A niche in which savings institutions stand tall.

When a panel of federal regulators - commissioned by President Clinton to make the Community Reinvestment Act more effective for inner-city homebuyers - recently held hearings in South-Central Los Angeles, more than a few savings institutions were represented.

Some of them, myself included, felt a little embarrassed by the recognition we received from various government and community advocacy groups.

|What's Going on?'

"The failure of California banks to serve minority homeownership needs is graphically displayed by comparable data from savings and loans in the same area," the Greenlining Coalition testified. Great Western Savings Bank, with only $36 billion in assets, made more home loans to African-Americans and Latinos than the combined total of all California banks. And American Savings Bank, with only $17 billion in assets, made more loans to Latinos than all California banks combined and more loans to African-Americans than the total of all California banks, excluding Bank of America.

Some lenders who weren't paying attention were left scratching their heads wondering, "What's going on here?"

What's going on here is that, over the past four years, savings institutions have reemerged as vital, viable lenders serving the low-income segment of the borrowing market; a market that historically has been ignored by lenders. Savings institutions are moving into inner-city neighborhoods as other lenders retrench; maintaining portfolios of loans that keep us focused on neighborhoods; and targeting CRA objectives and adding staff to define and actualize inner-city lending and deposit goals.

Good for Business

Ironically, that makes savings and loan institutions -- which in the late '80s were sometimes unfairly portrayed as Public Enemy No. 1 -- a major ally with the Clinton administration in its quest to improve opportunities for affordable housing. Savings institutions are making homeownership possible for thousands of lower-income Americans who are ignored by lenders not covered by Community Reinvestment Act guidelines and who are abandoned by institutions that have withdrawn their inner-city branches in the wake of urban unrest.

Equally important, this focus on inner-city low- and moderate- income lending is good business. In fact, our inner-city portfolios have experienced lower default rates than portfolios in affluent neighborhoods where home values have significantly declined.

Savings institutions have, in effect, defined for themselves a new, politically correct niche. By returning to our original mission of providing home mortgages, by focusing on portfolio lending, and by opening or maintaining branches in inner-city markets abandoned by other lenders, savings institutions nationwide are fulfilling a vital social need.

"You have discovered something very important," Kelsay Meek, staff director of the House Banking Committee recently told leaders of the California savings industry, noting the new focus on low- and moderate-income housing. "You provide profitable loans and meet a real public need, and this gives us a new way of looking at this business."

We can still do better. Next year, for example, American Savings Bank and Founders Bank (an African-American-owned institution committed to serving the inner city) together will anchor a new commercial mall in Los Angeles' Watts neighborhood, including an American Savings Bank lending office and a Founders Bank retail branch. Incredibly, it will be the first new commercial development of its kind in that neighborhood since the 1960s. And it will make money for both institutions while also providing the community with much-needed access to financial services and home mortgages.

I encourage other savings institutions to follow suit in their own underserved urban communities across the United States.

Mario J. Antoci is also chairman of American Savings Bank, Irvine, Calif.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER