Already ordered to pay $10,000 for hurling racial insults and threats at their black neighbors, a white Belle-area family must now tear down signs and part of a fence related to their bigoted behavior.

Members of the Hobbs family must also stop patrolling near the property of their African-American neighbors with guns and other weapons, U.S. District Judge Charles H. Haden II ruled.

Haden's order further bars the Hobbses from harassing the neighbors, the Smith family, as well as 10 other people who testified during February's federal civil rights trial in the case.

A civil jury in that trial awarded $10,000 to the Smiths after concluding that four members of the Hobbs family violated the U.S. Fair Housing Act.

William C. and Gloria Smith had bought property adjoining the Hobbses' on Simmons Creek Road in 1996.

John and Mary Hobbs, along with their adult son and his wife, John Wayne and Brenda Hobbs, interfered with the Smith's efforts to move in and live there because of their race, the jury found.

The Fair Housing Act forbids such race-based discrimination.

The U.S. Justice Department filed the lawsuit which led to the jury's award verdict. The suit also asked Haden for a permanent ban on certain acts directed at the Smiths by the Hobbses.

Haden's resulting order grants most of the suit's request in the permanent injunction motion. It bars all contact with the Smiths by the Hobbses "with the purpose of harassment, intimidation, threatening or other discrimination."

Members of the Hobbs family brandished a knife and a pistol at the Smiths in separate incidents, according to trial testimony. Besides racial taunts, the Hobbses also threatened to kill the Smiths, the Smiths testified.

John Hobbs maintained that he walked on his property with a pistol in his belt to guard against vandals. Haden's order prohibits such armed patrolling.

The order bars the sort of signs and displays targeted by the lawsuit. The Hobbses had erected a black cross from which they hung by the neck plastic ducks painted black. The Hobbses also put up a flag reading "Kill them all and let God sort 'em out."

The Hobbses had also put up a fence between the properties during the dispute. Haden ordered the family to remove the two sections of the fence closest to the road.

The Hobbses contend that they had a property dispute with the Smiths that has nothing to do with race. John and Mary Hobbs now live on another nearby property, leaving the Simmons Creek tract to their son and his wife.

During the trial, Mary Hobbs testified that she and her husband both believe that blacks and whites should not date or marry. "I've read the Scriptures, and in my religious belief, they should not mix," she said.

Over the years, dozens of African American couples have made their way to Clarence White's real estate office at the edge of the pine barrens in Sicklerville.

That's because Sicklerville, which is part of the 57-mile expanse of Winslow Township in southern Camden County, has been the leading suburban destination for African American home buyers in the Philadelphia region in the mid-1990s, according to an Inquirer analysis

of five years of mortgage data.

It's also one of the most popular suburban towns for whites, both racial groups being drawn to the rural landscape, the abundant affordable homes, and convenience to the Philadelphia and Atlantic City job markets.

"You drive around here and you see blacks everywhere," said White, 63, who moved to Sicklerville in 1983. "We don't have any problem with the police, and there's no crime to speak of. Whatever religion you are, you can find a church in Sicklerville."

No other suburban town in the Philadelphia area can claim the sheer number of both white and African American home buyers in the mid-1990s, the data reported to the government under the Home Mortgage Disclosure Act show.

But these facts are clear.

Economics and the pull of upward mobility and good schools are fueling minority home-buying in the suburbs, where nearly 90 percent of the mortgage loans in the Philadelphia region, based on value, were made in 1997.

In the inner-ring suburbs, weak home prices are providing buying opportunities, while a moderately strong local economy is pumping solid paychecks into minority families.

The federal government and mortgage companies have helped, too, with the relaxation of mortgage-loan standards, economists say. Firms specializing in sub-prime mortgage loans have extended hundreds of mortgages to people who wouldn't have qualified for home loans in the early 1990s.

Meanwhile, housing discrimination in certain neighborhoods is still a battleground, some say.

In 1993, 9.2 percent of suburban mortgages, or 3,854, were sold to minorities. By 1997, that rose to 11.8 percent, or 5,001 mortgages.

The minority population, which is predominantly African American, in the suburbs was 16.5 percent in 1997, according to Census Bureau estimates.

Delaware and Montgomery Counties in Pennsylvania saw the most home-buying by African Americans in 1997, in communities such as Upper Darby, Lansdowne, Cheltenham and Sharon Hill.

In South Jersey, in addition to Winslow Township, Pennsauken, Lindenwold, Burlington Township, Pemberton and Hainesport had substantial African American mortgage borrowing.

But minority home-buying was not restricted to areas in the suburban inner ring. About 80 percent of the census tracts in the Philadelphia suburbs – excluding those in Norristown, Camden and Chester – reported at least one minority mortgage in 1997.

Few minority families bought in the old-money enclaves of Lower Merion and Radnor Townships, according to the federal data. But they bought in larger numbers in Easttown and Tredyffrin in Chester County, and Moorestown in South Jersey, places where developers have been putting new subdivisions.

Unexpected quirks also have arisen in how and where minorities buy.

Montgomery Township, which has grown from 12,000 residents in 1990 to more than 20,000 this year, is popular with Asian buyers.

Four state highways, Routes 202, 309, 463 and 63, run through or near Montgomery Township, a primary reason for its growth, a township official said.

Eastern Montgomery Township, in the North Penn School District, was the most popular town for Asian home buyers in the region – 26 mortgages were sold to them in 1997.

Of the next nine communities popular with Asian home buyers in 1997, one was in Voorhees Township, and the other eight were in Philadelphia.

Doug Paulsen, assistant to the Montgomery Township manager, said he hadn't been aware of an Asian community in the town, though, when he looked, he saw their numbers were double that of African Americans in the 1990 census.

And, he remembered, about two years ago, a representative from the Korean Central Daily News, in Philadelphia, asked Montgomery Township to send their news announcements for publication.

"I never checked to see if they were running them because I probably couldn't read it," Paulsen said.

All the same, Asians and Hispanics have remained small players in the suburban mortgage market in Philadelphia between 1993 and 1997.

Asian mortgage borrowers in the suburbs increased to 2.3 percent of the total in 1997, from 1.9 percent in 1993. Hispanic borrowers increased to 1.7 percent in 1997, from 1.5 percent in 1993.

In 1997, African American mortgage borrowers rose to 6.8 percent, or 2,854, of all mortgages in the eight suburban counties in Pennsylvania and South Jersey.

That was a 42 percent gain from the 2,010 mortgages sold to African Americans in 1993.

A big jump came between 1993 and 1994, which was also reflected in the national home purchases by African Americans.

Some towns are seeing a substantial influx of African Americans that is altering the racial makeup of the communities.

In Sharon Hill, minorities accounted for 9 percent of the population in the 1990 Census, but 40 percent of the mortgages in 1997. That was 20 mortgages.

In southeastern Cheltenham Township, minority groups accounted for 28 percent of the population in 1990, but 42.1 percent of the mortgages in 1997. That was 24 mortgages.

Minorities made up 25 percent of the population in the western section of Lindenwold, in South Jersey, in 1990 and accounted for 42 percent of the mortgages in 1997.

Glenn Canner, economist with the Federal Reserve in Washington, said new affordable-housing regulations were adopted in 1993 and triggered a surge in home buying by people with low and moderate incomes.

The changes included a lower minimum down payment, less cash required at closing, and more liberal debt limits, Canner said.

"Nowadays, everybody is bending over backwards to increase homeownership," he said.

