Ka Wai Ola - Office of Hawaiian Affairs, Volume 11, Number 2, 1 ʻAukake 1994 — Bank of America asked to examine, adjust lending policies [ARTICLE+ILLUSTRATION]

Bank of America asked to examine, adjust lending policies

by Patrick Johnston The color of the money has to be green but the client's color shoukl noe make a difference. That was the message sent to Bank of America by ihe federal Office of Thrift Supervision (OTS) upon approving the bank's request to merge with Liberty Bank.

Bank of America, a relative newcomer to the Hawai'i banking scene, has been asked to become more sensitive to the financial needs of native Hawaiians and other minorities if it is to expand its operations here. Merger approval is eontingent upon the bank implementing programs that meet these needs. The OTS conditions were

imposed ;tfter a challenge by ihe citizen's group Hawai'i Fair Lending

Coalition charged the bank with discriminatory lending practices when providing loans for home mortgages to native Hawaiians and Filipinos. Before the merger ean go through, OTS has required the Bank of Ameiiea to begin tracking loan activity to native Hawaiians, Filipinos, and other ethnic groups within the Asian/Pacific Islander category. Until now, under provisions laid down in the Home Mortgage Disclosure Act, the bank had not specific;tlly tracked lending to native Hawaiians or Filipinos but instead h;id lumped them into the more general Asian/Pacific Islander category along with groups such as the Chinese and Japane.se. Because Japanese and Chinese, according to a study by the coalition, have receivecf more loans than native Hawaiians and Filipinos, this has allowed the bank to hide what the eoalihon believes are unfair lending practices. Marc Hodges, spokesman for the coalition explains, "The bank puts these different ethnic groups in one category. Evidence has shown that they don't look within this broad category although it is clear some groups do well and others do not The low loan rate to Hawaiians and Filipinos is masked by the high rate to Chinese and Japanese." OTS accepted the coalition's study but did not say the results were due to discrimination on tlie part of the bank. Before the merger goes through, the OTS has asked that the Bank of Ameiiea also implemenl credit policies that will help increase its lending to Hawaiians and Filipinos. This does not neeessarily mean these groups will be getting more loans - the bank must maintain the same strict lending requirements that apply to all borrowers - but that the bank must make efforts to remove what the eoalkion refers to as "procedural mechanisms," that act as barriers to loaning ihem money. Hodges says different ethnic groups manage their money in a variety of ways, and, if the management is sound, this should not work against their creditworthiness. Hodges says, "Filipinos tend not to use banks as mueh and so might not have as mueh of a credit history as other groups." Because banks rely heavily on such things as credit history. individuals from this group, while possibly a sound investment for the bank, would not appear so, continued on page 4

BofA's lending record has eome under fire.

Bank of America from page 1

relying on a strict reading of bank policy. In defense of the bank, Miehael Liu, vice president of fair lending and govemment affairs, says he is unsure what the eoalihon means by "procedural mechanisms" but argues the Bank of America has already become "very proactive" in programs that assist lower-income groups. He notes BofA's Neighborhood Advantage project, a mortgage program that. according to Liu, allows for a significantly greater amount of debt than other mortgages. Also, in May, Bank of America announced it had set aside $150 million for residential mortgages on Hawaiian home lands and created a $100,000 grant program targeted to nonprofit organizations that provide affordable housing for Filipinos in Hawai'i. The homestead loans are designed to be used by homesteaders for buying, building, and renovating houses on Hawaiian home lands. The details of the loans have not been worked out and BofA is looking for input from the Department

of Hawaiian Home Lands, developers, and the community, on how best to proceed with the financing. Liu explains, "Part of DHHL's ability to get projects completed is to have lending available. There has to be mortgage funding. We're happy to work with the department, developers and the community to make this happen." OTS has asked that BofA. after taking control of Liberty Bank, use its "best efforts" to see that it implements its planned projects, including the one on Hawaiian home lands. Within 90 days of acquisition, the Bank of America must also carry out a comprehensive survey of the credit needs of Moloka'i and Lāna'i and then develop a program to satisfy those needs. The wording of the OTS order is fairly broad, and coalition members have interpreted this to mean future lending could include both business and housing loans. (The challenge brought up by the eoaliīion related only to home mortgage loans.) The coalition sees this as an important development. They

believe Moloka'i, with its largely rural make-up, and Lāna'i, looking for altematives to its former plantation economy, ean be models for future community-based eeonomie development. "Both islands are on the cutting edge of what Hawaiians ean do in the future in terms of viable eeonomie alternatives," Hodges believes. "Moloka'i and Lāna'i are archetypal areas and the ones in need of the most credit for eeonomie development." Liu, while agreeing that the bank shoul'd not avoid less traditional lending areas, argues that the assumption behind funding small businesses in underfinanced eommunities is that the businesses be fairly solid investments. It is not the premise, he says, to invest foolishly. OHA eeonomie development staff point out that the banks are in a catch-22 situation: On the one hand there is pressure from the community to fund riskier projects; on the other there is pressure from federal examiners for them to invest carefully and maintain a solid credit rating.