Banks Seek Out Activists

The Record ( — Sunday, August 9, 2015

The Record

Phyllis Salowe-Kaye of New Jersey Citizen Action helps banks connect with creditworthy low- and moderate-income borrowers.

When banks seek regulators' approval to buy other banks, their community reinvestment and minority-lending records are being scrutinized more by the federal government in the wake of the financial crisis.

As a result, banks involved in recent or pending mergers, including Valley National Bank and M&T Bank, have been opening, or reopening, lines of communication with Phyllis Salowe-Kaye, a New Jersey affordable housing activist and longtime executive director of statewide non-profit consumer watchdog New Jersey Citizen Action, one of more than two-dozen organizations in New Jersey certified by the U.S. Department of Housing and Urban Development as a housing-counseling agency.

Salowe-Kaye, 68, has made a career out of persuading growth-minded bankers that if they want to expand in New Jersey, they'd better make more loans to African-Americans, Hispanics, low- and moderate-income individuals and to businesses in lower-income neighborhoods.

"The banks do listen when they know we have the ability to hold up their merger," Salowe-Kaye said last week in an interview at her Newark office, a former 8-by-8-foot storage closet on the 20th floor of the National Newark Building, the tallest in the city.

Although lending to low- and moderate-income home buyers slowed to a trickle after the housing-credit bubble burst in 2007, that niche may be on the rebound. Federal regulators are holding lenders' more accountable for their low- and moderate-income lending practices — especially in the context of merger proposals, when regulators are most likely to receive complaints about banks from activists like Salowe-Kaye.

Advisers on mortgages

New Jersey Citizen Action, which has 29 employees and 60,000 member families and 100 group affiliates, was started in 1983 in Hackensack, to support environmental causes and fair labor practices. Salowe-Kaye, a former Newark schoolteacher, took the job as New Jersey Citizen Action's executive director in 1985 and shifted the organization's focus to affordable housing, drawing on her previous experience as a tenants' rights advocate.

Her first bank partnership, formed in the mid-1980s, was with the former Midlantic Bank in Newark. She advised the lender in its development of a mortgage product with a low down payment requirement and a discounted interest rate.

That was when she began developing door-to-door canvassing programs. That was also when she started organizing first-time home buyer workshops and seminars to help banks find borrowers who wanted a loan and were not likely to default.

Since the late 1970s, banks have had a strong incentive to make such loans to comply with the federal government's guidelines under the 1977 Community Reinvestment Act. Some banks provide grants to groups such as New Jersey Citizen Action, which help the banks make grass-roots connections with borrowers. The CRA was designed to help reduce redlining, a practice in which banks avoid making loans in low-income neighborhoods within their market areas, contributing to neighborhood deterioration and blight.

To enforce the law, federal regulatory agencies examine banks for compliance, and take the results into consideration when approving applications for new branches or for mergers or acquisitions. Lending institutions with assets greater than $1 billion are subjected to rigorous exams of lending records, investments and services. Examiners consider the number and percentages of loans made to low- and moderate-income individuals and communities.

In addition to lending, banks are evaluated by the investments they make and services they provide in low- and moderate-income communities.

One of the ways banks can improve their scores in these exams is by entering into community reinvestment agreements with groups such as New Jersey Citizen Action.

During her tenure, Salowe-Kaye, along with leaders of the Trenton-based Housing and Community Development Network of New Jersey, has negotiated more than 40 community reinvestment agreements with almost all of New Jersey's largest banks, and a number of smaller ones, for a total of $22 billion in commitments, which according to Salowe-Kaye, have largely been met.

The commitments include goals for below-market-rate mortgages, discounted home-improvement loans, construction and permanent financing for non-profits, small-business loans for women and minorities, and community and economic development lending.

Low- and moderate-income borrowers who participate in banks' first-time home buyer programs receive financial counseling and are thoroughly vetted, so the loans generally do not pose unusual risks to lenders' balance sheets, said John McWeeney, president of the New Jersey Bankers Association.

After New Jersey Citizen Action and other housing groups last year challenged Wayne-based Valley National Bancorp's proposed acquisition of 1st United Bancorp in Boca Raton, Fla., citing concerns about Valley's community reinvestment lending, the U.S. Office of the Comptroller of the Currency required Valley to come up with a new, detailed CRA plan before it would approve the deal. That requirement came even though Valley had received a "satisfactory" rating from the OCC in its most recent Community Reinvestment Act exam.

As part of that CRA plan, which includes a projected $122 million in investments for a three-year period through the end of 2018, Valley has created an affordable mortgage loan product that will be offered through New Jersey Citizen Action.

"I think [community reinvestment] is a factor that every bank has to put to the front burner if they want to do acquisitions," said Gerald Lipkin, Valley's chairman and chief executive officer.

"We had what I believed was a good program," Lipkin said. "We had a satisfactory rating, yet the regulator thought there were areas where we should enhance the program, and we have."

M&T Bank, based in Buffalo, N.Y., was quick to sit down at the negotiating table with Salowe-Kaye in 2012, after she challenged its proposal to buy Hudson City Bancorp of Paramus, a deal that has been held up for nearly three years — mainly by a regulator's concerns about M&T's money-laundering defenses.

M&T has recently started offering below-market-rate mortgages in New Jersey, through New Jersey Citizen Action, even though it does not yet have any retail bank branches in the state.

"We are very proud to be a partner with them now," said Salowe-Kaye, who said she hopes the Hudson City deal goes through, and that M&T takes over the 98 branches operated in New Jersey by Hudson City, which is being investigated for possible violations of federal anti-discrimination laws.

"Part of our long-standing approach, both in our original markets and when we expand to new markets, is to partner with established community groups, and work together with them to better meet the credit needs of local borrowers,'' M&T said. "First-time homebuyer programs have been a longtime focus of M&T and we have begun offering mortgage programming through New Jersey Citizen Action."

PNC Bank had a three-year community reinvestment agreement with New Jersey Citizen Action that expired in March 2013 and has been in talks with Salowe-Kaye to renew it, said Bill Best, a PNC senior vice president.

Over the past year, Salowe-Kaye has been working on a CRA plan with officials at Santander Bank, a subsidiary of Spain's Santander Group, which completed its purchase of Sovereign Bank in 2008 and about four years ago moved its U.S. headquarters from Wyomissing, Pa., to Boston. These negotiations are intended to rekindle a relationship that stood for about 15 years with Sovereign.

"She was very persistent and effective in her outreach," Gwen Robinson, managing director for corporate responsibility at Santander, said of Salowe-Kaye.

Banks provide grants to New Jersey Citizen Action to help fund its outreach and financial counseling activities, but Robinson, Salowe-Kaye and officials at other partner banks declined to say how much.

The organization's budget is nearly $3 million this year, down from $3.2 million in 2014, Salowe-Kaye said.

The non-profit also receives state and federal grants and donations from individuals and organizations.

Next month, Salowe-Kaye plans to meet with executives at North Carolina-based BB&T Corp. about community reinvestment in New Jersey, where BB&T is a new entrant, with an eye for growth.

BB&T last week completed the $2.5 billion acquisition of Lancaster, Pa.-based Susquehanna Bancshares Inc., which has branches in Pennsylvania, Maryland, West Virginia and in southern New Jersey.

"I didn't call them; they called me," Salowe-Kaye said.

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