Not everybody, says Art Haywood, 42, an African American attorney who works in Center City.

He went to buy a home in Cheltenham Township in 1995 because he wanted his three children to go to the schools there. "I couldn't educate them affordably in the city," he said.

Cheltenham is one of the more racially diverse suburban communities, but Haywood said he became upset with the poor service given to him by a local real estate agency. He sued for discrimination in federal court, and the case was eventually settled. Details were not disclosed.

While Cheltenham has a substantial African American community, Haywood said most of them live in particular neighborhoods, mainly south of Church Road.

He believes rude or bad real estate service to African Americans, and steering African Americans to particular neighborhoods, are frequent in the suburbs. "People get steered, and they don't even realize it," he said.

Haywood eventually bought a home in Wyncote, in Cheltenham Township.

When Royal Brown spotted a four-bedroom house with a big back yard for sale in Akron, Ohio, she and her husband, Bernard, decided to buy the home.

They sought out the seller's Realtor, only the couple didn't "click" with the agent.

"We just weren't on the same thinking level," Royal Brown said.

The Browns then turned to a friend – who also was a real estate agent – and eventually purchased the home.

The Browns are black. The first Realtor was white. The second was black.

In the end, the Browns felt more comfortable doing business with someone of their own race. It is a fact of life and business that has confronted the residential real estate industry for years. Only now, the stakes are getting higher.

As more minorities and immigrants acquire homes, they are changing the dynamics of the housing market and leading real estate companies to reevaluate how they do business.

Home ownership in the United States is at an all-time high of more than 66 percent, with minorities and immigrants accounting for a large part of the growth. From 1994 to 1997, they accounted for 42 percent of the increase despite being less than one-fifth of the market, according to the Joint Center of Housing Studies.

And there is room for growth in minority home ownership to continue. About 45 percent of black and Hispanic families own homes, compared with 73 percent of white families.

More doors are opening because of better financing options as well as historically low interest rates and unemployment. Minorities and immigrants are exuding confidence about their ability to spend their collective billions to buy a slice of America.

Look at the statistics:

– Asian-Americans have a median household income exceeding $58,000, the highest among minorities and whites.

– Personal disposable income among blacks is expected to reach $533 billion this year, an increase of about 73 percent since 1990.

– Hispanics' aggregate income is about $348 billion and rising.

– The number of foreign-born home buyers is expected to increase to 58 percent of the immigrant population next year, and exceed two-thirds of that population by 2010.

Times are changing, but perceptions are another matter, especially among minorities and immigrants. These first-time home buyers are more inclined to believe their race will make buying a home more difficult, even though the percentage of minorities and immigrants with this opinion is declining, according to the Fannie Mae Foundation, a Washington-based nonprofit organization that conducts housing research.

Their fears have some merit considering the industry's legacy of housing discrimination, experts say.

Many Realtors agree that homeowners feel more comfortable with a real estate agent who "speaks their language" or "understands their background."

Translation: an agent of the same race.

"There's no question that (black home buyers) will feel more comfortable with a black real estate agent," said H. Bernie Jackson, president of the National Association of Real Estate Brokers, which represents black real estate professionals.

However, the industry doesn't reflect the racial diversity of the communities it serves. Exact figures are hard to come by, but Jackson estimated there are 300,000 black real estate professionals out of a "couple of million" agents nationwide.

Beyond race, there are cultural issues that could also lead to misunderstandings, said Fred Underwood, the senior fair-housing policy representative at the National Association of Realtors.

"It doesn't say that every person (in the same culture) is going to react the same way, but the realty professional has to recognize the differences," he said.

Still, Lolita Adair, owner of Akron-based Lolita Adair Realty Co., said, "We (real estate agents) don't have anything to worry about if we don't do anything wrong."

Serving the needs of minority and immigrant home buyers is a matter of etiquette, she said.

"If you really love people, it doesn't matter their shape, their size, their color or condition," said Adair, who is black. "It's a shame we have to teach that."

But cultural and diversity training is needed, those in the industry say. The Akron Area Board of Realtors, National Association of Realtors and the National Association of Real Estate Brokers have diversity training programs for their members.

The same training occurs at real estate companies.

At Prudential DeHoff Realtors in North Canton, Ohio, agents are trained to be "careful assessors" of their customer's needs, said Linda DeHoff, the agency's vice president, who is white.

Century 21-Twin Oaks Realty in Fairlawn, Ohio, encourages its agents to learn Spanish, said Russell Neal, the agency's vice president.

"In order to work with that culture, that's something we need to be knowledgeable about," said Neal, who is black.

While these companies are making internal moves, some companies, like Cleveland-based Realty One, are trying to make their efforts more public.

In November, Realty One launched its Multicultural Services Group. It is a division of one employee.

"Somewhere down the line, (the minority and immigrant markets are) going to become a very important part of our business," as much as 25 percent of the company's revenues, said Joseph T. Aveni, chairman and chief executive of Ohio's largest real estate firm. Realty One

averages more than $2.5 billion in annual residential sales.

The Multicultural Services Group's tasks – diversity training, recruitment and specialized services – are virtually the same as those found in the diversity programs of other real estate companies.

A federal judge yesterday strongly suggested that federal and local housing agencies find money in their budgets to buy a handful of homes that are under sales agreements in a housing discrimination case.

Senior U.S. District Judge Gustave Diamond also warned that "somebody will be in trouble" if more than 30 additional homes are not purchased by the end of the year in the Sanders housing discrimination case.

"I'm urging everyone here to see if you can't scrape up the money to tide you over until [the start of the federal fiscal year] Oct. 1," Diamond said during a hearing.

The judge questioned attorneys from the U.S. Department of Housing and Urban Development and the Allegheny County Housing Authority about why there is a shortfall in funding for 100 new homes required to be purchased as part of the settlement in the Sanders case.

HUD earlier this month determined that it had run out of money to complete the purchases of all 100 homes and would be able to fund only 67 homes.

A $6.9 million pot of money reserved for purchasing the homes in 1990 will be empty when 20 homes under sales agreements are bought.

The purchases will bring to 67 the number of homes bought for low-income blacks in the Sanders case since 1996. The average cost of each unit is $103,295.

The Housing Authority actually has sales agreements for 29 homes, but there is only enough funding to buy 20 houses.

However, some of the nine homes may not be lost when the sales agreements expire.

During yesterday's hearing, Justice Department attorney Henry Azar Jr. told Diamond that four of the nine homes are owned by the Federal Housing Administration. Sales agreements on those homes will be extended until money is found for purchases. HUD can buy another

two homes using funds from an account for public housing development, leaving just three homes under sales agreements that could be lost.

The homes are being bought to relocate black public housing residents to mostly white neighborhoods as part of the desegregation aim of the 1994 settlement in the Sanders case.

The case takes its name from Cheryl Sanders, a resident of the former Talbot Towers complex in Braddock, who filed the housing discrimination lawsuit with five other women in 1988. The purchase of 100 new homes is part of the settlement to make up for some of the

210 public housing units that were lost in 1990 when Talbot Towers was demolished.

The Housing Authority is buying the homes with HUD money at prices that range from $37,714 to $92,092. Those purchase prices do not include the cost of renovations, which in some cases reach $70,000 or higher.

The renovation costs are high in many instances because the Housing Authority, unlike an average buyer, is required to meet HUD housing quality requirements and make the homes and their contents last for 40 years, the life of a public housing unit, Housing Authority Executive Director Frank Aggazio said.

