Hypocrisy in the Federal Home Loan Banking System

S.E. Williams | Executive Editor

I know that I am not the only one to go through this. I know I’m not the first. I know I won’t be the last, but at least I want someone else out there to understand that this is not normal, that this is not right.
-Mortgage Seeker, Akili Akridge

A Raisin in the Sun

During this second decade of the 21st century, lenders continue denying mortgages to Black applicants as evidenced by analysis of data published in Aug. 2020 under the Home Mortgage Disclosure Act (HMDA) which revealed Black applicants are denied mortgages at a rate 80% higher than that of White applicants.

This helps explain why a recent survey by the online real estate database company, Zillow, found no less than 59% of Black homebuyers expressed concern about qualifying for a mortgage compared to only 46% of Whites.

A key federal player in mortgages is the Federal Housing Finance Agency (FHFA) which oversees Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLBs). This abysmal national record of Black homebuyers seeking mortgages is even more disturbing when considered in relation to the revealing experience of two former FHLB Black executives, Lawrence Parks and Timothy Simons.

Parks and Simons are suing the Federal Home Loan Bank of San Francisco (FHLB-SF) for breach of contract and racial discrimination.

Lawrence H. Parks, a former Senior Vice President for External Legislative and Regulatory Affairs; and Timothy L. Simons, a former Vice President for Legislative and Regulatory Outreach and Compliance were released when the agency closed its Legislative and Regulatory Affairs division in Washington, D.C.

In an exclusive interview with the IE Voice and Black Voice News both men shared they were advised closure of the Washington D.C. office was the result of cost cutting measures, but it appeared these were the only measures taken.

Lawrence H. Parks

When the agency was questioned about what other measures were taken to cut costs, it advised, “As we stated in 2018, as part of the Federal Home Loan Bank of San Francisco’s ongoing efforts to align and streamline bank operations and appropriately manage our expenses, the bank decided to discontinue the current operating structure of its Legislative and Regulatory Affairs division and to close the Washington, D.C. office.”

When pressed further about cost cutting measures, the spokesperson replied, “We have no further comment…”

The experiences of Parks and Simons has raised questions about the organization’s administration and shone a spotlight on the FHLB-SF, as the racial discrimination claim stems from systemic, inequitable treatment of Black people by the association, including Parks and Simons according to the complainants.  

In 2019, Parks and Simons reached a $3.6 million settlement agreement with FJLB-SF in exchange for dropping their lawsuit however the agreement was never finalized. A District Court in Washington, D.C. dismissed their suit against FHLB-SF officers in Dec. 2019 but allowed the suit against the bank to continue.

The loss of Black representation from the upper echelons of the FHLB-SF is another example of how more than 50 years after the signing of the 1968 Fair Housing Act, Blacks continue to face daunting challenges whether in positions of authority where decisions are made about mortgage lending or making  overwhelming sacrifices in an individual quest to realize the American Dream of homeownership barriers to equity in this regard are as institutional and systemic as the racism that undergirds and sustains them.  

Historic Recurrence

The passage of the Fair Housing Act (FHA) of 1968—a law designed to prohibit discrimination in the sale, rental and financing of housing based on race, religion, national origin, or gender though distinct in its directive, enhanced the mission of the Federal Home Loan Bank (FHLB) Act which was passed in 1932 during the midst of the Great Depression. The FHLB established a consortium of 11 regional discount banks (Atlanta, Boston, Chicago, Cincinnati, Dallas, Des Moines, Indianapolis, New York, Pittsburgh, Topeka and San Francisco) for home mortgages. This consortium provided an option for homebuyers, somewhat like the role played in the commercial arena by the Federal Reserve Banks, but few know of its existence or understand its role. 

As reported by the Washington Informer in May 2019, “It’s been a trademark of the Board [of the nation’s 11 Federal Home Loan Banks] to fly well-below the radar of those outside the housing and banking worlds with not many knowing the system was created by an act of Congress in 1932 to help kickstart home lending in the midst of the Great Depression.” And, not unlike the 1944 G.I Bill implemented years later, the FHLB primarily benefited Whites.

Collectively, the consortium of Federal Home Loan Banks has a trillion dollars in assets. Beyond home loans they also fund small businesses, community development and revitalization, and to some extent, selective elements of the Green New Deal. In addition, and contrary to its mission, considering the billions of dollars invested by the consortium, the amount making its way to communities of color is considered by many as unremarkable.

Black Experts on the Inside

Parks and Simons are highly accomplished professionals with years of collective experience. Their case is both timely and relevant as America has once again come face to face with the disparities in homeownership rooted in racism and the country’s failure to keep its commitment to provide opportunities for economic development for Blacks and other minorities. This was the focus of Parks and Simons during their time with the agency. It has left some to question what role this focus may have  played in the agency’s decision to release them.

