Bridges - Autumn 2005

8/9/2019 Bridges - Autumn 2005

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By Lyn HaralsonCommunity Affairs SpecialistFederal Reserve Bank of St. Louis

The concept of land bank-

ing began in the 1960sas communities sought

solutions to urban disinvest-ment. The idea is simpletocreate a governmental entity thatfocuses solely on the conver-sion of vacant, abandoned andtax-delinquent properties intoproductive use. Land bank

authorities achieve this goal byacquiring and overseeing rede-velopment of these properties.

The organization of a landbank requires the cooperationof all state, county and localtaxing entities that have lienson these properties. Negotiat-ing agreements and developingpriorities and guidelines takessome time.

The first land bank authoritydid not come to fruition until

1971 and emerged in the formof the St. Louis Land Reutiliza-tion Authority. During thelast 30 years, additional land

banking authorities have beencreated, each slightly differentin structure, but all focused onthe common goal of revitaliza-tion through the conversion ofunproductive properties.

The two major authoritieslocated in the Federal ReservesEighth District are the St. LouisLand Reutilization Authority and

Louisville and Jefferson CountyLand Bank Inc.

A Solution to Urban and Rural Blight

Although first conceptualizedas a solution to urban blight,

land bank authorities havecome to be used as a toolby older communities in bothurban and rural areas. Regard-less of their size, older communi-

ties face similar problems whendealing with issues surroundingabandoned properties. Theseproperties depress tax revenues,strain public services and requirepublic intervention for upkeep.Neighborhoods with significantnumbers of these propertiesexperience increased crime, and

the structures often become tar-gets of arson. Ironically, a com-munity with a large number oftax-delinquent properties mightbe forced to cut city services forlack of fundsservices such asfire and police, which are neededto combat the crime and arson inthese structures.

When looking at ways toexpedite the conversion ofabandoned properties into

Land Banks Restore Neighborhoods...

Building by Building, Lot by Lot

continued on Page 2

Memphis Groups

Reach Out toConsumers

Local Laws and Predatory Lending

CRA Rules Revised

Spanning

the Region35

9 0

PUBLISHED QUARTERLY

BY THE COMMUNITY

AFFAIRS DEPARTMENT OF

THE FEDERAL RESERVE

BANK OF ST. LOUIS

L I N K I N G L E N D E R S A N D C O M M U N I T I E S AUTUMN 2005

BRIDGES w w w . s t l o u i s f e d . o r gIN

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productive use, communitiesoften try to speed up the taxforeclosure and sale process orstrengthen code enforcement.The lag in time between delin-

quency and tax foreclosure canbe a problem, but expediting thisprocess only ensures the prop-erty is removed from one ownershands and placed in anothers. Itdoes not ensure the property willbe rehabilitated. Ramped upcode enforcement requires finan-cial resources that a community

with a large inventory of theseproperties might lack.

Land bank authorities notonly acquire and dispose of theland, but by design maintainand set guidelines for the use ofthe land. Following disposition,authorities track the land fora period of years to ensure theproperty is being maintained in

accordance with the sales agree-ment. Land banks are neither aredevelopment agency nor a landassembly agency. Land banks donot try to acquire entire blocksin neighborhoods, but acquirethose properties within neigh-borhoods that are causing blight.

Land banks acquire the major-

ity of land through tax foreclo-sure. Other methods, such asgifting by heirs or tax-delinquentowners and financial institutions,are rare but do occur. Landbank authorities are created withthe power to waive unpaid taxeson properties if they are acquiredfor redevelopment.

The majority of land banks

give nonprofit developmentorganizations first rights toacquired property. By using the

legal tools a land bank provides,a community can ensure tax-foreclosed properties are sold ordeveloped with the long-terminterest of the community andsurrounding property owners

in mind. Land banks providemarketable title to propertiespreviously impossible to developbecause of complicated liens andconfusing ownership history.

Louisville and Jefferson

County Land Bank Inc.

Louisville and Jefferson County

Land Bank Inc. was establishedin 1988. Since its inception, theland bank has acquired approxi-mately 4,000 parcels of land,disposed of 3,000 parcels andholds another 500 in predevel-opment review. These parcelsare being marketed as side yardopportunities to individuals liv-ing in adjacent properties.

Melissa Barry, director ofLouisville Metro Housing andCommunity Development, saysthat, prior to 1988, vacant prop-erties in Louisville and JeffersonCounty were made up of cityand county foreclosures. Tax-ing entities in the area includedthe city of Louisville, Jefferson

County, Jefferson County PublicSchools and the commonwealthof Kentucky. Even after taxforeclosure and the sale of theproperty at a state land com-missioner sale, tax liens oftenremained, clouding the title.Through an inter-local govern-ment agreement, Louisville andJefferson County Land Bank Inc.

was established.Maria Hampton, senior branch

executive of the Louisville

Branch of the Federal ReserveBank of St. Louis, says she madeuse of the Louisville land bankon numerous occasions in herformer capacity as president ofThe Housing Partnership Inc.

in Louisville. The land bankallows nonprofit organizationsto gain site control of landin disenfranchised neighbor-hoods, to redevelop housing forhomeownership and to deliverhomes at less than market rate,Hampton says. The availabilityof these lots also offers opportu-

nities for large-scale, single-fam-ily development financed withtax credits, she says. Site controlallows for easier bank financingand offers an opportunity forprivate investment to leveragethe total development cost of adeal. In addition, creative useof land bank land offers oppor-tunities for commercial develop-

ment integral to the success ofneighborhoods.

For more information onLouisville and Jefferson CountyLand Bank Inc., contact Barry at(502) 574-3107 or e-mail her [email protected].

St. Louis Land

Reutilization AuthorityThe city of St. Louis Land

Reutilization Authority (LRA)was created in 1971 by statestatute and was the first entity ofits kind.

