The Game; No. 122; The Real Estate Game

<v Speaker>The following program is made possible by KCET membership dollars and a grant from the <v Speaker>AtlanticRichfield Company. <v Speaker>[pinball machine noises] <v Taylor Hackford>Good evening, I'm Taylor Hackford, and this is the real estate game. <v Taylor Hackford>Owning a home has always been one of the principal goals for Americans. <v Taylor Hackford>In the older neighborhoods of Los Angeles, however, a special barrier to homeownership

<v Taylor Hackford>has recently been revealed, it's called redlining. Redlining has been defined as the refusal by financial institutions to make conventional mortgage loans in older neighborhoods <v Taylor Hackford>because they feel that these areas are <v Taylor Hackford>inherently bad investment risks. <v Taylor Hackford>There's nothing illegal about redlining, but community activists denounce it, saying that <v Taylor Hackford>it causes slums. Last month, the state of California held hearings on redlinings <v Taylor Hackford>in Los Angeles and San Francisco where a spokesman from the savings and loan industry, <v Taylor Hackford>as well as redlining opponents testified. <v Taylor Hackford>Later in the program we'll be discussing the outcome of those hearings and we'll have an <v Taylor Hackford>opportunity to talk to some of the principle decision-makers affecting this issue from <v Taylor Hackford>the state and federal governments and from private industry. <v Taylor Hackford>Today, there are over 1 million people in Los Angeles County who live in redlined areas. <v Taylor Hackford>The worst sections are so decayed that some observers believe that nothing can be done to <v Taylor Hackford>save them. However, other areas are in transition. <v Taylor Hackford>Still basically sound and only beginning to show signs of deterioration. <v Taylor Hackford>In the film report that follows. We'll look at one of these cities, Pasadena, and examine

<v Taylor Hackford>the effect that redlining has had on that community. <v Speaker>[pinball machine sounds and music fades in]. <v Speaker>[music] In my home in Pasadena, home where grass is greener. Where honeybees hum melodies and orange trees scent the breeze. I'm gonna be a home-sweet-homer. And there I'll settle <v Speaker>down beneath the palms in someone's arms in a Pasadena town. <v Taylor Hackford>When Al Jolson recorded that song in the early 1920's Pasadena was the pearl of Southern

<v Taylor Hackford>California. Its tree-lined streets and numerous parks impress visitors <v Taylor Hackford>from the East and the Midwest and many wealthy families moved here and built luxurious <v Taylor Hackford>houses. Some of the best architecture in California can be found in Pasadena. <v Taylor Hackford>The architects Green and Green design houses such as this that have become world-famous <v Taylor Hackford>and the high style of these mansions flowed over into Passadena's middle class <v Taylor Hackford>neighborhoods. But Pasadena is getting old. <v Taylor Hackford>Over half its houses were built prior to 1929. <v Taylor Hackford>Age has made this a city in transition. <v Taylor Hackford>Its attraction as a residential community for the wealthy has diminished and lower income <v Taylor Hackford>families are filling in the neighborhoods left behind by the middle class. <v Taylor Hackford>Much of the area, too, is undergoing racial change. <v Taylor Hackford>Today, Pasadena is over one-third nonwhite, mostly black and Chicano. <v Taylor Hackford>Many of them are middle-income people attracted by the same gracious features that <v Taylor Hackford>brought others to Pasadena. <v Taylor Hackford>In newer parts of Los Angeles, these people could expect to buy a house by giving <v Taylor Hackford>proof of their credit, putting 10 to 20 percent down, and then getting a loan

<v Taylor Hackford>from a savings and loan association. <v Taylor Hackford>However, in large sections of Northwest Pasadena and neighboring Altadena <v Taylor Hackford>both buyers and sellers have discovered otherwise. <v Ernest Sprinkles>The broker who was trying to sell a house for me, located about 4 <v Ernest Sprinkles>what he considered to be very strong buyers. <v Ernest Sprinkles>We went into escrow on at least four occasions, and, and on no occasion could we get one loan. And as a result of <v Ernest Sprinkles>trying to maintain two properties, I got behind once on the notes and decided <v Ernest Sprinkles>that to put together a more attractive proposition for the <v Ernest Sprinkles>lender that would make it more possible for me to get a loan <v Ernest Sprinkles>on the property and ultimately sell it. <v Ernest Sprinkles>I caught up the notes, to the tune of some fifteen hundred dollars. <v Ernest Sprinkles>Um, after we found that it was gonna be impossible to sell the property, I decided not to invest any more money into the property and subsequently lost it. There was a foreclosure <v Ernest Sprinkles>and after the foreclosure, I found that the,

<v Ernest Sprinkles>the lender had, in fact, put the property back on the market, and <v Ernest Sprinkles>an amount of some eight to ten thousand beyond what I was asking for <v Ernest Sprinkles>and had guaranteed a 90 perfect loan. <v Ernest Sprinkles>I am a loser in a big way, I lost not only about 10 thousand dollars in equity in the property, I also lost a 15 hundred dollar investment to catch up the notes and the biggest <v Ernest Sprinkles>loss of all was that the foreclosure really affected my credit rating. <v Taylor Hackford>Who was the lender? <v Ernest Sprinkles>Great Western Savings and Loan. <v Taylor Hackford>We asked Great Western for information about this loan, but they did not reply. <v Thomas A. Heinrich>For a number of years, it's been very, very difficult getting conventional financing in <v Thomas A. Heinrich>this part of town, for the past several years has been virtually impossible. This whole Northwest section of Pasadena and Altadena is one that the savings and loan industry, I <v Thomas A. Heinrich>guess, would just as soon not make loans in. One savings loan agent told me that as far as he was concerned the area didn't reflect enough pride of ownership, so the foreclosure <v Thomas A. Heinrich>rate was too high. And because of those reasons, they thought that a conventional loan in this part of town was less secure than what they wanted. The fact, as far as I'm <v Thomas A. Heinrich>concerned, this area has been a complete disaster. We have a lot of people, white and black, that are working to keep this

<v Thomas A. Heinrich>and maintain it as a, a stable racial and social-economic area and I think we're been <v Thomas A. Heinrich>very successful at that but we're being thwarted at every turn by the savings and <v Thomas A. Heinrich>loan industry that's just throwing a complete block wall in front of us by saying, no, <v Thomas A. Heinrich>you can't get any conventional loans over here. <v Philip A. Barnett>As a matter of policy, we don't redline. <v Philip A. Barnett>We have a strong corporate policy against redlining. And basically, our policies are that we will make any loan on any property when both the borrower and <v Philip A. Barnett>property qualify for a loan. We have no geographic standards. <v Thomas A. Heinrich>What's interesting is that the redlined area seems to follow the pattern of integration. <v Thomas A. Heinrich>Doesn't have anything to do apparently, in most cases at least, with the qualifications

<v Thomas A. Heinrich>of the buyer or the quality of the house or the neighborhood. <v Thomas A. Heinrich>In the area that we've driven through and that we're walking through, you can't tell by <v Thomas A. Heinrich>looking at- at the homes if they're white or the black that live in these homes, <v Thomas A. Heinrich>and yet these homes are virtually impossible to get conventional loans on. <v Thomas A. Heinrich>I don't understand it but if these homes were in a majority white area, there would be no <v Thomas A. Heinrich>problem whatsoever. <v Taylor Hackford>Savings and loans are not required by law to make public their lending patterns. <v Taylor Hackford>So it's very difficult to discover whether or not there truly is redlining in Pasadena. <v Taylor Hackford>However, a recent study sponsored by the city did reveal at least an indication <v Taylor Hackford>of what those patterns are. <v Louise Manuel>Information on conventional lending patterns is very difficult to obtain. <v Louise Manuel>I finally obtained surreptitiously a copy of the SREA market <v Louise Manuel>data center report on residential sales in Pasadena <v Louise Manuel>from 1974. <v Louise Manuel>This data included information on whether or not the loans were made by conventional <v Louise Manuel>lenders or were FHA VA insured- or VA insured.

