Fair Lending Advocate Challenging Hudson City-M&T Merger

Bank accused of rejecting minority loan applications far more often than whites

The Record ( — Friday, October 12, 2012

The Record

A fair-lending watchdog in New York City has asked the Federal Reserve Board to stop the proposed $3.7 billion acquisition of Paramus-based Hudson City Bancorp Inc. by M&T Bank, citing the minority lending records of both institutions that include black and Hispanic loan denial rates higher than those for whites.

Matthew Lee, executive director of Inner City Press/Fair Finance Watch, said in an Oct. 7 letter to the Federal Reserve Board that Hudson City made only five conventional home purchase loans to African-Americans last year and 14 to Hispanics. That was out of a total of 765 such loans made in the New York City metropolitan area, he said, citing his organization's analysis of data disclosed by the bank under federal Home Mortgage Disclosure Act (HMDA) requirements. The metro area includes Bergen, Passaic, Hudson and Essex counties, the five New York City boroughs and Rockland, Westchester and Putnam counties in New York.

Lee said Hudson City denied loan applications of African-Americans 3.21 times more frequently than those of whites. According to the Federal Reserve Board, overall denial rates in 2011 for conventional home-purchase loans were 30.9 percent for blacks, 21.7 percent for Hispanic whites, 14.8 percent for Asians and 11.9 percent for non-Hispanic whites.

Such complaints are common in big bank deals. They rarely if ever block a merger, but they can result in banks making formal community reinvestment agreements with non-profit groups, setting specific goals for lending in low- and moderate-income areas.

Community reinvestment agreements typically include commitments to make low-cost loans available to first-time home buyers and other low- and moderate-income borrowers, as well as community development loans for non-profit organizations and small- business loans for minorities and for businesses in distressed areas.

Non-profit fair lending advocacy groups often question acquiring banks' lending records when large mergers are proposed, based on federal Community Reinvestment Act requirements, and pressure banks to make community development lending commitments.

The law enacted in the late 1970s is designed to encourage banks to meet credit needs in their entire market areas. It was a response to red-lining, a discriminatory practice where banks would take deposits out of poor neighborhoods and use the funding to make loans only in wealthier neighborhoods.

Banks, which generally are examined every two years on their lending, investing and service in low- and moderate-income areas, are not required to make any particular type of loans. To get a "satisfactory'' rating, they must persuade examiners that they are meeting the credit needs of their entire market.

The CRA gives regulators power to deny federal charters, and mergers or acquisitions if a lender has a poor CRA record.

M&T, a full-service commercial bank, received an "outstanding'' rating, the highest possible, in its CRA review issued last year. Hudson City, primarily a suburban savings bank that specializes in selling certificates of deposit and higher-end mortgage loans, received an overall "satisfactory'' rating in its last review in March 2011.

Hudson City made 399 loans totaling $60 million through an affordable-housing program and bought more than $200 million in community development mortgage-backed securities in the three-year review period ended in March 2011. Its $6 million in community development loans was "substantially below expectations" considering the size of the bank, the review said.

The bank has more than 1,500 employees, but the review identified only two officers' involvement in community development service activities, a "very low" level of involvement, it said.

And while about 90 percent of Hudson City's 135 branches had Saturday hours, only one of its four branches in low-income areas had Saturday hours. Branch distribution is "dramatically distorted" toward middle- and upper-income geographies, the review said.

Hudson City did not respond to requests for comment.

"People should know we have a long commitment to the communities we serve and that we lend responsibly," Michael Zabel, an M&T spokesman, said Thursday by phone. "We will bring the same level of commitment to the new markets that we have demonstrated in our other communities, but with a broader and more diverse set of banking products and services."

Lee said his criticism is focused more on the record of the bank being bought, Hudson City, than on M&T. But in the letter to the Federal Reserve Board, Lee also was critical of M&T's lending to Hispanics in the New York metro area. He said the bank made 119 conventional home purchase loans to whites in the New York City metro area last year and 17 to Hispanics, and that the lender denied Hispanics 1.91 times more frequently than whites.

Zabel said the HMDA data cited by Lee is not a good gauge of fair lending because "it does not consider credit scores, credit histories or other criteria," and because "loan decisions are not made by race, they are made by ability to pay."

Hudson City does more mortgage lending in the New York City metro area than the larger, Buffalo-based M&T, and Lee said he is concerned Hudson City's mortgage lending culture will remain the same after the merger. He is urging the Fed to hold public hearings in New York City on the banks' minority lending performance.

"We seek some improvement or they should deny the merger," he said.

Phyllis Salowe-Kaye, executive director of the consumer watchdog group New Jersey Citizen Action, said Wednesday she has reached out to M&T Bank officials to discuss a formal community reinvestment agreement, similar to one her group negotiated with TD Bank when it bought Commerce Bank four years ago.

Citizen Action has not objected to the pending merger, but it could, depending on how the meeting goes, Salowe-Kaye said.

However, she, too, has been critical of Hudson City's minority lending record, and said in the past, officials at that bank have been unwilling to talk to her about making a formal commitment to community reinvestment.

"This merger gives us an opportunity to right some of the wrongs," she said.

Zabel said Thursday that M&T has relationships with non-profit community development organizations throughout its footprint, but has no formal CRA agreements in place.

A public comment period on the merger proposal runs through Oct. 27.

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