Capital Brief: Activists Confront Fed on Inner-City Lending

Complaining about a lack of home mortgages in South Central Los Angeles, a coalition of California community groups on Wednesday urged Federal Reserve Board Chairman Alan Greenspan to do more to encourage inner-city lending.

"A few months ago, you and the Federal Reserve creatively and immediately responded to a hedge fund crisis," the groups wrote. "Today we request a similar type of response to the home lending crisis confronting South Central Los Angeles."

The Greenlining Institute attached to the letter an analysis of home lending data indicating that the state's four largest banks in 1997 originated only five conventional loans in South Central to those earning less than 80% of the median income. The survey excluded government-backed mortgages and was based on data provided by the banks.

The letter did not recommend how the Fed should respond. In an interview, Greenlining Institute general counsel Robert Gnaizda urged the Fed to advocate shared-equity mortgages. Under this proposal, an investment fund would split the cost of buying a house with a low-income consumer. The fund would receive all the tax deductions from the mortgage and a percentage of any increase in the house's value.

"This would be an inexpensive, free-market solution," Mr. Gnaizda said.

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