<v Louise Manuel>I planted this information on a map. <v Louise Manuel>What I found was that in the ?inaudible? <v Louise Manuel>of Pasadena, here we see on the map that in the area between the <v Louise Manuel>foothill freeway and Lake Avenue and above Colorado Boulevard where <v Louise Manuel>the red dots indicate SHA insured loans, conventional <v Louise Manuel>lending is virtually nonexistent. <v Louise Manuel>Whereas in other areas of the city, East Altadena, Hastings ranch, <v Louise Manuel>the older sections of South Pasadena, conventional loans were being made. <v Philip A. Barnett>Well its a complicated problem. Uh. <v Philip A. Barnett>I'm sure to some extent there is some people who redline, some associations do, but the absence of a large lending volume is no proof of redlining. Redlining is refusal to make <v Philip A. Barnett>loans. A large number of those red areas on the map result from the fact that there's not much real estate activity. There are not an awful lot of buyers trying to buy homes, and <v Philip A. Barnett>the demand for loans is relatively low, compared to other areas where lending volumes are a lot higher. <v Louise Manuel>The information on lending patterns in the city is virtually unavailable to the ?lay? public, even <v Louise Manuel>as a consultant to the city, I found it difficult to obtain the

<v Louise Manuel>information. And when I did, it took me over 100 hours <v Louise Manuel>to plot the dots on this map indicating the, uh, lending patterns <v Louise Manuel>in the city. What this means for the average home buyer is that it's virtually impossible <v Louise Manuel>to know whether or not the area in which you wanna buy is redlined. <v Trina Celis>4 and a half years ago, my husband and I bought our home, we've enjoyed living in it and now we've outgrown it. So we found another house that we wanted to buy and put our house <v Trina Celis>on the market and we found some buyers for our house. So the broker turned around, put it into a savings and loan and we bought our new home. Um, then the bottom fell out. It- the <v Trina Celis>savings and loan told us that they couldn't loan on the house and the broker tried to find other lending institutions and he told us that he couldn't, he was having trouble, so <v Trina Celis>frankly, I didn't believe him. I got on the phone myself and I started calling every lending institution in the yellow pages from A through Z. Uh, I explained to them that we had <v Trina Celis>a package. We had buyers who were both employed, who were coming in with 20 percent cash down on a house that was listed well under market value and they were as excited as we <v Trina Celis>were about it until they <v Trina Celis>asked us the location, and we told them Altadina.

<v Trina Celis>And they would hesitate for a second and then say, Oh I'm <v Trina Celis>terribly sorry, we're not loaning in Altadina. And the general attitude that they would tell us is that its a bad area. I couldn't understand that because in the 4 and a half <v Trina Celis>years that we've been living here, I never knew it was a bad area. <v Taylor Hackford>Home Saving, the nation's largest savings and loan, was the lender of record on the Celis house, but has refused to renew the loan to new buyers. We asked Home to participate in <v Taylor Hackford>this report but they refused. <v Taylor Hackford>Likewise, nearly every savings and loan lending in the Pasadena area rejected <v Taylor Hackford>our request to answer questions about redlining or were unavailable for comment. <v Tom Joyce>It's amazing since the controversy has arisen over redlining that many representatives or <v Tom Joyce>loan officers are reluctant to discuss the term redlining or even <v Tom Joyce>neglect to mention as to what it means or don't know what it means. <v Tom Joyce>However, about a month or two ago, we had a representative from Home Savings and loan <v Tom Joyce>that came into our office and actually marked off on a map the area in which they were <v Tom Joyce>willing to make conventional loans.

<v Tom Joyce>Now this leaves a great percentage of Altadina and Pasadena <v Tom Joyce>that are unable to obtain conventional financing. <v Tom Joyce>As you can see, this area, which we are in now is a very beautiful area <v Tom Joyce>of the redlined district. These homes are perfectly fine, fine properties <v Tom Joyce>located in well-cared for yards. <v Tom Joyce>Now then they will permit these people to put their savings in to these various savings <v Tom Joyce>and loans. That they will in effect not loan in the area, thus <v Tom Joyce>causing an inequitable situation. <v Taylor Hackford>Savings and loans get well over 50 percent of their savings dollars from depositors <v Taylor Hackford>living within a two to three mile radius of each branch. The Home Savings branch in Pasadena on <v Taylor Hackford>East Colorado lists savings deposits of over two hundred and sixteen million dollars. <v Taylor Hackford>The loan officer for Home who marked this redlined area on the map is Don Macdonald. <v Taylor Hackford>He, too, declined our invitation to respond. <v Tom Joyce>When conventional lenders move out of an area.

<v Tom Joyce>It causes a problem in that the only alternative <v Tom Joyce>that you have would be governmental financing such as FHA, <v Tom Joyce>V.A. and Calvet. <v Tom Joyce>These programs are initiated for low income people to get into their <v Tom Joyce>first house. <v Tom Joyce>It allows people to purchase their first house with as little as 3 percent <v Tom Joyce>down payment, but on the other hand, it creates the problem <v Tom Joyce>that human nature being what it is. <v Tom Joyce>If you have a very low down payment and not much invested into a piece of property, <v Tom Joyce>your risk isn't very great. <v Tom Joyce>And if something goes wrong with the property and you can stay in it for six months, <v Tom Joyce>move out and the government takes it back as a foreclosure. <v Tom Joyce>So with the rate of foreclosures in an area increasing, due to the low down payments, <v Tom Joyce>the conventional lenders take this as an indication <v Tom Joyce>that the property values and that the area is going downhill. <v Tom Joyce>And the crazy thing about this is that it was caused in the first place by the

<v Tom Joyce>conventional lenders pulling out and leaving it to the devices of FHA and VA financing. <v Tom Joyce>Now, the inequitable thing about this seems to be. <v Tom Joyce>That the same buyer, they would have excellent credit. <v Tom Joyce>He would have a 20 percent cash down payment. <v Tom Joyce>He would have a good job with excellent job stability. <v Tom Joyce>And this same gentleman would be deprived from buying a house in this area, whereas if I <v Tom Joyce>took him into the other area where the conventional lenders will go. <v Tom Joyce>He would be able to buy a house in two minutes. <v Taylor Hackford>Dr. Peter Lissaman is a Caltech educated scientist who is a principal at <v Taylor Hackford>a Pasadena environmental firm. <v Taylor Hackford>His income level is high. His credit record strong. <v Taylor Hackford>Dr. Lissaman could not get a loan in northwest Altadina. <v Dr. Peter Lissaman>I found a house in Mountain view that I wanted to buy and came to an agreement <v Dr. Peter Lissaman>with the seller on the price, which was perfectly satisfactory to both him and me. <v Dr. Peter Lissaman>I was in a position to make a handsome downpayment like 20 percent

<v Dr. Peter Lissaman>and could easily handle all the monthly payments required. <v Dr. Peter Lissaman>So I thought it would just be an open and shut case. <v Dr. Peter Lissaman>You can imagine my surprise when the realtor called up and he said no way Pete, I can't <v Dr. Peter Lissaman>get you the money. I instructed him to call all the other loan agencies <v Dr. Peter Lissaman>he could find and each time we got the same answer. <v Dr. Peter Lissaman>I said, is there something wrong with me? He said, oh, no, no, you're- you're a perfect <v Dr. Peter Lissaman>credit rating, just something wrong with the house you wanna buy, the area that it's in. <v Dr. Peter Lissaman>So after a couple of weeks of this messing around, I decided, well, I was just going to <v Dr. Peter Lissaman>forget it. So I dropped that house at a lot of inconvenience to myself. <v Dr. Peter Lissaman>Great inconvenience to the seller. <v Dr. Peter Lissaman>And of course, a complete waste- waste of time for the realtor. <v Dr. Peter Lissaman>I found a house in another area, a house which actually involved me in rather larger <v Dr. Peter Lissaman>commitments. And without any difficulty whatsoever, I was able to get a loan on that house and I moved into that house within a couple of weeks. <v Taylor Hackford>The five largest savings and loans in the country are headquartered in Los Angeles. <v Taylor Hackford>Home Savings, Great Western, American, California Federal,