LRA receives properties inthree ways: through donations;as the default owner of lastresort following tax delinquency

foreclosure proceedings wherethe property is not purchased

Is a Land Bank Rightfor Your Community?

Common indicators:

noncontiguous abandonedproperties

ineffective tax foreclosureprocedures

code violations

title problems

property dispositionrequirements

In many communities,

abandoned and vacant

properties exist in low-income

neighborhoods. As with any

redevelopment, concerns

for existing residents must

be considered. Fear that

increased property values will

drive existing residents out

is real. For one idea on how

to accomplish redevelopment

while preserving the ability for

current residents to remain,

see What Is a Community

Land Trust? in the 2003

summer issue ofBridges.

(This article can be found

online at: http://stlouisfed.

org/publications/br/2003

/b/pages/1-article.html.)

Is a Land Bank Rightfor Your Community?

continued from Page 1

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L I N K I N G L E N D E R S A N D C O M M U N I T I E S2


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By Martha Perine Beard

Financial literacy hasbecome a key initiativein recent years for several

nonprofit groups in Memphis,Tenn. Spurred on by an exces-sive number of bankruptcyfilings, an increase in the numberof home foreclosures and a grow-

ing concern about predatory orabusive lending, the groups havetaken up the challenge of finan-cial education for consumers.

The increased activity becameevident in 2000, after the Ameri-can Bankruptcy Institute reportedthat Tennessee led the nation inthe relative number of personalbankruptcy filings. In addition,

judges in Tennessee carry one ofthe heaviest bankruptcy loads inthe nation.

Bankruptcy filings occur fora number of reasons, includingjob loss, medical bills, extensivecredit card debt and gamblingproblems. Since 2000, Tennes-see has seen minor improvement

in reducing bankruptcies. In2004, the state ranked No. 2Utah is now ranked No. 1.An article in The CommercialAppeal, Memphis daily newspa-per, indicated that the numberof bankruptcy filings in Tennes-see is declining, in part becausejudges are transferring cases filedin Memphis by Mississippi and

Arkansas residents to their homestates. The U.S. BankruptcyCourt for the Western District of

Tennessee, located in Memphis,

currently handles more than20,000 cases per year.

Foreclosures are another grow-ing concern. The events thatlead to bankruptcy also result inhome foreclosures. Additionally,foreclosures may occur whenpeople buy homes that are a sig-nificant stretch for their income.

Some Memphis nonprofitorganizations are addressingthe foreclosure issue by offeringeducation programs to first-timehome buyers. The programsstress the importance of buyinga home that is affordable and of

maintaining a home.For 10 years, United Hous-

ing Inc. (UHI) has been a key

player in the Memphis market

in providing affordable housingfor families with low to moderateincomes. Tim Bolding, presidentof UHI, has seen firsthand thebenefit of home-buyer educa-tion, which the organizationrequires potential home buyersto take. The UHI foreclosurerate is 2 percent, compared with

13 percent for homeowners withFederal Housing Administration(FHA) loans, he says. Addition-ally, in some instances, the resultof working with families throughhome-buyer education is thatthey find out they are not ready

to purchase a home.Many first-time buyers also fail

to consider the cost of ongoing

home repairs and try to bor-

row the money when repairs areneeded. Because many banksdo not make home improvementloans, homeowners often securethem from home improvementcontractors, mortgage brokersor other lenders who advertisethrough fliers, phone calls andradio spots.

Although many of thesecompanies are honest, othersare predatory and take advan-tage of homeowners in need byproviding loans that have unfairterms and conditions. In manyinstances, high-pressure salestactics are used, and a contractis signed before the homeownerhas an opportunity to discuss the

loan with a family member orother trusted adviser.

Randy Hutchinson, presidentof the Better Business Bureau ofthe Mid South, recommends thatconsumers always check withthem to find out if a firm has agood record in dealing with itscustomers. If you dont have

a particular company in mind,we can provide you with a list ofBBB members who are commit-ted to treating you fairly, he says.

The Memphis Branch of theFederal Reserve Bank of St. Louisis collaborating with severalgroups on a variety of financialeducation projects.

Last year, the Fed, the Federal

Deposit Insurance Corp., theOffice of the Comptroller of the

Talking in MemphisGroups Create Educational Programs to Tackle Foreclosures, Bankruptcies

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Currency, the Office of ThriftSupervision and the CommunityDevelopment Council jointlysponsored a community round-table on bankruptcy and preda-

tory lending.Additionally, the Fed has

provided technical assistance for

several years in support of theMemphisDEBT Collaborative,which develops consumer edu-cation programs. More informa-tion about the collaborativeswork is available at its web site:

www.memphisdebt.org.The majority of community

residents we have worked with

most closely, in public housingand affordable housing, in thework place and in neighborhoods,have had credit scores that wereroughly 620 or under, says Sara-lyn Williams Crowell, program

coordinator for the collaborative.Many residents have no idea whattheir credit score is and, once told,have even less of an idea if thatnumber is good or bad.

This lack of knowledge,coupled with current advertisingmessages telling buyers that nocredit and bad credit are OK, is

leading to disastrous outcomes.These companies promotelow monthly payments whiledownplaying or omitting highinterest rates, lengthy repaymentterms, and extra fees and penal-ties, she says.

Crowell says everyone shouldget a free copy of their creditreport at www.annualcreditreport.

com. The collaboratives homeownership brochure indicatesthat a score of 600 or higher,along with factors such as jobstability and a good credit history,should get you an A or an FHA-type loan. A score of 500-600means youll pay an extra 2 to 3percent. Less than 500Wait!

You will not get a good deal on amortgage loan.

Another project supported bythe Federal Reserve Bank is theLeadership Academy Fellows.This program for midlevel man-agers has recognized the impor-tance of financial education andhas made this topic its primaryfocus for the next year.