For instance, the Housing Authority has to replace furnaces, hot water heaters, roofs and other items that have outlived their usefulness, based on HUD guidelines. So while a regular buyer may put off replacing a roof or hot water heater, the Housing Authority must replace those items.

In addition, the Housing Authority has to test for lead-based paint and asbestos and remove those hazardous items if they are present in the home, Aggazio said.

HUD sets limits on how much the Housing Authority can spend on each new home, based on its size.

For the 35 homes bought in the Sanders case in the past year, the Housing Authority could spend up to $97,000 for a 2-bedroom home, $118,650 for a 3-bedroom home and $143,200 for a 4-bedroom home. The agency could also spend $86,500 for a 2-bedroom townhouse and

$105,800 for a 3-bedroom townhouse.

The Housing Authority in the past year bought 12 three-bedroom, single-family homes and 23 two-bedroom townhouses.

The homes purchased for public housing are selected from a list submitted to a committee made up of members of the Sanders Task Force, the group which is charged with carrying out the provisions of the lawsuit settlement.

Bert Lauble, whose Forest Hills real estate firm is a consultant on the home purchases, said he has submitted hundreds of homes to the Sanders Task Force committee over the past year, but only a fraction have been selected for purchases. Part of the reason that few homes have been selected is because the new properties must meet criteria set by attorneys for the plaintiffs in the case that the home be near public transportation, schools and shopping, he said.

For that reason, Lauble said he has tried to find homes from the West Penn Multi-List real estate listings that are near adequate public transportation, usually suburbs close to the city of

Pittsburgh.

Once the homes are selected by the Sanders Task Force, Lauble brokers the deal for the task force and the Housing Authority. For his duties in the past year, he has been paid $72,798 in commissions, Housing Authority records show.

HUD estimated that it will cost slightly more than $4 million to buy the remaining 33 homes that need to be purchased to comply with its obligation under the Sanders settlement.

Donald Driscoll, an attorney for the Sanders case plaintiffs, told Diamond yesterday that HUD has access to one account with $3.7 million and to more than $700 million in the U.S. Treasury that could be used for the purchases. The Housing Authority also could use money from $20 million reserved for modernizing public housing projects, he said.

Attorney Raymond N. Baum, who represents the Housing Authority in the Sanders case, told Diamond that the agency is unwilling to use any of the $20 million for the Sanders case because HUD cannot promise that the money will be returned.

Diamond directed Azar and Baum to provide him by Thursday an accounting of where the funds cited by Driscoll are to be spent and when. He ordered all sides in the case to appear before him again April 27 for another hearing.

"It just absolutely boggles my mind that you cannot acquire 100 homes with the combined resources of HUD and the Allegheny County Housing Authority," the judge said.

LOOKING AT LENDING.

Additional material published April 14, 1999: Corrections and clarifications. An article in Tuesday's Business section omitted the standing of LaSalle Bank F.S.B. as Chicago's largest mortgage lender. It lent $339 million in mortgages in 1997. The Tribune regrets the error.

Whether lenders are discriminating against mortgage customers in Chicago has become more difficult to tell, in part because banks and others are no longer keeping track of race data the way they are required to by law.

In 1997, 42 percent of Chicago mortgage applications that were turned down by lenders had no information about the applicant's race, according to the Woodstock Institute, a development advocacy group in Chicago. That's up from 34 percent in 1996 and 10 percent in 1991, the first year race data were collected.

"It's crazy, because we can't tell what's going on. It also means the regulators aren't doing their job," said Malcolm Bush, president of Woodstock, which released its annual fact book on community lending Monday.

The book looks at mortgage lending data from 1997, the latest year for which information is available.

Based on the available data, the book showed that lenders in 1997 denied Chicago mortgage applications for 16.4 percent of Asian applicants, 23.9 percent of blacks, 17.1 percent of Hispanics and 12.8 percent of whites.

The denial rate was up from 14.6 percent of Asians a year earlier, but remained virtually the same for other racial groups in the short term. Since 1991, however, the rejection rates have fallen across the board, declining from 18.7 percent of Asians, 36.1 percent of blacks, 21.8 percent of Hispanics and 13.5 percent of whites.

The lenders that made the most mortgages in Chicago in 1997 were First Chicago NBD Mortgage Co., with $317 million; Chase Manhattan Mortgage Corp., with $290 million, and Citibank F.S.B., with $286 million.

Bush says race data are especially important for Chicago, which has what he called the nation's most racially segregated housing market. If a lender seems to be discriminating, neighborhood groups can try to persuade the institution to boost lending in their areas, he said.

Regulators also scrutinize the data and turn serious cases over to the Department of Housing and Urban Development.

The recent shortfall in racial data is partly because banks are not required to collect race information on applications taken over the phone or electronically, methods that more and more customers are using.

David Manning, director of government relations for the Community Bankers Association of Illinois, said Home Mortgage Disclosure Act data can be "very tricky."

He said it is possible that technical violations, which are less egregious than intentional violations, have occurred. It is possible some lenders have forgotten to report race data on refinancings and home-improvement loans, which have become more popular in recent years, Manning said.

He also said it would not be surprising if banks did not ask for race data over the phone, which they may do.

When banks were first forced to ask for racial information in 1991, Manning said, "There was concern that asking would imply to borrowers that race was a determinant in whether they got the loan."

Outside the racial data, Woodstock's fact book shows that the number of loans in Riverdale and Fuller Park rose the most over the six-year period ended in 1997, up 510 percent and 582 percent, respectively.

Mostly that's because these low-income areas had so few loans to begin with. Borrowers in Riverdale, which has a median household income of $7,071, received 61 mortgages in 1997. In Fuller Park, with median income of $8,906, there were 75 mortgages in 1997.

The biggest percentage declines in mortgages granted occurred in the middle-income neighborhoods of Norwood Park, which saw a 21 percent drop over the six years, to 1,163 mortgages, and Edison Park, which had a 26 percent decline, to 386 mortgages.

The Ohio Civil Rights Commission has found there is probable cause to believe Farmers Insurance Co. discriminated against two homeowners in a minority neighborhood.

The Toledo Fair Housing Center filed a lawsuit against Farmers after two black women said the company wouldn't sell replacement insurance policies for their homes because they were built before 1950. The insurance policies pay for the replacement of a home if it is destroyed.

The commission said Thursday that the guidelines of not selling replacement policies on older homes isn't discriminatory, but it has the same effect because a disproportionate number of black people live in older houses.

Los Angeles-based Farmers, the nation's third largest insurer, has two weeks to respond to the commission's decision. The commission will then have hearings and the case could be referred to the state attorney general's office.

Farmers changed its guideline of not writing replacement policies for homes built before 1950 about a year ago, said Jeff Beyer, a spokesman for the company. He said the change wasn't in response to the Toledo case.

Mr. Beyer said Farmers had the guideline because older homes often don't have the market value that new homes do, making a replacement policy riskier.

"The company doesn't practice any kind of racial discrimination," Mr. Beyer said.

Such guidelines, even if they're not intended to, negatively affect minority homeowners, said Ronn Kolbash, a spokesman for the Ohio Civil Rights Commission.

"It doesn't say any blacks who own homes built before 1950 aren't going to be insured," Mr. Kolbash said. "But in this area of town, where mostly African-Americans live, the homes were built before 1950."