<v Taylor Hackford>and Glendale Federal with a total of 15 billion dollars in deposits. <v Taylor Hackford>All of these associations have branch offices in Pasadena. <v Taylor Hackford>California federal agreed to speak with us. <v Philip A. Barnett>Where the real problem exists is a very old house in a neighborhood that is running downhill. By law and regulation we have to make secured loans and we have an obligation to our <v Philip A. Barnett>depositors to invest their money safely. So we look at two things, the ability of the borrower to carry the debt, <v Philip A. Barnett>and the probability that the property will maintain its value, securing the debt during <v Philip A. Barnett>the life of the loan. <v Philip A. Barnett>If there's strong evidence that the neighborhood is going down, that the house won't last, that its value will <v Philip A. Barnett>decay, we're in an awkward position because we aren't going to have a secured loan. <v Philip A. Barnett>One of the only lending institutions that has continued to make sizable numbers of <v Philip A. Barnett>conventional loans in redlined areas is Family Savings. <v Philip A. Barnett>A minority-owned association with home offices on Crenshaw Boulevard in Los Angeles. <v Bob Bowdoin>While we consider ourselves a professional redline lender. We've been lending in so-called redlined, or declining areas

<v Bob Bowdoin>since, uh, our inception in 1949 in Watts. <v Bob Bowdoin>And we have continued to do so. <v Bob Bowdoin>Most savings and loans like to go into an area that is um, uh <v Bob Bowdoin>on the upgrade. <v Bob Bowdoin>Wherein, they can just appraise the, the area and be certain <v Bob Bowdoin>that, that they can make a loan in any of these sections. <v Bob Bowdoin>You might say this sort of blanket the area. <v Bob Bowdoin>In our particular situation, uh, we can't blanket an area. <v Bob Bowdoin>We have to look at it on an individual basis. <v Bob Bowdoin>This is more costly than looking at a situation on a blanket basis. <v Bob Bowdoin>We have to put ourselves into a position of spending more money <v Bob Bowdoin>for a loan than another savings and loan which is involved in an area that is on the, you <v Bob Bowdoin>might say, on the upgrade. <v Bob Bowdoin>We find that the profitability of these loans continued to be excellent, <v Bob Bowdoin>but perhaps a little bit more costly. <v Taylor Hackford>Although Family Savings has proven that lending in these older neighborhoods can be

<v Taylor Hackford>profitable. Redlining continues to be a problem in Pasadena. <v Taylor Hackford>One constructive step that the city has taken to prevent further decay, has been to <v Taylor Hackford>pass an occupancy inspection ordinance. <v Taylor Hackford>This requires that when a piece of property changes occupants, whether they be renters or <v Taylor Hackford>owners, it must be brought up to city codes. <v Taylor Hackford>This technique has worked in other cities to maintain the quality of housing. <v Taylor Hackford>On another front, community activists are beginning to organize redlined neighborhoods. <v Speaker>We are asking people to pledge that they will remove their deposits from those savings <v Speaker>and loans that refuse to give people conventional home loans in the area of west of <v Speaker>?inaudible?. <v Taylor Hackford>The community information project which first uncovered red lighting in Pasadena <v Taylor Hackford>is currently involved in organizing homeowners. <v Cary Lowe>We're asking people to sign a petition giving their support to our research and our organizing work and pledging to remove their money from those savings and loans institutions <v Cary Lowe>which are redlining their communities, that is, refusing to make home loans to the people who live here. Um, we're having good success with the petition drive, we're getting about <v Cary Lowe>a hundred signatures a day from each petition team and we're hopeful that pretty soon we'll have enough signatures that we'll really be able to use these, uh, as leverage to get <v Cary Lowe>the savings and loans to start changing their lending policies in this community.

<v Taylor Hackford>Whether this community pressure has made the difference or not, <v Taylor Hackford>at least one major savings and loan has been motivated to act. <v Bob Bowdoin>Recently we have made a financial arrangement with Home Savings and Loan for them to purchase the paper, or the loans that we make in the um, South Central, as well as the <v Bob Bowdoin>Altadena, Pasadena area. This will allow us to pump almost unlimited amounts of money into these areas on- on a business-like basis. We like to feel that they have, um, worked <v Bob Bowdoin>with us in this manner primarily because of our expertise and history, or successes in lending in areas that are declining. <v Taylor Hackford>This commitment by home savings is one of the first positive steps taken by a

<v Taylor Hackford>major savings and loan to increase lending in redlined areas. <v Taylor Hackford>But guaranteeing the loans of one small savings association will not put an end to <v Taylor Hackford>the redlining problem. For lenders, the first order of business is to make <v Taylor Hackford>the largest profit possible and since the loans in these older areas are not <v Taylor Hackford>as profitable as those in the newer parts of town, it will continue to be good <v Taylor Hackford>business sense to redline. <v Taylor Hackford>But what makes perfectly good business sense can have devastating effects on large <v Taylor Hackford>portions of the city. Perhaps the substance and grace of Pasadena's old homes <v Taylor Hackford>will have to give way to the economy and efficiency of new apartment houses <v Taylor Hackford>and townhouses. If so, redlining will have accelerated the process <v Taylor Hackford>by isolating the city's older neighborhoods and allowing them to die. <v Speaker>[song plays] Home, home, home, home in Pasadena. Home, home, home, home where grass is greener. Where the little bees they hum melodies, and orange trees capture the breeze. I'm <v Speaker>gonna! I'm gonna be a little home-sweet-homer and right there I'll settle down. Beneath the palm, in someone's arms, in a Pasadena town. <v Taylor Hackford>The film that we've just seen describes one community's problem with redlining.

<v Taylor Hackford>All over California there are communities that are suffering from the same affliction. <v Taylor Hackford>Tonight, we'd like to begin seriously discussing possible solutions to that problem. <v Taylor Hackford>And we're lucky enough to have with us four gentlemen, who not only know the subject <v Taylor Hackford>intimately, but also hold the power to do something about it. <v Taylor Hackford>Donald Burns, secretary of the State Business and Transportation Agency, <v Taylor Hackford>Dr. Maurice Mann, President of the Federal Home Loan Bank of San Francisco. <v Taylor Hackford>Dean Cannon, Executive Vice President of the California Savings and Loan League, <v Taylor Hackford>and Jim Lowry, director of the Center for New Corporate Priorities. <v Taylor Hackford>Mr. Burns, your agency held those hearings last month, what's been the result? <v Donald E. Burns>Well, uh for the first- in the first place, we have learned quite <v Donald E. Burns>a bit about what attitudes toward this situation are, <v Donald E. Burns>both in the community and in the lending industries and <v Donald E. Burns>also from local government officials. <v Donald E. Burns>This, in turn, has led to our, uh, work on a staff basis

<v Donald E. Burns>on uh, certain draft regulations and policies. <v Donald E. Burns>We have had further discussions with a local government officials, industry groups. <v Donald E. Burns>And, uh, I think we're well on the way toward the early discussion in public forums of, uh, possible measures to deal with this problem. <v Taylor Hackford>Now, what specific things might be done that wo- with laws that are already in the books? Policy decisions that could be enforced that might, uh, encourage uh... savings and loans <v Taylor Hackford>to <v Taylor Hackford>rescind certain redlining procedures if they have them, might encourage them to lend in- <v Taylor Hackford>in uh, older neighborhoods. <v Donald E. Burns>Well there are several things, <v Donald E. Burns>I think. First, is a step which probably ought to be taken anyway even <v Donald E. Burns>precending from this situation, and that is, I think we need to have some further <v Donald E. Burns>disclosure of uh, lending and deposit patterns, I think that information ought to be available. I think the industry, <v Donald E. Burns>the lending industry itself would find it very profitable to have this information.