The Bank also is a memberof the Memphis/Shelby CountyAnti-Predatory Lending Coali-

tion, a citywide group repre-senting bankers, businesses,nonprofit organizations andcommunity advocacy groupswith a focus on housing, legalservices and credit issues. The

group came together last yearfollowing a Commercial Appealreport about senior citizens whohad lost their homes after bor-rowing relatively small sums ofmoney for home repairs.

It became evident to the coali-tion that education is the key toaddressing predatory lending,

bankruptcy and foreclosure pre-vention. It also became evidentthat the education needs to beginat a very early age. The coalitionseducation initiatives will focus onproviding information to the faithcommunity, public schools, localcolleges and universities, neigh-borhood associations, and seniorcitizens groups.

Many cities have a number ofcitizens who are facing issuesrelated to bankruptcy, foreclo-sures and predatory lending.Hopefully, all of these cities havebusiness leaders, faith leaders,educators, nonprofit leaders andothers who recognize the impor-tance of financial education and

who are willing to take the timeto provide the appropriate infor-mation where neededsinceeducation is the key.

Martha PerineBeard is seniorbranch execu-tive of the Mem-

phis Branchof the FederalReserve Bank of St. Louis.

Financial EducationTips for Consumers

Do not sign anything that you do not fully understand. Read everyword before you sign.

Tear up unsolicited credit cards.

Participate in a home-buyer education program if you are buying ahome for the first time.

Contact a reputable credit counseling service if you are havingfinancial problems.

Think twice about taking out a second mortgage on your home.

Compare the cost of your proposed loan and interest rate with

other lenders. Seek the advice of someone you trust and who understands

financial matters.

Make sure that a home improvement loan is not a refinance loan.

Do not sign forms with blank spaces or incorrect information.

Toss out loan solicitations from companies you did not contact.

Beware of deals offered by high-pressure telemarketers, TVadvertisements from companies you have never heard of and door-to-door salespeople.

Ask for references and call them or call the local Better BusinessBureau to determine i f the company has received any complaintsfrom customers.

This list is based on ongoing research and information from a variety

of sources, including the nationwide Dont Borrow Trouble Campaign, the

Tennessee Bankers Association, the Memphis Fair Housing Center and the

Memphis Area Community Reinvestment Organization.

Those interested in counseling can call the Department of Housing and

Urban Development for a list of counseling cen-ters. The number is 1-800-569-4287. Information also is available at ww.hud.gov.


Financial EducationTips for Consumers

This list is based on ongoing research and information from a variety

of sources, including the nationwide Dont Borrow Trouble Campaign, the

Tennessee Bankers Association, the Memphis Fair Housing Center and the

Memphis Area Community Reinvestment Organization.

Those interested in counseling can call the Department of Housing and Urban

Development for a list of counseling centers. The number is 1-800-569-4287.Information also is available at www.hud.gov.



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By Anthony Pennington-Cross,Senior Economist, andGiang Ho, Analyst,

Federal Reserve Bank of St. Louis

Following the lead of fed-eral regulations, numerousstates, counties and cities

have enacted laws designed toreduce predatory lending. Thereis at least anecdotal evidence thatpredatory or abusive mortgage

lending is primarily concen-trated in the subprime market.However, the impact of theselocal predatory lending laws onthe subprime mortgage marketis unknown. The primary ques-tions we examine are: do theselaws affect the supply and flowof subprime mortgage credit anddoes the experience in North

Carolina, the first state to enacta local predatory lending law,apply to other local laws?

Defining Predatory Lending

As discussed in a Hous-ing and Urban Development(HUD)-Treasury report, defin-ing predatory lending can be

problematic.1

This difficultyarises because predatory lendingdepends on the inability of theborrower to understand the loanterms and the obligations associ-ated with them. For example,some borrowers might be willingto accept a prepayment penaltyin exchange for lower inter-est rates or fees because they

do not expect to move in thenear future. Or, the borrowermight plan to diversify his or her

portfolio away from a home andtherefore would like an interest-only loan with a balloon pay-

ment in 10 years. However,interviews conducted by HUD,the Treasury Department and theFederal Reserve Board indicatethat some, perhaps many, bor-rowers using high-cost loansmight not have understood thatthe loan had a prepayment pen-alty or that it did not amortize

through time, leading to a bal-loon payment.

Federal and Local Laws

At the national level, theHome Ownership and EquityProtection Act (HOEPA) andthe regulations promulgatedunder it define a class of loansthat are given special consid-

eration because they are morelikely to have predatory featuresand require additional disclo-

sures. Loans covered underHOEPA include only closed-endhome equity loans that have an

annual percentage rate (APR)and/or finance fees exceeding acertain threshold. Specifically,the APR trigger is 8 percent and10 percent above the Treasuryrate for first and second lienloans, respectively. The feetrigger is inflation-adjustedand includes dollars paid at

closing for optional insuranceprograms, such as health, creditlife, accident, loss of income andother debt protection programs.Home purchase loans and othertypes of lending backed by ahome, such as lines of credit, arenot covered by HOEPA.

Local authorities have gonebeyond HOEPA by introducing

their own predatory lending lawsthat extend the restrictions oncredit to an even broader class

of mortgages. These restrictionsinclude limits on allowable pre-payment penalties and balloon

payments, prohibitions of jointfinancing of various insuranceproducts with the mortgage(such as credit, life and unem-ployment) and requirements thatborrowers participate in loancounseling.