The case is similar to one the housing center brought against Nationwide Insurance, which was settled last year. In that $5.3 million settlement, Nationwide denied it had discriminated but agreed to change its policies.

Officials from South Fayette and several other municipalities today will discuss recent problems in the controversial Sanders housing discrimination case.

Among the topics to be addressed at a news conference will be a critical audit of an agency established to move public housing residents to new neighborhoods and a federal funding shortage that may jeopardize efforts to buy new homes in the Sanders case.

South Fayette officials will also discuss an appeal the township filed yesterday with the 3rd U.S. Circuit Court of Appeals. Senior U.S. District Judge Gustave Diamond in November dismissed the township's attempt to block the purchase of nine townhomes for public housing.

The ruling also affected Forest Hills, Hampton, Monroeville, Robinson and Ross, which had joined South Fayette as plaintiffs.

The South Fayette townhomes are among 100 new properties slated to be bought for public housing as part of a 1994 settlement in the discrimination lawsuit that has come to be known as the Sanders case, named after lead plaintiff Cheryl Sanders.

Forty-four homes have been purchased so far and more than 30 more are under sales agreements for purchase. However, there is a question about whether some of those homes will be bought.

The Pittsburgh Post-Gazette reported Tuesday that the U.S. Department of Housing and Urban Development has run out of money to complete the purchase of the 100 homes to comply with the Sanders court settlement.

HUD only has enough money left from a pot of $6 million to buy 21 of the homes under sales agreement, which will bring the number of home purchases to 65. The $6 million was reserved for the 100 replacement homes in 1990 when the Talbot Towers public housing complex in Braddock was demolished.

Attorneys for the plaintiffs in the Sanders case have asked HUD to use funds from a separate public housing revitalization project in McKees Rocks Terrace to buy the remaining Sanders homes until the federal agency finds the money to fund the Sanders case.

The Allegheny County Housing Authority, which buys the homes with HUD money, is opposed to the proposal.

The homes under sales agreement are in Ben Avon, Bethel Park, Castle Shannon, Kennedy, Monroeville, Mt. Lebanon, Pleasant Hills, Sewickley and West Mifflin.

The settlement in the Sanders case was the result of a 1988 lawsuit filed by former residents of Talbot Towers who contended the county and HUD engaged in a decades-long system of discrimination in public housing. The plaintiffs include all blacks in public housing and on public housing waiting lists.

The movement of families from public housing to new neighborhoods as part of a desegregation effort has been hampered because of problems at the Fair Housing Services Center, the agency charged with placing public housing residents in new neighborhoods.

The housing authority placed the agency on 90 days' probation on Feb. 1 because it has failed to meet the requirements of its contract, particularly a condition that the agency place 80 residents in new homes each month. The center has not met the 80-placement requirement for any month since it obtained the contract in December 1996.

The Fair Housing Services Center has also been stricken with internal problems.

The board of its parent organization, the Fair Housing Partnership of Greater Pittsburgh Inc., on Monday fired the center's director, Lisa Dickerson, after just over seven months on the job. Bob Pitts, the board's president, said the board acted on the recommendation of Andrea Blinn, executive director of the center and the Fair Housing Partnership.

Dickerson, 35, of Penn Hills, has declined to comment.

Blinn is now directing the center's operations. As she did Monday, Blinn declined comment yesterday and referred questions about the center's operation to Pitts.

The U.S. Department of Housing and Urban Development has run out of money to buy new homes for public housing in the controversial Sanders discrimination case, prompting attorneys for the plaintiffs to threaten legal action to force the government to pay up.

The money shortage may also jeopardize sales agreements for as many as 30 properties in suburban Allegheny County that are being eyed for public housing by the task force established to carry out provisions of a 1994 settlement in the Sanders housing discrimination lawsuit.

The home purchases have generated considerable controversy over the past two years. Several suburban communities, including Edgewood, Monroeville and South Fayette, have filed unsuccessful suits to try to prevent homes in those towns from being purchased for public housing.

HUD officials in Pittsburgh on March 11 gave the bad news about the funding to the major players in the Sanders case, the Allegheny County Housing Authority and attorneys for the plaintiffs.

That day, for the first time since new homes were bought for the Sanders case two years ago, HUD used its power to veto a group of home purchases recommended by the Sanders Task Force.

The federal government in 1990 set aside $6 million to buy 100 public housing units, as required by the federal court settlement to replace units lost when the 210-unit Talbot Towers complex in Braddock was torn down.

The Sanders case is a class-action suit that includes all blacks in public housing and on waiting lists for public housing. Lawyers for the plaintiffs charged that HUD and the Allegheny County Housing Authority engaged in a 50-year pattern of housing discrimination, in which poor blacks were funneled into public housing in seven communities at the expense of those towns.

Part of the settlement to the 1988 lawsuit requires HUD, through the housing authority, to buy or build 100 new homes for public housing in predominantly white suburbs to meet the settlement's goal of housing desegregation.

Only six homes were bought between December 1994, when the settlement was approved, and last June, but the Sanders Task Force has been on a home-buying binge since then. Forty-four homes have been bought in the past year, and there are sales agreements for another 32. The home-buying frenzy followed two years of inactivity and an order by Senior U.S. District Judge Gustave Diamond that the provisions of the suit's settlement, particularly the home purchases, be met "without delay."

HUD's funding shortage, however, may jeopardize the sales agreements and further delay the purchases. Sanders Task Force members, including representatives from HUD and the housing authority, had expected to meet the 100-unit requirement by early summer.

Richard Nemoytin, head of the Pittsburgh HUD office, was unavailable for comment yesterday. A spokeswoman at HUD headquarters in Washington, D.C., yesterday said HUD was committed to coming up with money to meet its obligation in the Sanders case but had not found it yet.

An attorney who represents the housing authority in the Sanders case yesterday said he was "shocked" when he learned that HUD had run out of money. "It's unbelievable to me," attorney Raymond N. Baum said.

HUD and the housing authority have been aware for quite some time that the $6 million pool reserved for the new homes in 1990 would not be enough to buy the homes in today's dollars, Baum said. He said HUD apparently did not budget for any extra money for the Sanders case in its current fiscal year, which began Oct. 1. "I think the left hand just didn't know what the right hand was doing here," he said.

Baum, on behalf of the housing authority, opposes a recommendation from Sanders case plaintiffs' attorneys that funds be used from a separate public housing revitalization project to pay for the Sanders homes until HUD finds money specifically to satisfy the case's court order.

Thomas Henderson, a lawyer with the Lawyers' Committee for Civil Rights Under Law in Washington, suggested in a letter to HUD last week that housing authority money reserved to buy new homes as part of the revitalization of McKees Rocks Terrace be used to prop up the sales agreements on some of the Sanders homes.

"This funding...could provide the necessary funding to permit units currently being considered to be acquired and/or closed upon without any additional delay," Henderson wrote in the March 19 letter. "This is a workable temporary solution, which will provide sufficient time to resolve the larger funding issue."

Henderson said in the letter that he would file a motion to force HUD to produce the money for the house settlements if the agency did not find an alternative funding source on its own.

Donald Driscoll, another attorney who is Henderson's colleague in the case, contended yesterday that funds for the HOPE VI project at McKees Rocks Terrace and money for the Sanders case were essentially "interchangeable." The $40 million renovation of the predominately black McKees Rocks Terrace will require some of its residents to move to new homes in the county's largely white western suburbs, a process similar to the purpose of the Sanders case. Driscoll said the money from either program could be used because it would accomplish the same goal.