<v Donald E. Burns>And of course, I think, uh, since lending institutions are corporate citizens <v Donald E. Burns>in our communities, I think it's quite appropriate that the citizens <v Donald E. Burns>have a- have a right to know what uh, how they're exercising their stewardship. <v Donald E. Burns>In the second place. I think it as the new state housing finance agency takes shape, that <v Donald E. Burns>its practices will take account of where there are mortgage deficient areas, <v Donald E. Burns>I think its very important that we work with lenders, uh, both public and private <v Donald E. Burns>taking into account the varying practices in this area. <v Taylor Hackford>Can- Does the state have the authority to tell the savings and loans we would like your lending patterns made public? <v Donald E. Burns>I don't think there's any question about that. <v Donald E. Burns>Yes, we have researched that question. <v Taylor Hackford>Will you do that? <v Donald E. Burns>I think that's quite possible. I- I think within a couple of weeks we will be announcing <v Donald E. Burns>several proposed steps. <v Donald E. Burns>We will release them for public comment and only then will decisions be made as to what will actually <v Donald E. Burns>be adopted. I think this is su- a subject which has had a great deal of public exposure,

<v Donald E. Burns>and it's uh appropriate for decision-makers to have further input <v Donald E. Burns>on the specific recommendations. <v Taylor Hackford>Now, right now in California, it's illegal for governmental agencies to put their money, <v Taylor Hackford>the public funds, in savings and loans. Savings and loans are not allowed to be the depositories for governmental funds, on any level, state, federal, or uh, or municipal. Might <v Taylor Hackford>there be a law passed to allow <v Taylor Hackford>the governments to put their moneys in savings and loans therefore providing an incentive <v Taylor Hackford>that if savings and loans wanted these moneys they couldn't have redlining practices. <v Donald E. Burns>Such uh, it would take a constitutional amendment, Second Amendment has been introduced <v Donald E. Burns>in the legislature. Uh... the Brown administration has supported this amendment and it is moving through the legislature. <v Taylor Hackford>Alright. <v Dr. Maurice Mann>I wonder if I could just clarify a couple of points. First let me, if I may, since I was one of the participants in the secretary's hearings. First, let me commend him, uh, for <v Dr. Maurice Mann>the kinds of hearings he conducted. They were reasonable, they were balanced, they were just issues. Everyone had a chance to speak freely. I think- I think they were done well. <v Dr. Maurice Mann>Uh they ran the risk of becoming highly emotional, they didn't. Uh, most importantly, I think, we identified the problem. There's a problem out there and people began to talk <v Dr. Maurice Mann>about it. Now secondly, may I take issue with you. You have said savings and loans two or three times, there are more mortgage lenders than savings and loans. Uh, this is a <v Dr. Maurice Mann>problem of the financial community. Life insurance companies make mortgage loans, commercial banks make mortgage loans-.

<v Taylor Hackford>But on single family dwellings? <v Dr. Maurice Mann>Indeed. Now there are all kinds of lenders. There are government agencies involved in mortgage lendings there's th- the federal housing administration, there's Ginnie Mae, there's <v Dr. Maurice Mann>Freddie Mac- All kinds of agencies. The point is, there's a very broad problem. Thirdly, this is now a new problem, we've had redlining in this country way back, what has happened <v Dr. Maurice Mann>now is we're beginning to identify the problem. People are calling- like Jim- they're calling attention to it. So I think- I mean there are some issues, I think, I hope we can <v Dr. Maurice Mann>agree on, <v Dr. Maurice Mann>uh, this is not something that's happened overnight. Uh, this is not just the savings and <v Dr. Maurice Mann>loans, there are many savings and loans that are doing good things, as there are commercial banks, but I think we oughta identify- at least agree on the parameters of the <v Dr. Maurice Mann>situation. <v Taylor Hackford>Fine. Well, while we're talking with you, Dr. Mann, the- I think that the public may not be aware of what the federal home loan bank does. Now, it- it does regulate these lending <v Taylor Hackford>bodies, does it not? It, uh,.

<v Dr. Maurice Mann>Yeah <v Taylor Hackford>Is the regulatory agency. What kinds of things could the federal home loan bank do to encourage savings and loans to uh, lend in older neighborhoods? <v Dr. Maurice Mann>Well we've already done a number of things, the uh, I mean technically the whole federal home loan bank board which is the uh, the ruling body for the 12 federal home loan banks- <v Dr. Maurice Mann>well, let me- let me explain it by saying, we're to the savings and loan industry like the federal reserve is to the commercial banking industry and that make- <v Dr. Maurice Mann>to some people that makes a lot of sense. If that doesn't, trying it another way, with a <v Dr. Maurice Mann>primary regulator and supervisor of all insured savings and loans, in this <v Dr. Maurice Mann>way, uh we- we supervise federal chartered, as well as state chartered savings <v Dr. Maurice Mann>and loans. There are, sometimes, juridis- jurisdictional disputes where they got to these <v Dr. Maurice Mann>two kinds of institutions. <v Dr. Maurice Mann>Uh, there are a number of things that can be done. Most importantly, we have promulgated <v Dr. Maurice Mann>regulations which say, in effect, they say specifically, it's- it's wrong, you know, <v Dr. Maurice Mann>it's uh- it's unlawful to discriminate in any type of lending.

<v Dr. Maurice Mann>Now again, the problem is how do you go from there- here to there, and determine when <v Dr. Maurice Mann>this is going on? But the regulations are pretty clear. <v Dr. Maurice Mann>The problem is that it's, again, difficult to identify. <v Dr. Maurice Mann>Uh, on a different level uh, we attempt to work with the community in a small way, <v Dr. Maurice Mann>admittedly, to try to cut through some of the patterns. <v Dr. Maurice Mann>We've worked, for example, in the neighborhood housing services program, which has been <v Dr. Maurice Mann>somewhat successful in Oakland. But again, we're just beginning with [stammers] it's a <v Dr. Maurice Mann>big deep barrel. <v Taylor Hackford>That's, I think, we should define it. Isn't that SAMCO the-. <v Dr. Maurice Mann>That's different. <v Taylor Hackford>That's a different thing? <v Dr. Maurice Mann>That's a different type of program. SAMCO is a- is a savings association mortgage <v Dr. Maurice Mann>corporation. Which was funded originally, by, by- I think 25 <v Dr. Maurice Mann>savings and loans in the bay area. Which in a sense provides a pool of funds uh, <v Dr. Maurice Mann>to get this thing off the ground. Uh- <v Taylor Hackford>That's- That's the private industry putting money in along with the government, isn't it? <v Dr. Maurice Mann>No there's no government money. <v Taylor Hackford>Just the private industry. <v Dr. Maurice Mann>There's no government. <v Taylor Hackford>Putting money in to loan in these areas. <v Dr. Maurice Mann>Now, in this case it happens to be only the savings and loans, I mean, other participants <v Dr. Maurice Mann>could be there. The neighborhood housing services program is a different type of thing. This is a community effort, which has been eminently successful in some parts of the <v Dr. Maurice Mann>country. Pittsburg, Pennsylvania has a first-class program. Uh, the Oakland program is working pretty well. Uh, there's interest being shown in places like San Jose, Saint Louis, <v Dr. Maurice Mann>Dallas, and elsewhere, but the programs, again, are in the embryonic stages. In effect, what this is, an attempt to arrest the deterioration of the decline in a neighborhood.

<v Dr. Maurice Mann>Bring the neighborhood back up to better standards. Uh, unfortunately, sometimes neighborhoods go too far, it's too late, but there's an attempt. Now, I, I think this is a very <v Dr. Maurice Mann>good example Taylor, because this represents a joint effort, a true joint effort. The financial institutions, the government, the individuals, the neighborhood, everyone gets <v Dr. Maurice Mann>involved and again, it's.. <v Taylor Hackford>One thing that- that I know that there are <v Taylor Hackford>communities that are really far down the road. <v Taylor Hackford>Towards de- deterioration decay. <v Taylor Hackford>One of the examples that we use tonight is Pasadena, Altadena. <v Taylor Hackford>And in that area there are a number of, well, just a large portion of that community <v Taylor Hackford>is still- the housing stock is still in good shape. Um, However, there is, <v Taylor Hackford>allegedly, red- redlining in that community. <v Taylor Hackford>Now, what- what can be done to encourage savings and loans where an area is not