For example, North Carolinathe first state to enact predatory

lending restrictionsexpandsthe coverage of HOEPA byincluding both closed-end andopen-end mortgages. How-ever, reverse mortgages are notincluded and loan size is limitedto the conventional conforminglimit (loans small enough to bepurchased by Fannie Mae andFreddie Mac and therefore not

considered part of the jumbomarket). North Carolina didleave the APR triggers the sameas the HOEPA triggers, althoughthe points and fees triggers werereduced from the HOEPA 8percent of the total loan amountto 5 percent for loans under$20,000. For loans $20,000 or

larger, the same 8 percent triggeris used or $1,000, whicheveris smaller. The North Carolinalaw also prohibits prepaymentpenalties and balloon paymentsfor most covered loans. The lawprohibits the financing of creditlife, unemployment, disability orother life and insurance pre-miums, while HOEPA includes

them only as part of the triggercalculation.

Local Predatory Lending Laws: Going Beyond North Carolina

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Variation in the strength oflocal predatory laws typicallycomes from two sources. Thefirst is the extent to which thelaw extends coverage beyond

HOEPA. The second is theextent that the law restricts orrequires specific practices. Lawcoverage is defined typically interms of loan purpose, loan limit,

APR and points-and-fees triggers.Broader coverage strengthensa law. On the other hand, theextent of a laws restrictions is

typically defined by prepaymentpenalty and balloon restrictions,counseling requirements, restric-tions on mandatory arbitra-tion, and other factors. Locallaws, such as in Chicago andCook County, Ill.; Colorado;and Washington, D.C., haverelatively broader coverage thanothers, while Cleveland, Georgia

and New Mexico laws can besaid to be more restrictive.2

Do Local Predatory Laws Impact

the Flow and Supply of Credit?

The widespread adoptionof state and local predatorylending laws raises a naturalquestion: What are the poten-

tial impacts of the laws on thesubprime mortgage market?Unfortunately, no research todate (to our knowledge) hasmeasured the costs and ben-efits of HOEPA and the stateand local predatory lendinglaws. However, researchershave been able to measure howthe volume of loans reacts to

the introduction of a law. Thishelps answer the question of

whether the laws reduce thesupply of credit. Prior researchhas found convincing evidencethat the North Carolina preda-tory lending law did reduce thesupply of high-cost or subprime

credit. There was some initialevidence that laws passed inChicago and Philadelphia alsohad an impact. The laws canalso specifically impact theprevalence of targeted loan typesor loan-related characteristics,such as balloon payments andprepayment penalties. Balloon

payment loans and prepaymentpenalties tended to become a

smaller portion of the marketafter the law in North Carolinawas introduced. Other potentialimpacts include substitution bylenders from one product type toanother and reduced liquidity inthe secondary market.3

By introducing geographicallydefined predatory lending laws,policy-makers have effectivelyconducted a natural experimentwith well-defined control andtreatment groups. Since stateboundaries reflect political andnot economic regions, we cancompare mortgage market condi-tions in states with a law in effect

(the treatment group) to thosein neighboring states currently

without a predatory lending law(the control group).4 Specifically,using the treatment and controlgroup framework, we testedto see whether local predatorylending laws affect the applica-

tion and origination of subprimeloans. We also tested to see therates at which subprime loanapplications are rejected. If vol-ume is unaffected, then the flowand supply of credit to potentialconsumers has not been affectedin the aggregate.

We extended prior research

by examining the impacts ina variety of locations to see if

the North Carolina experienceis representative or typical forother states. Using publiclyavailable Home Mortgage Dis-closure Act (HMDA) data, weexamined the change in sub-prime originations in each state

before and after the law becameeffective. The loan samples werereduced by applying the pre-scribed loan limit (if any) undereach law.5 Growth rates werecalculated for loans associatedwith a list of subprime lenders asidentified in the HUD subprimelender list.6 In an attempt tocreate as similar comparison

groups as possible, we sampledonly counties that border each

other across state lines. Thus, atypical treatment group includesborder counties in a state witha law in effect, and the corre-sponding control group includesborder counties in neighboring

states that do not have a law ineffect during the observed timeperiod (the year before and theyear after the introduction of thelaw). This contrasts with otherstudies (see footnote 3) thathave used whole neighboringstates or regions to define bothcontrol and treatment groups.

Our approach should help toincrease the comparability ofthe treatment group and thecontrol group because they aregeographically closer and, as aresult, likely to be more eco-nomically similar than full stateand region comparisons. Thisapproach and HMDA availabilityreduce the sample to 10 state

predatory lending laws (Califor-nia, Connecticut, Florida, Geor-gia, Maryland, Massachusetts,North Carolina, Ohio, Pennsyl-vania and Texas).

Using North Carolina as anexample, the results show thatfrom the year before to the yearafter the law becomes effective,

subprime originations decreasedby 35.8 percent in the treatmentcounties compared with 18.9percent in the control counties.In other words, consistent withprevious research on the NorthCarolina predatory lending law,subprime originations decreasedsubstantially more than wouldbe expected given the perfor-

mance of the control counties.This finding also holds in four

Beginning with North Carolina in 1999, at least 23 states have

passed predatory lending laws that are styled after the federal

Home Ownership and Equity Protection Act. That law features

triggers based on fees and the annual percentage rate. The states

include Arkansas, California, Colorado, Connecticut, Florida, Georgia,

Illinois, Kentucky, Maine, Maryland, Massachusetts, Nevada, New

Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma,

Pennsylvania, South Carolina, Texas, Utah and Wisconsin.




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other states: Florida, Geor-gia, Massachusetts and Ohio.However, in the remaining fivestatesCalifornia, Connecticut,Maryland, Pennsylvania andTexaswe found that subprime

originations increased more inthe treatment locations. Theseresults indicate that the experi-ence in North Carolina mightnot extend to all other preda-tory lending laws, and that theremight be sufficient variations inthe laws that induce differentresponses in the flow of high-

cost credit.The relative changes in bothsubprime application and rejec-tion rates are also examined.

