City National Bank, the largest bank headquartered in Los Angeles, on Sept. 12 announced the launch of a subsidized home mortgage program as mandated by its settlement with the Justice Department in January.
The Ladder Up Home Loan Program, of which City National agreed to deploy at least $29.5 million in grants to residents or homebuyers of majority Black and Hispanic neighborhoods in Los Angeles County; the grants will cover up to $15,000 of a home loan and will not need to be paid back.
City National also announced a “Community Lending” team, which was created by the bank’s first community lending national sales manager, Vanessa Montañez, who was hired by City National in November.
This is the bank’s first community lending practice in its 70-year history.
In what became the largest redlining settlement in U.S. history, City National agreed to over $31 million in total to remedy the lending discrimination complaint filed by the DOJ in federal court in Los Angeles.
In its first public statement after the DOJ filed the case in court, City National said residential mortgage lending had not “historically been a focal point.” In separate statements the bank denied all allegations, maintaining it followed the law on lending practices.
Now cooperating with the DOJ as it fulfills the settlement’s requirements, City National could bring aid to a market of homebuyers in a city with short supply and fragmented capital access.
Nationwide crackdown
The Justice Department hit the ground running after announcing the Combating Redlining Initiative in 2021, now totaling $89 million in settlements from eight financial institutions across the country, including a $20 million settlement with Berkshire Hathaway-owned Trident Mortgage Company LP last year. Other banks that have settled include Ohio-based Park National Bank, New Jersey-based Lakeland Bancorp Inc. and most recently American Bank of Oklahoma, which agreed to invest more than $1 million in a loan-subsidy fund last month.
This initiative allocates funding for personnel to scour years of mortgage data financial institutions have been reporting to comply with the Home Mortgage Disclosure Act. According to Deepika Sharma, the founding director of the Housing Law and Policy Clinic at the USC Gould School of Law, more cases are sure to be within these report stacks.
“It’s hard to go up against a bank in litigation and to even have that many people get documents,” Sharma said. “So that the idea that the Department of Justice is not only enforcing it, but making the message public and using settlements that are large is really important.”
The Department of Justice identified City National as a violator through the bank’s own mortgage-disclosure data. According to the complaint filed in January, only 8% of its home mortgage applications came from residents of majority Black and Hispanic neighborhoods between 2017 and 2020. The disparate percentage of applications compared to “peer” banks and U.S. Census Bureau data on Los Angeles County residential demographics is what flagged such lending trends as “avoidant” of certain neighborhoods.
Redlining was developed in the early 20th century as part of government homeownership programs in the New Deal era. As programs offered government-insured mortgages for homeowners, vetting parameters were set based on color-coded maps deeming the loan worthiness of neighborhoods. Areas marked in red were deemed the riskiest and were often predominately Black neighborhoods.
This practice was picked up and used by private lenders and developers until the use of race and national origin as a determinant for risk in loans was outlawed by both the Fair Housing act and Equal Credit Opportunity Act in the 1970s. However, persistent gaps in homeownership rates between white and Black families pushed the department to allocate its efforts to investigate if the 4,000-plus banks in the country are compliant.
The term redlining has become a hot button to describe exclusionary practices in business and development. For City National, the challenge becomes building trust in neighborhoods where such a practice carries heavy historical pain.
On-the-ground effort
The CNB settlement allocated $500,000 to promote the new grant, meaning City National must make itself known in majority Black and Hispanic census tracts as an “Equal Opportunity Lender.”
According to the bank’s Montañez, her team has already begun outreach and education efforts, including partnering with existing nonprofits throughout Los Angeles that already have networking channels.
Another $500,000 is earmarked for consumer financial education programs, funds directed to hosting workshops as well as hosting events with nonprofits, trade organizations and realtors.
One partner, Van Ness-based West Angeles Community Development Corp., offers an eight-hour class that awards attendees a certificate that grants access to down-payment assistance programs in Los Angeles. This certification allows up to one year to apply for aid after completing the class.
“The client has the educational tools and the wherewithal to understand this is the process of buying the home, the ABCs to it,” Montañez said.
City National’s community lending team will work with nonprofits in the area. Montañez made it a point to hire from the communities the bank is trying to serve, bringing on bilingual managers and loan officers to accommodate the more than 58% of households in the Los Angeles area whose first language is something other than English, according to the Census Bureau.
The team consists of two senior mortgage managers, with sales managers and loan officers working under their purview. The team currently numbers 18.
“The community loan officers that we’ve hired are known in the community,” Montañez said. “They already have that goodwill and that great reputation, and they worked with these organizations and nonprofits for several years.”
In the coming months, City National will also launch a separate special purpose credit program focused on small-business lending. The program will offer assistance to underserved entrepreneurs or minority business owners.
The recent announcements from City National do not, however, include any plans for a new branch location – action the bank agreed to in the settlement. CNB is developing a community credit-needs assessment, another part of the agreement outlining a research-based market study that identifies the financial needs of the census tracts to which City National must increase service.
According to the settlement’s consent order, City National has two years to make “reasonable efforts” to open a new branch in the Los Angeles area.
The bank currently has 30 branches in Los Angeles County. Of these branches, three are located in majority Black and Hispanic Census Tracts, which are defined by having more than half of residents identifying as either Black or Hispanic by the U.S. Census Bureau.
