practicable mortgage term in order to aid in making the housing affordable by very low income families' (LIHIS, Special Memorandum).

Anti-Redlining Provisions

Home Mortgage Disclosure Act

The bill amends the Home Mortgage Disclosure Act to require mortgage lenders to report information on the number and dollar amount of mortgage applications by gender, race, income, and census tract. The Low Income Housing Information Service states: "This new information will make it possible to track not only where lenders make loans, but where they are failing to do so despite applications and whether or not pat terns of discrimination emerge from a comparison of applications approved and applications rejected."

Community Reinvestment Act of 1977

The Community Reinvestment Act was amended to require federal regulators to disclose their evaluations and ratings of institutions covered under the Act. The CRA provides that "deposit-gathering institutions have an affirmative obligation to solicit borrowers and depositors in all segments of their communities." Among the factors federal regulators are required to consider in evaluating banks, and savings and loans are:

" their efforts to determine the credit needs of the community

" their efforts to make the community aware of credit services

" practices intended to discourage applications for credit

" geographic distribution of credit extensions, applications and denials

" evidence of discriminatory or illegal credit practices

" participation in local community development projects

For readers wanting additional information on the Savings and Loan Bailout Bill, see the Low Income Housing Information Service, Special Memorandum Summary of the Financial Institution Reform Recovery and Enforcement Act, HR1278. The memo is available from the LJHIS, 1012 14th St., NW, Wash., DC 20005, for $5.00. Interested readers may also want to contact Barry Zigas at the Low Income Housing Information Service, (202)662-1530, or Allen Fishbein at the Center for Community Change, (202)342-0567.