Again, the application results aremixed and very similar to theorigination results. For example,four state lawsCalifornia,Maryland, Pennsylvania andTexasexperienced a relative

increase in applications and sixstate lawsConnecticut, Florida,Georgia, Massachusetts, NorthCarolina and Ohioexperienceda relative decrease in applica-tions. However, the rejectionrates tell a much more consistentstory. In most states, rejectionrates declined more in the treat-

ment locations than in thecontrol locations, indicating thatthe introduction of predatorylending laws was associated witha disproportionate reduction inthe rate that subprime applica-tions were rejected. For example,California, Florida, Georgia andNorth Carolina experienced a rel-ative decrease in rejection rates

of at least 14.9 percentage points.At the other extreme, Pennsylva-

nia and Connecticut experiencedalmost no relative change.

These results do not provideany indication that predatorylending laws systematicallyreduce the flow of subprime

credit. However, the results doshow that predatory lendinglaws tend to be associated withlower rejection rates of subprimemortgage applications. It canbe expensive just to apply fora mortgage: the nonrefundableapplication fee usually runs from$200 to $300, not to mention

other unobserved or nonpecuni-ary costs. Thus, while reducingrejection rates might not havebeen the primary purpose of thelaws, a reduction in rejectionscan represent substantial savingsto consumers and potentiallylenders, too.

Summary

Starting with North Carolinain 1999, states and other locali-ties across the United States haveintroduced legislation intendedto curb predatory and abusivelending in the subprime mort-gage market. These laws usuallyextend the reach of HOEPAby including home purchase

and open-end mortgage credit,lowering the APR and fees-and-points triggers, and prohibitingor restricting the use of balloonpayments and prepayment pen-alties on covered loans.

Using HMDA data on sub-prime loans and a sample ofstate laws, we found that thetypical law has little impact on

the flow of subprime credit asmeasured by loan originations,

but is usually associated withlower rejection rates. In par-ticular, local predatory lendinglaws can be associated witheither increases or decreases inapplications and originations for

subprime loans. Earlier researchon North Carolina law had foundthat the supply and flow ofcredit was reduced when the lawbecame effective. We replicatedthis finding but did not find anyevidence that the North Carolinaexperience applies to all otherlocal predatory lending laws. It

is likely that the exact nature ofthe law will impact the supplyand flow of credit differently. Forexample, some laws are designedto provide broad coverage of themortgage market (Chicago andCook County laws) while otherlaws are more restrictive (Georgiaand New Mexico laws) in termsof prohibiting or requiring cer-

tain practices.To help identify why fewer

subprime loans are being origi-nated under some laws but notothers, future research needsto examine how the coverageof the law and the restrictionsimposed by the law impact theflow and cost of credit. Analysis

should attempt to control for notonly time and location but alsolaw characteristics, borrowerand loan characteristics, andeconomic conditions in both thecontrol group and the treatmentgroup. In addition, researchshould examine to what extentthere is a regulatory cost associ-ated with the laws that is passed

on to borrowers through higherfees or interest rates.

ENDNOTES

1 Department of Housing and UrbanDevelopment and the TreasuryDepartment. Curbing PredatoryHome Mortgage Lending. June2000, p. 17. Available at www.huduser.org/publications/hsgfin/

curbing.html.

2 For a detailed description of the locallaws, see Pennington-Cross, Anthonyand Giang Ho, The Impact of LocalPredatory Lending Laws. The FederalReserve Bank of St. Louis Working PaperSeries, WP 2005-049A. Available atwww.research.stlouisfed.org.

3 See, for example: Quercia, Roberto,Michael A. Stegman, and Walter R.Davis. (2003). The Impact of North

Carolinas Anti-predatory Lending Law:A Descriptive Assessment. Durham,N.C.: Center for Community Capital-ism, University of North Carolina atChapel Hill; Harvey, Keith D. and Peter

J. Nigro. (2003). How Do PredatoryLending Laws Influence MortgageLending in Urban Areas? A Tale of TwoCities. Journal of Real Estate Research,

V25, N4, pp. 479-508; Harvey, KeithD. and Peter J. Nigro. (2004). DoPredatory Lending Laws InfluenceMortgage Lending? An Analysis of the

North Carolina Predatory LendingLaw. Journal of Real Estate Financeand Economics, V29, N4, pp. 435-456;Elliehausen, Gregory and Michael E.Staten. (2004). Regulation of Sub-prime Mortgage Products: An Analysisof North Carolinas Predatory LendingLaw. Journal of Real Estate Finance andEconomics, V29, N4, pp. 411-434.

4 Laws are first enacted by the locallegislature and become effective typi-cally at a later date. It is not until

the law becomes in effect that lendersare required to follow the new rulesand restrictions.

5 The results are very similar if theloan limits are not applied to reducethe sample.

6 www.huduser.org/datasets/manu.html, accessed on 2/1/05. HUDgenerates a list of subprime lendersfrom industry trade publicationsand Home Mortgage Disclosure

Act data analysis, and phone callsto the lender confirm the extent ofsubprime lending.



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Affordable Rent Focusof $300 Million LISC Initiative

The Local Initiatives Support Corp.

(LISC) announced recently that it w ill invest

$300 million over the next three years

to preserve affordable apartments for

low-income families at risk of losing their

homes. The goal is to preserve 30,000

affordable apartments by the end of 2007.

This represents a major expansion of

LISCs investment in its Affordable Housing

Preservation Initiative, launched in 2001.

Throughout the country, as original

affordability agreements expire and as

mortgages are prepaid, many affordable

housing properties are at risk of becoming

market-rate apartments. LISCs expanded

preservation investment is timed to help

protect the homes of families and others

affected by this crisis.