<v Taylor Hackford>deteriorated to the extent that it would be completely impractical to loan there? <v Taylor Hackford>What can be done to encourage that? I've talked to any number of savings and loan people <v Taylor Hackford>and they- they made a number of suggestions. <v Taylor Hackford>One is, as far as your agency, what the federal home loan bank could do, the federal <v Taylor Hackford>home loan bank makes loans to savings and loans, could there be an incentive <v Taylor Hackford>given that a reduction of the interest rate for those loans, if savings and loans did <v Taylor Hackford>loan in these areas? Or another example, branching. <v Taylor Hackford>One executive told me you could stop redlining in one second by regulating <v Taylor Hackford>the- the branching procedures. If, if uh, if uh, savings and loan wanted to expand <v Taylor Hackford>and open a new branch and they had redlined, no branch. <v Taylor Hackford>If you had loan in those communities and you wanted to op- fine, you can open a branch. <v Taylor Hackford>He said that would stop it in one second. Could you do this? <v Dr. Maurice Mann>Now, let me respond to that. Yeah, you're gonna get ?inaudible? <v Dr. Maurice Mann>I think I'd like to discuss with intellectually and philosophically. <v Dr. Maurice Mann>Everything that's in play in what you're talking about suggests more government intervention, more police state, more telling people what to do and how to do it. My own, personal, <v Dr. Maurice Mann>feeling is

<v Dr. Maurice Mann>I think this is a job for the private sector with the assistance of government. <v Dr. Maurice Mann>And the minute we start saying we won't give you funds if you don't do such and such, or if you don't do such and such you're not getting this, or you can't have a branch, I- I <v Dr. Maurice Mann>think it's potentially very dangerous <v Dr. Maurice Mann>because I happen to believe in the private sector. Now in answer to your question, I <v Dr. Maurice Mann>think there are things that can be done. I think co-insurance will work. <v Dr. Maurice Mann>I see no. <v Taylor Hackford>Co-insurance define that. <v Dr. Maurice Mann>Well, in a sense, if somebody goes and ins- insures the type of things done in areas with <v Dr. Maurice Mann>the loans on- on to, in other words-. <v Taylor Hackford>Would that be the government? <v Dr. Maurice Mann>The government could participate, sure. Another type of things they're having us is risk <v Dr. Maurice Mann>pool. Where you literally spread the risk of loans that are a little bit more inferior <v Dr. Maurice Mann>in quality across a wide range of institutions. <v Dr. Maurice Mann>This could work. You set up a fund. It's worked, for example, in a casual insurance... <v Dr. Maurice Mann>Feel, where you spread risk across a large number of lenders, you know, perhaps its one <v Dr. Maurice Mann>percent of everybody's assets, where not one institution or two or three bear all the risk, <v Dr. Maurice Mann>but any 50 institutions, maybe the commercial banks, the savings and loans, everyone. <v Dr. Maurice Mann>This is a community problem. <v Taylor Hackford>Provide the impetus for those savings and loans or those lending institutions to get

<v Taylor Hackford>together and voluntarily, uh do this. <v Dr. Maurice Mann>I think ought to do it on their own. And if they don't do it on their own, I think they ought to be sufficiently prodded by the state agencies, or the federal agencies into doing <v Dr. Maurice Mann>it. <v Speaker>Well, Maury, uh. let me follow up on something you said. I agree with your general premise, certainly, this is a private sector problem, <v Speaker>its going to have to find a private sector solution, uh, however, and I think the <v Speaker>government can play a role, a significant role. <v Speaker>And I don't think it ought to be primarily one of dictating. <v Speaker>As a matter of fact, I think that uh, I maybe I share another view that uh, for the <v Speaker>government to be telling everybody what to do is probably not a good way to run <v Speaker>the government or the private sector. However, there's an implication that I don't think <v Speaker>I agree with, and that is that um, the federal home loan bank system, <v Speaker>which uh, I think was- was a great thing to have set up and is a- performs a valuable <v Speaker>public service amounts to a pr- public sub- subsidy in that it harnesses <v Speaker>the ability of a quasi-governmental entity to borrow funds at what is a lesser <v Speaker>rate. Thus provides funds to these institutions at a lower rate than would

<v Speaker>otherwise be possible or certainly with greater flexibility. <v Speaker>So then I think it's totally appropriate for the bank system to put conditions on the use <v Speaker>of these funds. <v Speaker>And to make decisions as to how these funds will be allocated based on what it deems to <v Speaker>be social priorities. You and I and Taylor and Dean, might- and Jim might disagree <v Speaker>as to what those priorities are, maybe this is a totally false premise here. <v Speaker>But I think it is totally appropriate. <v Jim Lowery>Let's get back to the question of uh, of regulation and public policy. It was mentioned that the federal home loan bank board has regulations which say redlining is bad, now, <v Jim Lowery>you can either go partway with a policy or you can go all the way. <v Jim Lowery>The situation with equal employment opportunity was that there was a law <v Jim Lowery>against employment discrimination for a long time, but it wasn't enforced and until it <v Jim Lowery>was enforced, it didn't actually become a policy and didn't begin solving the problem. <v Jim Lowery>I think clearly that's what we have to do in regard to redlining. I think that um, <v Jim Lowery>if you, if you say that redlining is wrong then you have to have ways to enforce it

<v Jim Lowery>and one way to enforce it is through some investigative agencies. <v Jim Lowery>Uh, through the capability of consumers, or neighborhoods to file lawsuits or complaints, <v Jim Lowery>uh to air their grievances. I think you, if you, if you're going to have a policy you <v Jim Lowery>might as well implement it. <v Taylor Hackford>Is there anybody that, uh, that will allow that to happen? <v Dr. Maurice Mann>Sure but let me, I'm glad that you said that because as we said in our testimony and people, sort of looked ascance when we said it, we at the home loan bank of San Francisco, I <v Dr. Maurice Mann>say this literally, have no evidence of redlining. I'm not calling it doesn't exist <v Dr. Maurice Mann>, we've never denied it exists. But we have no specific evidence, case in point. As Don Burns knows, we have a procedure whereby, our examination force out of Washington is alerted to being contacted and so forth. I don't think there have been three phone calls in the state of California to the federal examiners. Now I'm not suggesting this- [well, I- I- ]there isn't redlining I'm only saying, the vehicles are there but nobody uses them. <v Taylor Hackford>One of the, one of the examples that we use in the film and we have a documented case where a loan officer from Home Savings went into

<v Taylor Hackford>a realtor's office drew on a map in the Altadena area a specific section <v Taylor Hackford>that said we'll make loans in this area but we will not make loans anywhere else. <v Taylor Hackford>And that's a specific example of, of a redlining situation. <v Taylor Hackford>He even drew it in red pencil which I thought it sounded kind of poetic, but in any <v Taylor Hackford>event, there's one right here. <v Taylor Hackford>Um, I've come across several uh, that I think can be documented in, in my research. <v Taylor Hackford>One of the things that you said earlier eh of, and I think we'll throw it over to Mr. <v Taylor Hackford>Canon now, is that this should be done voluntarily by the savings and loan industry. <v Taylor Hackford>Now we work in a capitalistic system eh, which says that you should- you should try <v Taylor Hackford>to, and it's, and it's a good procedure, you should try to maximize your profits. <v Taylor Hackford>Now we've shown, at least in our film report, that these areas can be profitable the <v Taylor Hackford>Pasadena, Altadena area family savings has been loaning there for some time and has found <v Taylor Hackford>them to be profitable. They are not as profitable as loans you'll say, in <v Taylor Hackford>Beverly Hills. Now, that being the case, if you leave things unfinished-. <v W. Dean Cannon, Jr.>I don't understand that statement. <v Taylor Hackford>He said that it- it costs-. <v W. Dean Cannon, Jr.>It's not as profitable as- as loans in Beverly Hills. <v Taylor Hackford>He, uh, he said-.