In Their Words

“We were located in Washington, D.C. to manage the regulatory and legislative space for the Federal Home Loan Bank of San Francisco and during that entire time we received nothing but high marks from both inside the institution and outside the institution like [Congresswoman] Maxine Waters (D-Los Angeles), Chair of the Financial Services Committee in the House of Representatives,” Simons said.

Parks ran the Washington office of FHLB-SF, from the agency’s first presence in Washington, D.C. “I opened it in 1997 and served there for 21 years, he explained. “Tim came on after I was there for seven years.”

According to Parks, Tim Simons was very vital in providing both audit and accounting expertise on the financial component side.

“I came with a legal background and had worked on the Hill and written sections of laws dealing with the Community Reinvestment Act and the Homeowners Disclosure Act.” Parks continued noting how throughout his service at the federal level he remained, “[Focused on finding ways] to either build out capital access or change home loans and regulations to benefit Black communities and lower income communities in general.”

Parks shared his belief at the core of what he defined as this “second phase of the Civil Rights movement” is really the need for Blacks to have access to capital and credit. “The wealth gap that exists in this county was really the cause for Black poverty, Black underemployment, and many of the maladies that exist in our community.”

Explaining more about the role of FHLBs, Parks noted how basically community banks and credit unions who are part of the consortium “put capital in and then, in return, they are able to pledge mortgages and other forms of collateral—but basically mortgages—and  the FHLB puts a guarantee behind it, then creates a bond that goes to the secondary market for pension funds and others to buy.”

The key factor in this process, according to Parks, is who gets the benefit of the credit offered by these lenders? In other words, what do the lenders do with the money when they get it?

“I came with a legal background and had worked on the Hill and written sections of laws dealing with the Community Reinvestment Act and the Homeowners Disclosure Act,” Parks confided.

Throughout his service at the federal level, Parks said he focused on finding ways to either build out capital access or change home loans and regulations in ways to benefit Black communities and lower income communities in general.

Much of Parks’ experience was in relation to the Community Redevelopment Act and creating affordable housing programs. “Making sure communities of color were able to get credit because it was a sweet system that basically created the middle class, but largely a White middle class, because of historic redlining and all the things that came after up until now,” he advised adding how there is also a lack of lenders providing credit to that community.

Timothy L. Simons

That Struggle Continues

A recent study by Redfin listed San Francisco as the number two city in the United States where Black homebuyers were more likely to be denied a home loan. Black San Franciscan loan seekers are more than three times as likely to be denied a mortgage than White homebuyers. The gap is extreme—19.2% rejection for Blacks versus a 5.9% rejection rate for White Americans.

Results in the Inland Empire are more concerning. A Lending Tree report in July noted Blacks in the Inland Empire had a mortgage rejection rate that was 79% higher than Whites.

With the removal of Lawrence Parks and Timothy Simons from FHLB-SF, there is now no Black representation in the highest level of executive leadership who can provide daily, needed perspectives and actions to address access to capital not only for Black San Franciscans but for Blacks across the region it serves which includes the entire state of California, as well as Arizona and Nevada.  

In an exclusive exchange with the FHLB-SF, the IE Voice and Black Voice News inquired about this dilemma.

In response, FHLB-SF spokesperson Mary Long declared, “We are committed to the principles of diversity, inclusion, and equal employment opportunity, and we are proud to have diversity across our organization, including in our leadership.” But, when pressed further to provide the specific number of African Americans currently in the highest levels of leadership at the FHLB-SF, she replied, “We have no further comment…”

The federal government, however, has acknowledged there is much work to be done even in regard to the diversity of its board. In Feb. 2019, the U.S. Government Accounting Office released a report “Federal Home Loan Banks: Steps Have Been Taken to Promote Board Diversity, but Challenges Remain.”

The Bank of San Francisco was included in the study.

Pledges and Empty Promises

On May 1, 2020 FHLB-SF joined the plethora of industries pledging financial relief in the wake of COVID-19. The co-op pledged $10.7 million for relief and recovery solutions to be delivered by local lenders. “Our members and their customers and communities are navigating a uniquely challenging and uncertain economic environment as a result of this global pandemic,” said Stephen P. Traynor, Acting President and CEO of FHLB-SF.  

The organization’s $10.7 million pledge for COVID relief was laudable but when it came to the other pandemic devastating Black communities—the killing of Blacks and its resulting push for criminal and social justice, the organization said the right words, “We need to be honest in our understanding of how deeply rooted and debilitating racism is in our society. Outrage is overdue. Silence during this moment of reckoning for institutional racism and unequal justice would be complicity. Words alone won’t do. As we stand up and speak out for justice, we also must get down to the business of directing our individual, collective, and corporate energies toward effecting meaningful change,” FHLB-SF posted on its website.

And although it further declared, “We will support our network of community partners. . . with additional resources delivered through our members,” and  vowed to redouble its efforts to make home ownership real for Black people—there was no $10.7 million pledge. There was no financial commitment announced in support of FHLB-SF’s pledge to “speak up for justice.”

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S.E. Williams is executive editor with the IE Voice and Black Voice News