But Baum said the housing authority objects to that proposal because the two programs are separate. He said that taking money from the McKees Rocks project for the Sanders case is not fair to McKees Rocks Terrace residents.

DALLAS – A court order mandating public housing in predominantly white, affluent suburbs was overturned yesterday by federal appeals justices who said "a race-conscious remedy should be the remedy of last resort."

A three-judge panel of the 5th U.S. Circuit Court of Appeals in New Orleans vacated an order issued in 1995 by U.S. District Judge Jerry Buchmeyer and instructed him to come up with a more race-neutral solution to Dallas housing problems.

The court also reversed a declaratory judgment in favor of public housing tenants and continued an order blocking further construction of the projects.

The ruling was a victory for two homeowners' associations that had challenged the construction of two 40-unit projects adjacent to their upscale north Dallas neighborhoods.

"The homeowners groups are very pleased," their attorney, Tom Melsheimer, said last night. "This is the result they were seeking. This decision is a step in the direction of a colorblind society, and I think that's good news for everybody."

But Dallas City Councilman Al Lipscomb said last night that the decision was more of a blight than a blessing.

"All I can say is, the dream that Dr. King had for America has been shattered," he said. "It's obvious to all of us in Dallas County that the city of Dallas has had a direct hand in the denial of housing for blacks and Hispanics.

"We are still trying to extricate ourselves from the tentacles of what institutional racism has done to us."

At least part of the North Dallas housing development – a $4.9 million project that houses 75 families – has been occupied since last May. It wasn't clear how the appeals court ruling will affect residents there.

Lipscomb said the people living in those units have gotten along well with their neighbors and are not creating any problems in the area.

The case originated in 1985 when black public housing tenants complained that they were forced to live in slum areas. In reviewing the history of the case, the appeals justices noted that "the history of public housing in Dallas is a sordid tale of overt and covert racial discrimination and segregation." In 1987, Buchmeyer ordered the destruction of approximately 2,600 housing units.

The controversy continued for years, and because housing officials did not implement ordered changes, Buchmeyer granted a judgment in favor of the public housing plaintiffs, held trial and issued a remedial order against the Housing Authority in February 1995 and against the U.S. Department of Housing and Urban Development in April 1996.

The orders specified that 3,205 new units of public housing be acquired or built in predominantly white areas where the poverty rate did not exceed 13 percent. A "predominantly white area" was defined as less than 37 percent Hispanic, black or other minority.

Homeowners associations in two of those neighborhoods, Preston Highlands and the Highlands of McKamy IV and V, challenged the orders, saying they would be discriminated against and the projects would damage the value of their upscale homes.

In 1995, Buchmeyer rejected the homeowners' contention, a decision that the appeals court threw out yesterday.

"Because there are promising, nonracially discriminatory ways to continue desegregating public housing in Dallas, the provision of the court's remedial order calling for the construction or acquisition of units of public housing in 'predominantly white' areas is unconstitutional," the appeals court ruled.

Saying "a race-conscious remedy should be the remedy of last resort," the court asked Buchmeyer to consider whether a race-neutral or less restrictive remedy should be used.

The justices repeatedly noted that the Dallas Housing Authority has recorded some success in finding homes for poor people using the Section 8 voucher program and suggested that "the public agencies implement a vigorous mobility plan" based on vouchers to find homes for black families and to allow "market forces and personal preferences to control the homemaking decision. ..."

The appeals court noted that between 1994 and 1996, the number of black families living in predominantly white areas increased by 27 percent through the use of vouchers.

"I don't think there's any doubt that the voucher programs ... worked in the past," Melsheimer said. "But it's going to take a lot of work by the part of DHA and landlords to make it work in the future."

"Balderdash," Lipscomb said of the argument. "That's the same as trying to sell someone fried ice cream."

Staff writer Rebeca Rodriguez contributed to this report.

The Clinton administration wants to use undercover testers to get raw data on the prevalence of racial bias in housing and hiring practices.

WASHINGTON – The Clinton administration wants to assemble the most compelling social science evidence ever to demonstrate the persistence of racial discrimination by expanding the use of undercover testing to reveal bias in housing and hiring.

The effort is certain to run into criticism from those who believe the administration is more interested in compelling sound bites than sound social science.

Testing refers to the practice of sending out pairs of white and minority testers seeking, for example, an apartment or a job. Aside from their race, each of the candidates is as alike as possible in terms of the qualities and qualifications that a landlord, real estate agent or employer would be looking for. Those conducting the study can then assess how differently seemingly equal white and black or Hispanic applicants are treated.

The results can prove especially powerful because they combine the composite statistical outcomes of other social science research with the more journalistic impact of the memorable anecdote. Where statistical studies may, for example, show a big gap between whites and blacks on some measures, testing goes a step further toward identifying discrimination as the culprit.

At a time when a consuming portion of the debate about race in America is whether the glass is half full or half empty, testing is still a relatively new and developing field of social science research and is seen by those of a more pessimistic (they would say "realistic") bent as a potent weapon.

Increasingly, says deputy White House chief of staff Maria Echaveste, conservatives contend that discrimination is not a salient feature of American life, that, as a nation, "we're beyond race."

"We need the data that contradicts that," says Echaveste. "We have to get away from just anecdotes."

But to some among those conservatives, the Clinton administration is, predictably in their view, working backward from a desired outcome. Roger Clegg, general counsel of the conservative Center for Equal Opportunity, acknowledges that properly conducted testing can provide useful information. But, says Clegg, "This is an administration that loves the politics of race, and it's getting worse with every tick of the clock."

"This administration knows the conclusions that it wants to come to," says Clegg. "It's going to conclude that America is a sick, racist society and that everyone should elect Democrats."

Abigail Thernstrom, co-author with her husband of "America in Black and White," agrees that the effort smacks more of political gamesmanship than social science. "What do they do when they come up with their inevitable conclusion that everybody's racist?" she asks.

The Clinton effort to expand the use of testing comes at the confluence of two developments. The first is the developing field of testing, and the sense among its practitioners that it is now ready for wider application. The second is President Clinton's initiative on race. His advisory board, in its final report last year, recommended the creation of a national report card on race using the latest data.

While Echaveste says the administration is not yet ready to embrace the concept of a report card indicating the continuing extent of discrimination in various spheres of American life, it is prepared to start developing the data on which grades could be given, and to which the nation could look, in the same way it now looks at labor or education statistics.

Clinton's 1999 budget offers a modest $10 million to begin that process, primarily through what will be the third national testing audit of housing discrimination. Other tests were done in 1979 and 1989.

The Equal Employment Opportunity Commission uses testers on a more limited basis to detect job discrimination, particularly in entry-level hiring where employers tend to be less choosy. But the administration also wants to see where else testing can be used, supplemented by more traditional statistics on discrimination.

Michael Fix, a leader in the development of testing for discrimination, says there is no reason why discrimination cannot be measured like air or water pollution. Fix is director of immigration policy at the Urban Institute, a nonprofit policy research organization in Washington.

"(Testing) is just not a habit of mind within the civil rights enforcement agencies," says Fix. Perhaps in the past, when discrimination was more blatant, such social science evidence was less necessary, says Fix. But in an age of more subtle and sophisticated discrimination, Fix says, testing can reveal patterns of behavior people would otherwise refuse to acknowledge or believe.