<v W. Dean Cannon, Jr.>You're talking about in doing the same dollar... volume? <v Taylor Hackford>Right, he talked of, no, no, he talked it about the fact that to do loans in that area, <v Taylor Hackford>you cannot do them on a blanket basis. You can't say that San Fernando Valley is a pretty <v Taylor Hackford>safe area and we'll offer 80 percent loans in that area, you kind of have to go out and, <v Taylor Hackford>and on an individual basis. <v Taylor Hackford>And any way- in other words, it takes- it cost more money to service each individual loan <v Taylor Hackford>so therefore, your profit margin is less but there is a profit margin. <v W. Dean Cannon, Jr.>Well the reason for that probably is, is a collection or, as you indicated, a servicing problem because the, the loan is not paid uh, <v W. Dean Cannon, Jr.>as it would be on schedule maybe in another area. <v Taylor Hackford>Well, I don't know if that was a problem so much as it was [someone else starts] going <v Taylor Hackford>out and making sure that when you give the loan in the first place it takes a lot more <v Taylor Hackford>work. In any event, the, the point that I'm trying to make is that if it's been shown <v Taylor Hackford>that it is profitable but not as profitable as something else and it's- it's a- it's a <v Taylor Hackford>good business practice to go to where your profit is going to be the largest. <v Taylor Hackford>You're probably not going to make those loans, voluntarily. <v Speaker>Taylor can I just pick up- <v Dr. Maurice Mann>I- I think Jim has the information. I think you'll find that if you look at some of the <v Dr. Maurice Mann>loans made in different kinds of areas, there's a considerable difference in their age structure. That in some areas where loans are perhaps not as desirable, but they tend to be

<v Dr. Maurice Mann>higher Jim, is that right? <v Jim Lowery>Mm hmm, the interest rates are higher and the interest rates in combination with the fees will tend to be higher. <v Dr. Maurice Mann>Therefore-. <v Jim Lowery>-?inaudible? the down payments would be, would be larger. <v Dr. Maurice Mann>So by definition, if you believe in cost and revenue relationships this means that profits would be higher in <v Dr. Maurice Mann>areas where the rates are higher and the fees are higher, which may tend to be the areas <v Dr. Maurice Mann>that you're talking about. <v Taylor Hackford>Well fine, then what can- what can be done to encourage the savings and loan industry <v Taylor Hackford>to voluntarily do something about this problem? <v W. Dean Cannon, Jr.>Well, I'm not sure Taylor, because we've tried a number of things. For instance, the state of California did enact, about 5 years ago, an incentive plan. Give a tax break to the <v W. Dean Cannon, Jr.>business for making loans in low-income areas and uh, frankly I think this worked very well. But because of the revenue loss of the state at that time, they- it was discontinued, <v W. Dean Cannon, Jr.>there was a cut off date and it was discontinued. But uh, I'd like to get back to something that Maurice said earlier uh.. <v Taylor Hackford>One- One second before you do, I- I hate to interrupt you. Mr. Burns, has there been any

<v Taylor Hackford>thought about reinstituting that? <v Donald E. Burns>Uh, I have not, uh. <v W. Dean Cannon, Jr.>It's not part of- part of Don's uh-. <v Taylor Hackford>Of course but if in fact it works- if in fact it worked, has- have you thought about <v Taylor Hackford>re-instituting it? <v Donald E. Burns>Uh, given our current revenue situation I think it's unlikely, at this point, we haven't seriously considered it. <v Taylor Hackford>I'm sorry, continue. <v W. Dean Cannon, Jr.>Uh, I was just going to say that uh, something that Maury had mentioned earlier that is, this is not just a savings loan problem. Everybody looks at the savings and loan business <v W. Dean Cannon, Jr.>because we do make, probably better than 50 percent of the home market's loans. But, uh, as a matter of fact, last year we increased that by possibly 20 percent because the <v W. Dean Cannon, Jr.>commercial banking industry reduced theirs by about 32 percent, and the insurance industry has gotten out of the housing business, the housing finance business, now for a number <v W. Dean Cannon, Jr.>of years. So, I think we need to talk about all of these people and try to get those people back into this area. I don't think that anyone should expect private industry to take <v W. Dean Cannon, Jr.>the money of the public, that- that they've entrusted in the way of savings deposits with our industry and put in to an area where we know, by experience, that there are gonna be <v W. Dean Cannon, Jr.>losses and substantial losses. So I think there have to be, uh- a partnership, a co-insurance, as Maury mentioned, I think is- is a possibility. And also, I think that uh, the <v W. Dean Cannon, Jr.>mingling, the co-mingling of funds by all financial institutions and pooling it just like the casualty risk business, I think is a, is a very viable possibility. <v Taylor Hackford>Have there been any, any substantive plans to, in fact, institute something like that? <v W. Dean Cannon, Jr.>We have talked about this, Taylor, but there has been nothing definite established as yet. And I think that uh, that Jim's calling attention to the problem, uh, which we've known <v W. Dean Cannon, Jr.>about for a long time, uh, has- has spurred us to think about some possible solutions uh, and I- I'm confident we're gonna come up with something. <v Taylor Hackford>Jim, I know that uh, the center for um- for new corporate priorities broke this issue in Southern California came out with a report showing areas of uh, Los Angeles that you felt <v Taylor Hackford>were, allegedly redlined, what have you found to be the case and what have you been proposing to uh, as solutions to the problem?

<v Jim Lowery>Well, we found uh, about a 7th of the county is effectively redlined.

<v Jim Lowery>Our statistics were based on data collected by the savings and loan commissioner in <v Jim Lowery>California and there's really no other information available, which is why one of our, of the issues that we're talking about is disclosure, more full disclosure to the public on <v Jim Lowery>lending and deposit data. <v W. Dean Cannon, Jr.>Jim, I think uh, if I could interrupt just a moment, I think the only difficulty I have <v W. Dean Cannon, Jr.>with the statistics that you presented on this issue is that they were <v W. Dean Cannon, Jr.>only for a 5 month period in uh, 1974. An uh, <v W. Dean Cannon, Jr.>what I would like to see, in addition to what you've done, <v W. Dean Cannon, Jr.>is more of this kind of information uh, so that we can determine just what some of the risk are, and go further and determine what some of the <v W. Dean Cannon, Jr.>risk are. <v Taylor Hackford>Fine, can we- one- one of the things that would make that possible would the savings and <v Taylor Hackford>loans in California, h- we're saying the Los Angles area, make those statistics <v Taylor Hackford>available to the center for new corporate priorities so that we could do a detailed uh, <v Taylor Hackford>that's one of the problems with, that I found too. <v Taylor Hackford>Finding information is virtually impossible because on- it's a- it's a..

<v Taylor Hackford>A few hands and those hands do not want to let loose. <v Taylor Hackford>Now, if you'd like something that was- would be more detailed, can you provide the <v Taylor Hackford>information? <v W. Dean Cannon, Jr.>Well, I think there's- there's some problems with doing this publicly and uh, that is the- the possible injure to the institution itself, which I don't think any of us want to do. <v Taylor Hackford>Such- how- what would the injury be? <v W. Dean Cannon, Jr.>Well, the information that you're talking about disclosing where all the loans are made <v W. Dean Cannon, Jr.>and dollar amount, and so forth. In and of itself, to my mind, would not accomplish anything. Now the next step beyond that would be for some regulator or some group that had <v W. Dean Cannon, Jr.>sufficient power to tell a lending institution that you're not loaning enough money in this tin block area, we want you to dump 300 thousand dollars, or 2 million dollars into <v W. Dean Cannon, Jr.>that area in the next 6 months. And I think that this is not the way to run a <v W. Dean Cannon, Jr.>financial institution. <v Taylor Hackford>One- One of the things I- I didn't get the answer to my question about how

<v Taylor Hackford>that would be dangerous, how that would be damaging to an institution. <v Taylor Hackford>Is that the argument that if uh, the depositors found that they were pouring money into a bad area, they might draw their money out? <v W. Dean Cannon, Jr.>That is a possibility. <v Taylor Hackford>Of course if-. <v W. Dean Cannon, Jr.>However- however, that's- that's not really what I was getting at. <v W. Dean Cannon, Jr.>What I was trying to get at is the next step, when you get this information, what are you <v W. Dean Cannon, Jr.>gonna do with it? And I- I'm assuming that the next step would be for government or some private group to demand that one institution lend x number of dollars in one area. <v W. Dean Cannon, Jr.>[Hackford: what if] <v W. Dean Cannon, Jr.>And it may not be feasible, practical or [Hackford: what about the-] financially sound <v W. Dean Cannon, Jr.>for that institution to do that. <v Taylor Hackford>What about the argument that-. <v W. Dean Cannon, Jr.>And these people don't know that. <v Taylor Hackford>That <v Taylor Hackford>uh- that the- that a branch office usually has over 50 percent of its deposits from a radius of about two to three to four miles. And <v Taylor Hackford>so therefore, you've got large amounts of money, in the hundreds of millions of dollars <v Taylor Hackford>coming from a community to one branch and that branch not making loans in that community. <v Taylor Hackford>I mean, I think that that's one thing that would be interesting about lending patterns. <v Taylor Hackford>You'd know that the- that the savings and loan down in the corner that you've be putting

