How CRA Kept Bronx Man's Dream Alive
Braitman, Ellen, American Banker
Jose Rodriguez has never heard of the Community Reinvestment Act.
Ask him about community lending, and he'll tell you it took him five years to get a $115,000 renovation loan to fix up the once abandoned apartment building he owns in the fraying Tremont section of the Bronx, a borough of New York City.
Without the law, however, the 34-year-old entrepreneur would be building castles in the air instead of the apartment house of his dreams.
Years of Saving
Mr. Rodriguez spent years squirreling away money from his salary as a meat market machine operator to buy the three-story brick building in the rubble-strewn neighborhood. In 1986, he put down $10,000 for the tenement. He borrowed the remaining $28,500 of the purchase price from New York City, which owned the building.
Mr. Rodriguez thought the next part would be easy. He needed a loan to pay for supplies to renovate the building and lay out five apartments for his family and tenants.
Instead, he spent the next five years in a revolving-door nightmare, shuttling from bank to bank to mortgage broker in fruitless attempts to finance the renovation.
It wasn't until two months ago that he was approved to receive a $115,000, 12-year loan at 7.5% interest from Neighborhood Housing Services of New York City. The nonprofit group got the money from a recently established $500,000 loan pool it administers for IBJ Schroder Bank and Trust Co., one of numerous foreign-owned and wholesale banks that have recently stepped up their community lending activities.
The Community Reinvestment Act was passed in 1977, but it wasn't until 1989 that enforcement was boosted as part of the thrift-bailout law. Banks that receive poor regulatory grades for investments in low-income communities hit roadblocks when they want to expand, merge, or gain new powers. They also face community scorn, since evaluations of their CRA programs are now made public.
Role for Community Groups
IBJ Schroder, which is owned by Industrial Bank of Japan, depends on organizations like Neighborhood Housing to help it fulfill CRA requirements. Like many foreign-owned U.S. banks, it does not have the retail branch structure out of which most CRA-credit loans and programs are administered.
Mr. Rodriguez, who now owns a photo development shop, is grateful for the loan. But he hasn't forgotten the banking nightmare.
"It's been like hell, the ups and downs," he said. "I gutted the building out in a week and a half, that's how determined I was. I put a lot of sweat into this."
Bankers know about sweat equity, but it doesn't count for much when they talk to their loan committees.
Big Banks Turned Their Back
Mr. Rodriguez, who works on Saturdays and many weekday nights with friends and relatives on the renovation, was turned down for his rehab loan by some of New York's biggest financial institutions -- Chemical Bank, Manufacturers Hanover Trust, Citibank, and Anchor Savings Bank.
He continues to do his personal banking with Citibank, but laughs ruefully at advertisements from banks that claim they are friendly and eager to finance small businesses. "Here I am putting money into the bank," he said, "and I can't borrow money."
Mr. Rodriguez, to be certain, is unsophisticated in the ways of finance. The young developer made a near-fatal mistake after the banks said no. He paid $3,300 in up-front fees to pair of mortgage brokers who promised to get him a home equity loan. He claims that he never got the money, and forfeited almost 75% of the fees.
IRAs Cashed In
To get the renovation under way, he liquidated $6,000 from his three individual retirement accounts and put about $9,000 on his credit cards to buy supplies and pay electricians and plumbers. "I had to do it in order for someone to look at this building a little more," Mr. …