Margery Austin Turner, the director of housing research at the Urban Institute, says a next frontier for testing could be in a variety of consumer venues, from big-ticket purchases like cars, where the testing evidence is that blacks pay more than whites for the same car, to the smaller but more constant irritation of discriminatory service at restaurants, typified by the successful suit against Denny's.

"Our view is that testing has tremendous power, both analytical but also for its persuasive power," says Turner. "It's really understandable in an intuitive sense to the everyday public and policymakers."

Consider, for example, the anecdote with which Syracuse University economist John Yinger opens what otherwise might be a typically dry article, entitled "Evidence on Discrimination in Consumer Markets," in the spring 1998 edition of The Journal of Economic Perspectives. The anecdote was derived from a tester audit of rental housing in New Orleans conducted by the Fair Housing Action Center Inc.

"In New Orleans in 1996, a black woman arrived at an apartment complex for an appointment and identified herself to the rental agent," Yinger wrote. "After waiting 15 minutes, she was given a tour. When she asked for an application, the agent said that it was locked in her car. The agent then opened her car door, got in the car and drove away."

But, Yinger wrote, "A short time later, an equally qualified white woman arrived for her appointment and saw the agent speaking with another person. The agent immediately excused herself from the conversation and took the white customer on a tour. After the tour,

the agent handed the white customer an application and encouraged her to put down a deposit on the apartment."

It sure beats a statistical table displaying the results of a regression analysis.

In that same journal issue, University of Chicago economist James J. Heckman challenges the validity and usefulness of testing, arguing that "the evidence acquired from it is less compelling than is often assumed."

For example, Heckman writes, in employment, "audit pair studies have primarily been conducted for hiring in entry-level jobs in certain low-skill occupations using overqualified college students during summer vacations."

Heckman contends that there may be a myriad of ways in which seemingly matched pairs are really not matched, even beyond race, in the eyes of the prospective employer.

If you're an African-American in Kansas City seeking a home loan, expect lenders to welcome you with open arms.

But no matter how much money you make, no matter where you want to live, you're still more likely than a white applicant to leave empty handed.

Call it discrimination with a smile.

The Kansas City Star has analyzed more than a half million area mortgage applications taken by more than 500 banks and mortgage companies from 1992 to 1997, the latest year available.

That analysis uncovered consistent patterns:

– Banks and mortgage companies still do relatively little business among minorities and in minority neighborhoods. That applies to even the biggest banks, which under law must serve their entire communities.

– Lenders still reject minority mortgage applicants far more often than whites. Even high-income minorities are rejected more frequently than whites with lower incomes.

– Minorities make up 19 percent of the population in the Kansas City area, but took home less than 9 percent of the mortgage money lent in 1997. For blacks, that ratio was even worse. They make up 13 percent of the area population, but received less than 5 percent of the mortgage money.

– Most loans made in minority neighborhoods refinance existing debt, and are made by companies that charge higher interest rates and fees.

In white neighborhoods, by contrast, mainstream lenders make most of the loans at market rates. And those loans buy homes – the kind of lending that helps borrowers build wealth.

These patterns don't prove illegal discrimination. The numbers behind them don't say much about the properties being financed or about the credit histories of the applicants.

But taken with interviews with dozens of loan applicants, community activists, bankers and regulators, they show that barriers to minority homeownership still stand.

Lending in minority neighborhoods has increased in the last five years. And in lenders' defense, they're in business, not charity work. They say lending patterns reflect pervasive inequalities – lower incomes, higher unemployment and blemished credit histories – that they alone can't fix.

Lenders also point to their support of special loan programs, redevelopment projects and homeownership training classes. And they emphasize that they receive high marks for their efforts from regulators.

In the end, they say, minority applicants often fail to understand the complex process of buying a home and mistakenly blame discrimination when a lender denies an application.

Indeed, many minority homebuyers do find the process daunting and can't rely on family for advice or financial help in getting a loan.

There is no evidence, however, that minority applicants are bigger risks than similarly qualified whites.

Moreover, blind testing of lenders, government settlements and studies by two Federal Reserve banks show the lending gaps are still too large to be explained away so easily.

And complaints from minority applicants continue.

"The bank was no help in terms of trying to bend over and help us," said Marise Conley, an African-American in Kansas City who filed a discrimination complaint after her mortgage application was rejected by one large local bank but quickly accepted by another.

The first bank "flat turned us down....They acted like they didn't need our business."

Alarmed by the continuing flow of housing discrimination complaints – nearly 50,000 since 1993 – the U.S. Department of Housing and Urban Development recently announced a nationwide investigation of the problem.

"Housing discrimination is much more insidious today than it was two or three decades ago," said U.S. Housing Secretary Andrew Cuomo. "Minorities not only face slammed doors but revolving doors, as well – doors that keep them moving in circles and lead nowhere but to confusion and frustration."

The issue is crucial because homeownership, propelled by that first mortgage, is still the foundation of the American Dream.

The keys to one's own home unlock a series of economic doors, including access to better schools, better jobs and safer neighborhoods.

Equity in a home can secure a business loan, lead to a more comfortable retirement, or help pay for a child's education or home purchase.

The benefits multiply across families, neighborhoods and generations.

Or not.

Blatant redlining – where bankers drew lines around minority neighborhoods and refused to lend there – is a thing of the past, most experts say.

But if you want to walk the line where the bucks stop in Kansas City, pull out a map and trace a line down Troost Avenue, south of the Missouri River.

Cross from the west to the east – where most residents are African-American – and the number of home purchase loans per 1,000 residents drops by 74 percent. Dollarwise, lending almost evaporates.

To a degree, that's logical. Fewer people own homes east of Troost. Fewer people apply for loans. And houses are cheaper.

But residents east of Troost who did apply for home purchase loans were far more likely to be rejected – three times more likely than those to the west.

That gap shrinks when you include applicants for refinancing and home equity loans, but East Side residents were still 2 1/2 times more likely to be rejected.

Similar patterns are repeated on the West Side, in the Northeast area of Kansas City and in the Quindaro neighborhood in Kansas City, Kan. – all areas with a high percentage of minority residents, few loan applicants and higher loan rejection rates.

Those are also Kansas City's lowest-income neighborhoods. But lending gaps are not simply a question of income.

In 1997, lenders rejected 22 percent of high-income black mortgage applicants in the Kansas City area, almost three times the rejection rate for high income whites, and far more than the 13 percent rejection rate of middle-income whites.

In fact, high-income black applicants were rejected at about the same rate as low-income whites.

And it's not just the neighborhood. Areawide, lenders rejected black loan applicants more than twice as often as whites in 1997.

Among applicants for conventional home purchase loans – the group of applicants typically cited in national studies – the disparity was the 11th highest among the 40 largest metro areas in the country.

For blacks, the rejection rate for conventional home purchase loans was 30 percent, vs. 14 percent of whites. Among Hispanics, the rejection rate was 26 percent.

High rejection rates alone don't add up to discrimination. But they do speak to the chronic inability of minorities to build wealth, and they form a potent psychological barrier.

"A lot of the people we see are afraid to go to the banks," said Sandra Rayford of the Black Economic Union, a nonprofit real estate developer on the East Side. "They fear rejection."

The first time Donna and Michael McCarty applied for a home loan, they waited four months for an answer. After assurances from their loan officer, they put a contract on a house. Then they got rejected.

"When we see something now, we hold back 'cause we don't want to go through that pain again," she said.

Community activists acknowledge that income, debt and credit problems account for much of the lending gaps.