LISC is lending the money to nonprofit

housing organizations for early planning

and property acquisition; making equity

investments using Low Income Housing Tax

Credits through its affiliate, National Equity

Fund; and making long-term loans and

investments through the Community Devel-

opment Trust, a real estate investment trust

dedicated exclusively to affordable housing

and community development.

The expanded housing preservationinitiative will also use $2 million from the

Community Development Financial Institu-

tions Fund (CDFI Fund) in the Department

of Treasury.

For more information, visit www.lisc.

org/whatwedo/programs/preservation or

call (202) 785-2908.

IDA Funding Available,Application Deadline Nov. 1

Organizations and agencies that help

low-income clients establish individual

development accounts (IDAs) can apply for

funding through a federal program, Assets

for Independence (AFI).

AFI provides five-year grants to com-

munity-based nonprofits, state and local

government agencies, community develop-

ment financial institutions, credit unions

and others. IDAs enable low-income

people to accumulate savings for long-term

assets, such as a house, a small business

or a higher education.

Applications postmarked by Nov. 1,

2005, will be awarded by December 2005.

For more information, visit www.acf.hhs.

gov/assetbuilding.

Fed Brochures on Checks

Translated into SpanishThree publications from the FederalReserve Board explaining various aspects

of checking accounts are now available in

Spanish. Interested individuals or organiza-

tions can download and print them from

the Boards web site at www.federalreserve.

gov/pubs/brochure.htm.

The brochures are: Consumer Guide to

Check 21 and Substitute Checks, Protect-

ing Yourself from Overdraft and Bounced-

Check Fees

and What You

Should Know

about Your

Checks.

Have you

HEARDby a private party; and by affir-mative acquisition for specificdevelopments through negoti-ated sales or eminent domain.

As is the nature of land banks,LRA maintains, markets and sellsits inventory. It also demolishesthose properties that are toodeteriorated to rehabilitate or tomake way for new developments.

LRA receives approximately500 pieces of property yearly. In2002, the authority took on 579

parcels and sold 435; in 2003, itreceived 454 properties and sold368. In 2004, it received 412properties and sold 552.

LRAs priorities includemarketing properties for devel-opment in accordance with thecitys recently completed land useplan; demolishing LRA propertiesthat pose a public safety hazard

and properties that are a barrierto development; and attractingdevelopers who will purchasenumerous LRA parcels in con-junction with adjacent privateparcels to form large tracts ofland for development.

For more information on LRA,contact Ivie Clay, director of

communications and marketingfor the St. Louis DevelopmentCorp., at (314) 622-3400.

Land Bankingcontinued from Page 2

The Missouri Department ofNatural Resources is acceptingapplications from local govern-ments and public school districts

for financing for outdoor recre-ation projects.The grants, from the Land

and Water Conservation Fund,are made available through theNational Park Service.

Projects can be for the devel-opment or renovation of outdoorrecreational facilities or for thepurchase of park land. A 55 per-

cent match is required. Applica-tions must be postmarked byOct. 31, 2005.

The park service estimates that$500,000 will be awarded in thefiscal year 2006 cycle. Therewill be a limit of $50,000 for

each grant.An electronic version ofthe application is available onthe Department of NaturalResources web page at www.mostateparks.com/grantinfo.htm. Applications can also berequested by calling 1-800-334-6946 or by sending an e-mail [email protected].

Grants to Help Build Outdoor Recreation Projects



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Recent revisions to Commu-nity Reinvestment Act (CRA)

rules expand the definition ofcommunity development andincrease the number of banksdesignated as small by addingintermediate small banks tothe category.

The changesapproved bythe Federal Reserve Board, theFederal Deposit Insurance Corp.

and the Office of the Comptrol-ler of the Currencywent intoeffect Sept. 1, 2005.

The new rules ease the regula-tory burden on communitybanks while making CRA evalu-ations more effective in persuad-ing banks to meet communitydevelopment needs.

The final rules are essentially

the same as ones the agencies

proposed last spring. Theyincrease the asset-size threshold

for small banks to less than $1billion, without regard to holdingcompany affiliation. Intermediatesmall banks are those with assetsof at least $250 million and lessthan $1 billion. The changes arealso intended to encourage banksto provide meaningful commu-nity development lending, invest-

ment and services.Under the new rules: Intermediate small banks no

longer need to collect andreport CRA loan data. How-ever, examiners will continueto evaluate bank lendingactivity in the CRA examina-tions of intermediate smallbanks and disclose results in

the public evaluation.

Intermediate small bankswill be evaluated under two

separately rated tests: thesmall bank lending test anda flexible new communitydevelopment test that includesan evaluation of communitydevelopment loans, invest-ments and services in lightof community needs and thecapacity of the bank. Satisfac-

tory ratings are required onboth tests to obtain an overallsatisfactory CRA rating.

In addition, for banks of any size: The new rules expand the def-

inition of community develop-ment to include activities thatrevitalize or stabilize desig-nated disaster areas and dis-tressed or underserved rural

areas. By including designated

distressed or underservedrural areas, the agencies are

recognizing and encouragingcommunity development inmore rural areas. (Designateddistressed or underservedrural areas are to be listed bythe agencies on the FederalFinancial Institutions Exami-nation Council web site,www.ffiec.gov/cra.)

The regulations also clarifywhen discrimination or otherillegal credit practices by a bankor its affiliate will adverselyaffect an evaluation of thebanks CRA performance.

Regulators Approve CRA Revisions

Building the Organizations That

Build CommunitiesA 2003 Depart-

ment of Housing and Urban Development

symposium focused on strategies that faith-

based and community organizations use tobecome successful community development

organizations. This is a collection of papers

that were presented at the symposium on

the topic. Visit www.huduser.org/

publications/commdevl.html.

Low-Income Housing Tax Credit

DatabaseThe Department of Housing

and Urban Development has updated its

database on housing created with the

help of low-income housing tax credits.