<v Taylor Hackford>your money into for years would not lend for your house. <v Taylor Hackford>And just- just for public information it would be interesting. <v Dr. Maurice Mann>Unless you have a loan already. <v Dr. Maurice Mann>See I'd like to talk on all of this- let- let me talk a little bit on economics. I used to be an economist. Um. You know, as as an old ?exium?- as an old ?maxium? Of economics uh <v Dr. Maurice Mann>the price mechanism in the market determines the flow of goods and services and money. And money flows in response to variations. [stammers] In this country capital has flown for <v Dr. Maurice Mann>a long time from my native New England across the country, cause New England was capital rich and for a long time, California was capital poor. California is no longer capital <v Dr. Maurice Mann>poor. OK. Now, taking this down to the local level. There's absolutely no reason in the world, and I say this and my heart's in the right place, there's no reason in the world why <v Dr. Maurice Mann>you have to expect to match a dollar in deposit with a dollar of loans. [Hackford: I don't think I was talking-] <v Dr. Maurice Mann>ok but some people are suggesting that. [Hackford: No] And you know there are many years <v Dr. Maurice Mann>of this country in California where- we're- which are capilar issue. <v Dr. Maurice Mann>Funds, there are mature areas, money's taken in and put someplace else. <v Dr. Maurice Mann>Secondly, the branch system of the state, you know is just- you go to a downtown savings <v Dr. Maurice Mann>and loan or a downtown commercial bank. The deposits come from all over the state, they may come from all over the

<v Dr. Maurice Mann>country so its very difficult to discern pattens. <v Taylor Hackford> That's true. ?Liberty First? Is a branch in C- in Pasadena that has a hundred and <v Taylor Hackford>seventy-three million dollars, and it's a- it's a branch of home savings which has <v Taylor Hackford>branches all over the state. It's pretty well assured that that money came from Pasadena. <v Dr. Maurice Mann>Okay, fine what you're doing is identifying the problem, that's good, that's why we're <v Dr. Maurice Mann>here. The point of the matter is, you're saying in effect that they're not gonna put back <v Dr. Maurice Mann>in the community. [Hackford: Some of them-] But you see as a financial situation it has <v Dr. Maurice Mann>to make a decision. It has to sort its priorities and what are its alternatives. <v Dr. Maurice Mann>Now I'm not suggesting you shouldn't do it, but the point is, by identifying the problem <v Dr. Maurice Mann>you begin to come up with some of the- some of the obstacles. And some of the blockages and perhaps find a solutions. <v Jim Lowery>Well, as long as we're talking about pure economics, or pure capitalism, which by the way in no way exists in the financial industry or any other <v Jim Lowery>industry in the United States, should point out that that's the basis <v Jim Lowery>of this money flow according to price, is the information system. <v Jim Lowery>Do people have the information available with which to judge. <v Jim Lowery>And I think that's the key to the disclosure issue. <v Jim Lowery>And I would take issue with what would happen where the implications of what would happen <v Jim Lowery>if deposits and loans were- were disclosed.

<v Jim Lowery>Um, our experience over the last couple of weeks is that uh, <v Jim Lowery>the single result, the single major result of disclosure of information, uh, <v Jim Lowery>is that consumers. <v Jim Lowery>Who are- who's uh- who's need is not been felt, but who have a- a legitimate need are <v Jim Lowery>finally realizing that they might have access to this credit market when they assume <v Jim Lowery>before they didn't. And I think that the industry is simply uh, afraid that um, uh- <v Jim Lowery>it's not going to be able to meet this demand. <v Taylor Hackford>One of- one of the things that I found in talking with- with activists who wanted something done about redlining, was not that they wanted savings and loans to open up their doors <v Taylor Hackford>and say come in and we'll make loans on <v Taylor Hackford>any piece of property in this area. <v Taylor Hackford>All they were asking is that people who were credit- credit worthy would have the same <v Taylor Hackford>opportunity to get a loan as someone in another area that were creditworthy. <v Taylor Hackford>I mean, I- I had examples in the show of individuals who had good stability, <v Taylor Hackford>good credit and so on, could not get a loan in the area. Immediately went to- and bought a house that cost more money in another area and got it. Now-. <v Speaker>Was that for their own home, or was it income property that you're talking about?

<v Taylor Hackford>I th- It was for their own home. Now, now, this is in that's a, that's a, that's a <v Taylor Hackford>specific example, but I think that what people are talking about is not, uh <v Taylor Hackford>throwing the doors wide open and saying, to hell with economic policy, uh, all we want is <v Taylor Hackford>the money. They want it on a, on a, on a, on an economic basis. <v W. Dean Cannon, Jr.>Well I think the industry is willing to do that Taylor. And I think that uh, the- the question still remains as, as a philosophy and a policy of operating in this business for a <v W. Dean Cannon, Jr.>lot of years. And uh, both of the- both of the philosophy and the policy have been implemented by the federal and by the state government. Uh, Dr. Mann's uh, part of his operation <v W. Dean Cannon, Jr.>is examination of these institutions, and uh, which they do on an annual basis and uh, the same is true under uh, under uh, Mr. Burns. And if those examiners in uh, their test <v W. Dean Cannon, Jr.>appraisals find that properties uh, in areas that we're talking about uh, don't equal the book value then they're required to write those down. And they're- there are very severe <v W. Dean Cannon, Jr.>reactions to that by the regulator, and I think that there has to be some change in- in philosophy to a degree from a regulators' point of view. <v Donald E. Burns>Uh, Dean, I think you have a good point there, and I'd like to expand on it. [clears throat] I think that uh, not

<v Donald E. Burns>only does regulatory policy have to take into account any <v Donald E. Burns>decisions any policy points of viewas far as allocation of funds are concerned. <v Donald E. Burns>But I also think that the federal secondary market corporations, fan-, uh... <v Donald E. Burns>FHA VA also need to play a role in this. In going back to something that was <v Donald E. Burns>said earlier and I wanna emphasize. <v Donald E. Burns>I don't think that it makes much sense as social policy to ask the private <v Donald E. Burns>lenders to lend in an area which we can determine from some objective <v Donald E. Burns>criteria, and I dont think we have those yet, but if we did. <v Donald E. Burns>Uh, that these areas are uh, present a higher risk of loss then, then is <v Donald E. Burns>appropriate. I think we need to get local government to expand its resources, we need to <v Donald E. Burns>have the federal secondary market corporations, uh the- the federal agencies to explain that, which buy loans from private lenders. Uh, and... the insuring and guaranteeing of <v Donald E. Burns>these FHA and VA to move in there as well. Local government gets a lot of money from <v Donald E. Burns>the federal government to help its community services, I think they need to move in

<v Donald E. Burns>and make sure that the garbage gets picked up. Make sure that the... <v Donald E. Burns>police are there, the streets are swept, and paved, you're <v Donald E. Burns>quite right. All of these community services need to go along with it. <v Taylor Hackford>Now we- now the state yours- your office and the state can start providing <v Taylor Hackford>the impetus for that. Are you going to do it? <v Donald E. Burns>Uh, yes. We've already had conversations as a matter of fact with local government. <v Donald E. Burns>An uh, in connection with the establishment of the new state <v Donald E. Burns>housing finance agency. We've had discussions with local government. <v Donald E. Burns>As you may... suspect they're a;ready at our doorstep. We have about 24 <v Donald E. Burns>applications from local government for much more already in aggregate than we can <v Donald E. Burns>possibly commit. <v Taylor Hackford>What kinds of money are we talking about? <v Donald E. Burns>Well... In the first 18 months, I suspect we're talking about uh... <v Donald E. Burns>500 to 700 million dollars. and I think- well, <v Donald E. Burns>when they come to us, we tell them, fine that's an interesting proposal. <v Donald E. Burns>How much money are you willing to commit?