But not all of it.

"There just aren't that many banks willing to lend in the 'hood," said Emmet Pierson of the Community Development Corp. of Kansas City, a nonprofit developer.

Only a third of the lenders who did business in Kansas City in 1997 made a home purchase loan in a minority neighborhood.

Mortgage companies have no obligation to serve specific areas. And those that buy loans from small banks and brokers often spurn loans below an established dollar amount, said Cary Valentine, a local mortgage broker. He calls that "a camouflage way to redline a neighborhood."

Banks and savings banks are obligated by the Community Reinvestment Act of 1977 to make loans in the communities where they take deposits, but only a handful of small banks have branches in or near minority neighborhoods.

Even the city's largest institutions – those that do business everywhere – make few loans in minority neighborhoods. Capitol Federal Savings, the largest mortgage lender in the city and the biggest lender to minorities, took only 2 percent of its 3,542 applications in minority neighborhoods in 1997, and made just 42 home purchase loans.

NationsBank, the city's largest commercial bank, made 35 home purchase loans in minority neighborhoods. Commerce Bank made 10. UMB Bank made two.

By contrast, Douglass National Bank, the city's only black-owned bank, and one with less than 1 percent of the assets of UMB and Commerce, made 17 such loans.

Janice Perkins has sold homes in the Kansas City area for 20 years. She says many lenders give the impression that they're reaching out to minority neighborhoods – and a few truly are. But in her experience, few banks are prepared to process these borrowers' applications in a timely fashion.

And for many applicants, a loan delayed is a loan denied.

Yvette Richards spent seven months getting "application-ready" for a local bank, with regular help from a loan officer.

When she applied for the loan, however, the bank took nearly five months to approve her application. By that time, she lost the East Side home she had contracted to buy.

When she asked for $3,000 more to purchase the home being built on the next lot, the bank took another three months to approve that loan. Richards ultimately got the loan and bought the house, but she's still incensed about the experience.

"I don't think they cared," she said. "They live in the suburbs, and they think I live in some kind of shack in the inner city."

A cultural gap

According to a 1997 survey by mortgage giant Fannie Mae, nine in 10 African-Americans still feel they suffer from lending discrimination some or most of the time.

But discrimination is different today, minorities say. Instead of overt bias, applicants say they face subtle discouragement, delays and additional requirements – discrimination with a smile.

"They'll go through the motions of providing you with the information and letting you fill out an application," said Thomas Randolph, executive director of the nonprofit Kansas City Fair Housing Center. "But behind the scenes, there are other things going on that prevent you from getting the loan."

By some estimates, 80 percent of Americans have some blemish on their credit report, such as a late pay or collection. Minorities, however, say they rarely get the benefit of the doubt.

The Federal Reserve Bank of Boston tested that suspicion in a landmark study that examined complete loan files for more than 4,000 applicants.

After controlling for neighborhood, employment and credit, the study found that lenders rejected minorities 60 percent more often than whites, and that "lenders seem to be more willing to overlook flaws for white applicants...."

The lending industry and various academics condemned the study. But later research by the Federal Reserve Bank of Chicago affirmed the results and blamed them on a "cultural gap between white loan officers and marginal minority applicants."

Danny Macias, a local real estate agent with a large Hispanic clientele, has stopped sending applicants to banks without Spanish-speaking officers. He says loan officers need to be able to communicate directly with the borrowers and put their background in a cultural context. Otherwise, applicants face skepticism, delays and denials, and may abandon the process altogether.

Richard Lazen fell into that gap when he applied for a mortgage pre-approval at Norwest Mortgage Inc. He says the loan officer refused to come to his Midtown home and declined his offer to come to her office. Instead, she insisted they meet at a local McDonald's restaurant.

A Chilean immigrant, Lazen also had changed his name when he became an American citizen and once worked under a different Social Security number. He knew that might make the loan officer uneasy, but says he wasn't prepared for the level of skepticism he faced when he volunteered the information.

He also was shocked when the loan officer found fault with his English and reprimanded him for an unpaid phone bill on his credit report.

Lazen filed a discrimination complaint with the local office of Fair Housing and Equal Opportunity.

"They asked me if I was seeking financial compensation," Lazen said. "I just wanted to be treated fairly. All I wanted was a loan."

Lazen's application was eventually handled personally by Norwest's branch manager. He has high praise for her courtesy and professionalism. When Lazen was asked to drop the complaint, he agreed.

The branch manager, Marion Mills, said she can't discuss specifics because of Lazen's privacy concerns. But she emphasized that the complaint was withdrawn and that Lazen was ultimately pre-approved for a loan.

Lazen still is convinced, however, that his original loan officer was sending a signal. Minorities say those signals still abound.

Take the lack of bank branches in minority neighborhoods. There are only two east of Troost, between Independence Avenue, 63rd Street and Interstate 435, none on the West Side, and only two in the Northeast area.

"It's a glaring deficiency," said Sylvester Holmes, president of the Black Economic Union, which is helping redevelop the 18th and Vine Jazz District and several residential projects. "Bankers no longer have the excuse they did 25 years ago. There are businesses here."

Lenders also do little advertising in minority neighborhoods or in minority media, a point underscored by local advocates.

"Anyone who does retail sales knows that if you're going to sell a product, you've got to sell it," said Michael Duffy, a lawyer at Legal Aid of Western Missouri.

At the largest banks in the area, blacks and Hispanics make up a small percentage of bank employees -- less than 8 percent of the professional and managerial staff at NationsBank, Commerce Bank, UMB Bank, Capitol Federal and Bank Midwest in 1996 and 1997, according to documents filed with the U.S. Department of Labor. Together, blacks and Hispanics make up about 16 percent of the area population.

"When you go into a bank and see people who look like you, you're more comfortable," said Terry Hendricks, a former banker who now runs an assistance program at Community Development Corp. of Kansas City.

Most large banks do employ a "community reinvestment" loan officer. But that's typically just one officer among many who solicit business in more affluent areas.

Even people who find the right loan officer, enter a special program and follow the guidelines can slip through the cracks.

Deborah Smith went through homeownership training. She painstakingly repaired her credit record, budgeted and saved. The city pre-approved her for its subsidized loan program.

And when she went to NationsBank in May 1997, she says she explained her past credit problems in great detail.

The loan officer assured her that her application looked approvable, and that she should have an answer in two to three weeks, according to the discrimination complaint she filed with HUD.

Five months later, she received a written answer from the bank with several boxes checked – insufficient credit references, insufficient credit file, limited credit experience, credit problems. "After carefully reviewing your application," it said, "we are sorry to advise you that we cannot grant you a loan."

"I wasn't making a ton of money, but I was making enough," she said.

Commerce Bank's mortgage company thought so. Smith's application sailed through in less than a month.

Lenders typically offer little comment on individual complaints.

NationsBank, however, blames Smith's denial on credit problems. The delay, bank officials said, was probably due to processing bottlenecks following NationsBank's merger with Boatmen's Bancshares.

"Our main objective in this community is to make loans," said Bill Nelson, president of NationsBank in Kansas City. "We do not turn down any (borrowers) for any reason other than credit problems or insufficient income."

To eliminate possible bias, many lenders have adopted review policies for rejected minority applications.

NationsBank reviews rejected minority applications three times – twice in Memphis, Tenn., and once in Dallas, Nelson said. "We don't do that for someone who is not a minority."