The database contains information on

22,000 projects and more than 1.1 million

housing units. Researchers can also find

information on geographical distribution and

neighborhood characteristics of tax creditprojects. Visit http://lihtc.huduser.org.

Turning Around Downtown: Twelve

Steps to RevitalizationThis Brookings

Institution research report suggests 12 steps

for returning downtown areas into walkable

communities. The first six steps describe

the hard and soft infrastructure that is

needed and also define the publics and

nonprofit sectors roles in the revitalization

process. The next six steps describe how

to bring a viable private real estate sector

back downtown. The report is available at

www.brookings.edu/dybdocroot/metro/

pubs/20050307_12steps.pdf.

Angel Investment Groups, Networks

and Funds: A Guidebook to Develop-

ing the Right Angel Organization for

Your CommunityThis guidebook

provides tools, practical suggestions and

best practices in starting and operating an

angel group. It can be downloaded at

www.kauffman.org/resources.cfm. The

publication is a project of the Angel Capital

Association, with sponsorship of the Ewing

Marion Kauffman Foundation.

Consumer & Economic Development

Research & Information Center

(CEDRIC)The centers research repository

at the Federal Reserve Bank of Chicago has

been replaced with an upgraded web pagethat is more inclusive of community develop-

ment research on the web. Active links

search specifically for scholarly literature,

including papers, books, abstracts and tech-

nical reports. The results page not only lists

the documents, but also links to citations,

library searches, web searches and author

information. The web page address is

www.chicagofed.org/cedric/search.cfm.

RESOURCES



10/12

The region served by the Federal Reserve Bank of

St. Louis encompasses all of Arkansas and parts of Illinois,

Indiana, Kentucky, Mississippi, Missouri and Tennessee.

SPANNING THE REGIONEfforts Boost Entrepreneurship

in St. Louis and Rural Missouri

Several recent developments inMissouri are leading to increas-ing pockets of support for entre-preneurship as a communityeconomic development strategy.

The University of MissouriExtension has initiated Com-munity Enterprise and Entrepre-neurial Development (CEED),

which will use multidisciplinaryand geographically based teamsto facilitate entrepreneurship asa rural economic developmentstrategy in selected communitiesthroughout Missouri. ContactGwen Richtermeyer for moreinformation at (573) 884-0669or [email protected].

The Small Business Devel-

opment Centers (SBDCs) inMissouri and elsewhere arenow authorized to provideentrepreneurship education invocational-technical schools. Inaddition, an SBDC in down-town St. Louis was awarded a$350,000 grant to enhance workthat encourages the growth of

microenterprises in the St. Louisarea. The grant came fromthe Greater St. Louis RegionalEmpowerment Zone. For moreinformation, contact Kevin Wil-son at [email protected].

A grant from the Ameren Com-munity Development Corp. tothe St. Louis Development Corp.will cover the costs of technical

support services to businessesthat are participating in a revolv-ing loan program. The goal

is to increasethe number of

minority entrepreneurs.More information isavailable at [email protected].

And lastly, YouthBridge haspledged $500,000 to assist socialentrepreneurs and to establishthe YouthBridge Award and theSt. Louis Social Entrepreneurship

and Innovation Competition inpartnership with WashingtonUniversity in St. Louis. Youth-Bridge is a 135-year-old organiza-tion that supports youth-focusedsocial ventures. For information,contact the Skandalaris Center atwww.sces.wustl.edu.

Indiana Strives to Identify

Critical Gaps in Jobs SkillsA new $23 million program

in Indiana is designed to createnew jobs and raise incomes. TheStrategic Skills Initiative, a jointeffort between local and regionalbusinesses and economicdevelopment officials, has twoprimary goals:

1. to identify and alleviate cur-rent and future shortages of criti-cal occupations and specific skillsets within the industries thatdrive Indianas economy, and,

2. to instill a lasting, demand-driven approach to workforcedevelopment at the regional andlocal levels.

During the first six months

of the program, $3 million willbe distributed to 11 regionsthroughout the state. Regions

will have to compete for theremaining $20 million.

Indiana Workforce Develop-ment will oversee the StrategicSkills Initiative with supportfrom the Indiana BusinessResearch Center and WorkforceAssociates Inc.

More information is availableat www.in.gov/dwd/index.html.

Affordable Housing in Illinois

Focus of Tax Credits, Loans

The state of Illinois has takentwo steps recently that will helplow- and moderate-income peo-ple buy their own homes. Thehelp comes in the form of an

existing tax credit program and anew mortgage loan program.

The Affordable Housing TaxCredit program was extendeduntil Dec. 31, 2011. The pro-gram offers private donors a stateincome tax credit of 50 centsfor every dollar donated in cash,land, buildings, securities and

materials to nonprofit sponsorsof affordable housing develop-ments. The tax credit may beapplied to Illinois personal orbusiness income taxes. Informa-tion is available from the IllinoisHousing Development Authority(IHDA), (312) 836-5200.

The new mortgage programis run by the IHDA, which has

committed $175 million to helplow- and moderate-incomeindividuals and families become

homeowners. The I-LOANMortgage Program is availablethrough local mortgage lend-ers. (Mortgage brokers are noteligible to participate). Theprogram offers first-time homebuyers a 30-year fixed mort-gage with interest rates that are

approximately one-half percentbelow market rates. Borrowersmust be first-time home buyerswith income and purchase pricenot exceeding specified limits.Mortgage lenders can find infor-mation at www.ihda.org. Homebuyers can call the homeowner-ship hotline at 877-ILOAN56 orvisit www.ihda.org.

New Illinois Law Takes Aim

at Abusive Payday Lenders

A new law strengthens con-sumer protections against preda-tory payday lenders in Illinois.