<v Donald E. Burns>And we're not talking about policy statements or press releases, we're talking about <v Donald E. Burns>dollars, how many dollars are you going to commit to better community services? How are you goin- how do you show is that it's there? <v Taylor Hackford>Briefly, and our time is running short, uh, <v Taylor Hackford>how about such substantive legislation? <v Taylor Hackford>Is the administration going to propose legislation in this area? <v Taylor Hackford>Has it already? What would it do? <v Donald E. Burns>Uh. There is at least one bill moving in the legislature in this general area. We have talked uh, to senator Holden, sponsored a bill and we've talked to him and <v Donald E. Burns>we're going to be having further talks with him about possible amendments to <v Donald E. Burns>that bill. I think a great deal, however, can be done administratively <v Donald E. Burns>and by uh, sitting down and having good faith discussions with private <v Donald E. Burns>industry, community groups and local government. <v Donald E. Burns>And that's going to be our primary thrust. <v Dr. Maurice Mann>Let me explain- you know, make one thing clear, I'll try to make it clear. There are two separate problems. One is the matter of discriminating against individuals, this is <v Dr. Maurice Mann>illegal, this is unlawful, it's against regulations because of race, creed, color, and so forth. It's quite a different problem, I think, the name of the problem, I think they <v Dr. Maurice Mann>require different solutions and different approaches. Though sometimes they get mixed and wehn you get them both together, you got a real problem. But

<v Dr. Maurice Mann>there are instances, allegedly, where there has been discrimination in lending, an <v Dr. Maurice Mann>individual. Irrespective of the neighborhood. <v Dr. Maurice Mann>There are other places where the lending institutions will not go into a neighborhood and therefore, a guy against whom they might not discriminate cannot get a loan either. So <v Dr. Maurice Mann>they're two separate problems. <v Taylor Hackford>I know, I think that in this instance we're talking about neighborhoods. I think that the redlining is defined as neighborhoods. One, one reaction I'd like some people have said <v Taylor Hackford>that redlining usually follows integration. That as a neighborhood becomes racially mixed, you can invariably say that it's going to- that redlining is going to follow. Now, it <v Taylor Hackford>happens to be in the Pasadena, Altadena area that this is an integrated community and uh, I know that around other places in the state that is the case also. Now, that might be <v Taylor Hackford>some grounds for discrimination uh, that has to do with race. Have you had any... reactions questions about this? <v Dr. Maurice Mann>Oh I think it's, you know, it's the popular reaction. I can only pay testimony to areas with which I'm familiar, I spent many years of my life in ?Sheiga? heights, Ohio. Which <v Dr. Maurice Mann>became a- which is a very, very, high income- relatively high income, high level area which became racially integrated and I saw no- no- no ending of lending in that area. And <v Dr. Maurice Mann>blacks and whites as far as I know, as far as I saw were quite able, uh, to get loans equally. So, again, I mean, I think- I think for every example on one side, you'll find one <v Dr. Maurice Mann>on the other side. <v Jim Lowery>The wealthiest areas of Los Angeles, the wealthiest minorities areas or mixed areas uh, according to- to our research uh had a healthy amount of lending but <v Jim Lowery>I think the- the question is what happens as an area begins- begins to change racially?

<v Jim Lowery>And I think that it's been documented that the first thing that happens is that <v Jim Lowery>conventional lending is gradually cut off and lending changes to FHA and VA. <v W. Dean Cannon, Jr.>But you're suggesting even there, Jim, that- that the reason for it is- is a racial reason. Uh- did- I don't know what kind of questions you asked to- to get this information but <v W. Dean Cannon, Jr.>I would suggest that the reason is an economic reason from the lender's point of view and <v W. Dean Cannon, Jr.>looking at the area and saying that uh ?inaudible? <v Jim Lowery>I would think- it might be an imagined economic reason but I- I think it's a- <v Jim Lowery>it's a generalization about what is going to happen to that community as a result of <v Jim Lowery>integration. <v Donald E. Burns>I spoke to a lending officer of a very large mortgage lender in the state. <v Donald E. Burns>Uh, and he was telling me what his criteria for lending are and one of the major criteria were uh, uh <v Donald E. Burns>the notions of neighborhood acceptability, where one doesn't have to be a sociologist <v Donald E. Burns>to know that a lot of white middle class people would not like to move into a <v Donald E. Burns>neighborhood which they have been told had a lot of blacks moving into it. And if that's his lending criteria, well-

<v Donald E. Burns>you know, you don't have to call it racial prejudice, you can call it anything you want. <v Donald E. Burns>The fact is, they're not gonna lend. and uh... <v Taylor Hackford>That, that being the case and I wonder if there are any grounds then, to- to move on those levels governmentally to prevent that from happening. I mean, if it's a, if it's a <v Taylor Hackford>tassle- a tacid- pardon me, a tacid type of discrimination. Uh. <v Donald E. Burns>Well, I think it will help to get out in the open just what these criteria are. <v Donald E. Burns>And uh, I think we can then determine <v Donald E. Burns>whether these laws against discrimination, which are necessarily vague, uh, are in the <v Donald E. Burns>concrete examples being followed. I- I think that there's a lot of good will in the lending industry and I don't think that there are too many people who are- or- <v Donald E. Burns>acted avowedly on the basis of racial prejudice. <v Donald E. Burns>But I think maybe the result is sometimes the same. <v Taylor Hackford>I know that you're going to be releasing a policy- a policy statement soon. Any bombshells there that you wanna relay on the show here? <v Donald E. Burns>Well, I think uh- <v Donald E. Burns>No, I don't think there will be any bombshells.

<v Donald E. Burns>But I think that we will have some proposals that perhaps will uh, <v Donald E. Burns>excite some differences of opinion and we- that's why we're going to propose them and not <v Donald E. Burns>enact them. We're going to propose, have some public comment and then uh, then proceed to <v Donald E. Burns>take whatever action seems appropriate. No, I- I think we'll-. <v Dr. Maurice Mann>Jim, one thing we have of interest, we need more knowledge, we need more information. Our bank is sponsoring in December what we hope to be a first annual housing conference at <v Dr. Maurice Mann>which we're inviting- we're commisioning papers by reputable scholars in the area. One of the major focuses of- of the conference will be what can be done in the area of low <v Dr. Maurice Mann>income housing. I mean, a lot of things have been done, a lot of things have been attempted, there's been a lot of conversation. We need a lot of information, I think we may need <v Dr. Maurice Mann>some new ideas, so hopefully, we'll- we'll begin to cope with this type of problem. <v Taylor Hackford>Alright, and as far as the federal home loan bank goes, are th- there are procedures that you have right now that could institute some changes and bring about some changes within <v Taylor Hackford>these- I mean you certainly have the power, the federal home loan bank-. <v Dr. Maurice Mann>The regulations, uh, say specifically- [Hackford: enforcing the regulations] discrimination. Enforcement becomes a problem on- under the regulations in ?law?. I mean, again, it's <v Dr. Maurice Mann>a matter of knowing what needs to be done and then, maybe it requires some more regulations and some more laws. <v Taylor Hackford>Well, our time has run out. Uh, I think we've talked about some provocative things, some possible solutions, we'll be interested to hear what uh, Mr. Burns' department comes out <v Taylor Hackford>with and uh, I wanna thank you gentlemen for being with us. Uh <v Taylor Hackford>next is the game returns in its regular format with yet more real estate information.

<v Taylor Hackford>There will be reports on home financing, buying condominiums and tenants' rights. <v Taylor Hackford>Your host then will be ?C.G Ware Billock? Thank you for being with us, and good night. <v Speaker>If you would like a summary of the information on this program, send a stamped <v Speaker>self-addressed envelope to the game. <v Speaker>4400 Sunset Drive, los Angeles 9 0 0 2 7. <v Speaker>[song plays] Home, home, home, home is Pasadena. Home, home, home, home, where grass is greener. Where the little bees, they hum melodies, and orange trees scent the breeze. I'm <v Speaker>gonna! I'm gonna be a little home-sweet-homer. And right there I'll settle down. Beneath the palms, in someone's arms, in a Pasadena town. <v Speaker>The game is a production of KCET Los Angeles, which is solely responsible for its

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