The Payday Loan Reform Actlimits interest on payday loansto $15.50 per $100. Consum-

ers may not borrow more than$1,000 or 25 percent of theirmonthly salary, whichever issmaller. They are also limited tohaving two loans at a time andcan refinance a loan only twice.

Loans will have a 56-dayrepayment period with noadditional interest rate changesfor borrowers. After paying off

a loan, consumers must be loan-free for seven days before thelender can make another loan.

0L I N K I N G L E N D E R S A N D C O M M U N I T I E S


11/12

Bridges is a publication of the CommunityAffairs department of the Federal ReserveBank of St. Louis. It is intended to informbankers, community development organi-zations, representatives of state and localgovernment agencies and others in theEighth District about current issues andinitiatives in community and economicdevelopment. The Eighth District includesthe state of Arkansas and parts of Illinois,Indiana, Kentucky, Mississippi, Missouriand Tennessee.

Glenda Wilson

Community Affairs Officer, Assistant VicePresident and Managing Editor

(314) 444-8317

Linda Fischer

Editor(314) 444-8979

Community Affairs staff

St. Louis: Matthew Ashby(314) 444-8891

Jean Morisseau-Kuni(314) 444-8646

Memphis: Ellen Eubank

(901) 579-2421Dena Owens(901) 579-4103

Little Rock: Lyn Haralson(501) 324-8240

Amy Simpkins(501) 324-8268

Louisville: Lisa Locke(502) 568-9292Faith Weekly(502) 568-9216

The views expressed in Bridges are notnecessarily those of the Federal ReserveBank of St. Louis or the Federal ReserveSystem. Material herein may be reprintedor abstracted as long as Bridges is credited.Please provide the editor with a copy ofany reprinted articles.

If you have an interesting communitydevelopment program or idea for an article,we would like to hear from you. Pleasecontact the editor.

Free subscriptions and additional copiesare available by calling (314) 444-8761 orby e-mail to [email protected].

BRIDGESCALENDAR

A Closer Look atManufactured Housing

Oct. 11, 8:30 a.m.-4 p.m., Little Rock, Ark.

Providing safe, decent and affordable

housing is a challenge across the state of

Arkansas. Manufactured housing is one

answer to the problem. Experts will share

their experiences with manufactured hous-

ing, including how to use it in urban in-fill

settings and how to make it an appreciable

asset for the homeowner. Regulatory barri-

ers will be discussed, and participants can

join an open dialogue on the topic.

The event is being presented in partnership

with the Arkansas Manufactured Housing

Association.

Information: Julie Kerr, (501) 324-8296, or

www.stlouisfed.org/community

Entrepreneurship: WhatsGovernmentGot to Do with It?

Oct. 18, 8-10:30 a.m., St. Louis

What can government officials do to help

entrepreneursand, in turn, their communi-

tiesthr ive? Federal Reserve economist Tom

Garrett and a panel of experts will discuss

the latest research on the effects of state and

local government policies on entrepreneurs.

Information: Cynthia Davis, (314) 444-8761,

or www.stlouisfed.org/community

Prescription for Entrepreneurship:

CrazinessNov. 1, 7:30-9:30 a.m., Louisville, Ky.

This breakfast meeting will feature Barry

Moltz, author ofYou Need to Be a Little

Crazy: The Truth About Starting and Growing

Your Business. Attendees also will receive a

new resource guide for small and micro busi-

nesses in the Louisville area. The resources

listed are a starting point for new businesses

and existing businesses wishing to expand.

The publication is a joint effort between the

Fed and the Enterprise Corp.

Information: Lisa Locke, (502) 568-9292, or

www.stlouisfed.org/community

Improving Access to CommunityDevelopment Capital in the

St. Louis RegionNov. 17, 11:30 a.m.-4:15 p.m., St. Louis

This policy symposium will be of interest to

civic leaders, financial institution representa-

tives, government officials and community

investment professionals. Mark Pinsky,

president and CEO of National Community

Capital Association, will be the keynote

luncheon speaker. Discussion topics will

include new financing instruments and

intermediaries, coming to scale, social and

community investment, and progressive real

estate investment.

The symposium is being presented in

partnership with National Community Capital

Association, the Urban Land Institute-St. Louis

Chapter and the Enterprise Foundation.

Information: Matthew Ashby, (314) 444-8891,

or www.stlouisfed.org/community

Breakfast with the Fed

Nov. 18, 7:30-8:30 a.m., Pine Bluff, Ark.

Federal Reserve Bank research economist

Tom Garrett will speak on the topic of

bankruptcy.

Information: Pam Haynie, (501) 324-8205,

or www.stlouisfed.org

The following events are sponsored by the Community Affairs Office

of the Federal Reserve Bank of St. Louis.

Under the law, lenders arerequired to use a new databasethat will have the applicantspayday loan record. If the newloan does not violate the rules,the lender will receive authoriza-tion to issue the loan.

For more information, contact

the Illinois Attorney General inSpringfield at 1-800-243-0618 orin Carbondale at 1-800-243-0607.

Cities Get Help Creating

Asset-Building Programs

What do Louisville, Ky., andItta Bena, Miss., have in common?

They are two of the nine citieschosen by the National League

of Cities Institute for Youth,Education & Families (YEF) toparticipate in its project, CitiesHelping Families Build Assets.This technical assistance projectis meant to develop or enhancemunicipal asset-building initia-tives for low-income families.

Representatives of the selected

cities will participate in site visitsto cities that showcase waysmunicipal leaders can supportand initiate asset-building initia-tives. The nine project cities willthen develop local asset-buildingplans and may receive customizedtechnical assistance from the YEFInstitute to implement the plans.

For more information, contact

Heidi Goldberg at [email protected] or (202) 626-3069.

O N T H E I N T E R N E T A T W W W . S T L O U I S F E D . O R G


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Bridges - Autumn 2005