Most large area banks can point to a long list of programs that satisfy the Community Reinvestment Act, a federal law that obligates banks to serve their entire community.

Even then, making the loans isn't easy.

"Nobody is applying in certain areas," says Turner Pettway, who directs homeowner education at the Kansas City Neighborhood Alliance, a nonprofit developer. "The desperation for lenders is that 'I've got to have these dots on the map. I've got to have loans in this neighborhood."'

Responding to pressure from community groups, UMB Bank committed two loan officers specifically to low-income and moderate-income lending in 1995 and 1996, said Reggie Smith, senior vice president in UMB's residential lending department.

"The volume we got didn't justify two people," he said. "It was nowhere near what you'd get from the same two people in another area."

Moreover, lenders say many of the low-income applicants they do get are one paycheck away from a credit crisis. Those kinds of borrowers are poor risks.

Banks also must consider the neighborhood risk. When a bank lends in a distressed neighborhood – even if the home is new – the value of its collateral might fall over the long term.

Also, many borrowers are making low down payments or getting grants for their closing costs. If something goes wrong, they have little of their own money committed to the home.

Even if the borrower pays like clockwork, the loan may not be profitable.

"The paperwork for a $20,000 loan and a $200,000 loan are the same,"said Dwight Johnson, president of Creative Capital Investment Bancers, a minority-owned mortgage firm. "But a broker makes $400 on the $20,000 loan and $4,000 on a $200,000 loan."

"It's no mystery which one everyone wants to do," he said.

Commerce Bank of Kansas City has pushed hard to increase its low-income and minority lending through citywide partnerships.

But it costs $1,600 to originate even a $40,000 mortgage loan, according to industry surveys. When Commerce sells that loan on the secondary market, it might receive just $450.

"This is not considered a profit-making area of the bank," said Jonathan Kemper, chairman of Commerce Bank of Kansas City.

Nor is the proposition to put branches in distressed neighborhoods, said Nelson.

According to NationsBank's analysis, it would take 10 years for a new inner-city branch to break even.

"We like to see a branch turn a profit in three years," he said. "We could live with five. It's difficult when you're looking at 10 years."

From 1992 to 1997, the number of home purchase loans made annually to African-Americans in Kansas City has almost tripled. But that amounted to just 1,622 loans in 1997, compared with 25,243 made to white borrowers.

Community groups praise banks for the lending increases, but say banks can't take all the credit, or rest on their past performance.

"They don't do these reinvestment programs of their own volition," said Jefferson Edwards, head of the banking committee at the Concerned Clergy Coalition in Kansas City.

After watching several local lenders backslide on verbal commitments to increase inner-city lending, Edwards said, the clergy group started issuing annual "report cards" that grade lenders' reinvestment performance.

"If you don't keep the pressure on," he said, "they go back to business as usual."

For many borrowers, the doors to homeownership have been kicked open by public loan programs that reduce lenders' exposure and risk on inner-city loans.

The Housing and Economic Development Financial Corp. has helped banks make about 800 such loans in Kansas City since 1992 – loans that have shown strong performance and generated profits for lenders.

"We've made a dent," said Joe Egan, chief operating officer. "But when you look at the volume of lending in this city, it isn't much."

Consequently, three decades after fair lending and community reinvestment laws were instituted, community groups say their basic concerns have not changed.

The homeownership rate among African-Americans in Kansas City remains anchored at 45 percent, vs. 71 percent for whites.

Those numbers have long-term implications for the urban core as it struggles to retain residents and rebuild its tax base.

Moreover, community groups bemoan the megamergers and consolidations that are remaking the lending industry, as they think it will ultimately amount to a loss of local control and a lack of commitment to community reinvestment.

Said Roy Fowler, a consultant for the Urban League of Greater Kansas City, "Until an African-American or Hispanic consumer can walk into a major financial institution and be treated as a serious consumer, versus one they're forced to work with, you're going to keep seeing what you've got."

Upper-income blacks were denied mortgages at more than twice the rate of whites making similar amounts of money in Metro Detroit in 1997.

What's more, the higher the income, the more race was an indicator of whether a home loan was approved, a Detroit News analysis of mortgages from 1992-97 shows.

"People need to understand this (disparity) is very prevalent. The people with the pencils are very powerful," said Carl Simmons, who was denied several loans, despite his $100,000 income, good credit and solid northwest Detroit neighborhood.

Banks and civil rights advocates differ on why there is a disparity: Banks say blacks tend to have fewer assets, making down payments more difficult. Representatives of civil rights agencies such as the NAACP and the Fair Housing Center, a watchdog housing discrimination group, say there are blatant cases of racism in lending.

But blacks are not the only ones to face racial disparity. Low-income whites are denied home loans almost twice as often as blacks in the same income category, a trend that puzzles some housing experts.

The analysis by The News found:

Thousands of upper-income black families in Detroit and throughout its suburbs were denied mortgages in the 1990s. For 1997 alone, the most recent data available, 14 percent of blacks who made more than $64,000 were denied mortgages, compared with 6 percent of whites with the same income.

The problem is worse for refinancing and home improvement loans. In 1997, 20 percent of upper-income blacks were denied such loans compared with 8 percent of whites.

After several years of improvement, denial rates for blacks leveled off in 1997, but show signs of creeping up again, experts say. In 1996, high-income blacks faced a 13-percent denial rate. A year later the denial rate had increased about 1 percentage point. The denial rate for whites rose about half a percentage point.

Black applicants face more scrutiny than white applicants from bank officers, according to the Fair Housing Center of Metropolitan Detroit, which sends testers – black and white applicants – to apply for loans and notes differences in treatment.

In addition, a formula intended to more fairly assess a mortgage applicant's credit history actually may favor whites, said Allen Fishbein, general counsel for the Center for Community Change, a Washington, D.C., housing rights advocacy group. Known as credit scoring, it assigns a three-digit score to loan applicants.

Home loan denials have a ripple effect that hurts the area's economy, because homeownership helps build a middle class and stabilize a city, said Michael Schill, director of New York University's Real Estate and Urban Policy center.

"One major way to join the middle class is to accumulate assets as a homeowner," he said. "If people can't get on that ladder we will continue to see wealth discrimination by race."

Simmons, 59, knows from personal experience how difficult it is to get a home loan. He tried to refinance the 17-percent loan on his Mayfair Park house in northwest Detroit in 1987. He had good credit, little debt and earned more than $100,000 a year as a journeyman tinsmith at General Motors Corp.

But Huron Valley Mortgage of Farmington Hills turned him down.

"They said it was a bad neighborhood, but it's not," said Simmons, one of the first blacks to move to the block. "I don't think they ever even looked at it."

After a lengthy battle, he won a $6,000 settlement against Huron Valley. The company closed in 1991.

Eventually Simmons refinanced through a GM program. But his problems didn't end there.

He made extra payments, reducing a 30-year mortgage to 17 years. In 1997, when it was almost paid off, he applied for a home equity loan on his house, now worth more than $100,000 -- triple what he paid for it.

First Federal of Michigan in Detroit denied the loan, saying his son had defaulted on a loan Simmons had helped him get.

"I hate debt, I pay everything off," Simmons said. "Yet I can't get a loan for anything."

He finished paying off his house and tried for a home equity loan again in 1998. This time First Federal approved the loan. Nothing changed, Simmons said, except he paid the remaining 5 percent of the mortgage loan.

First Federal would not comment on the loan, but often an extra year without credit problems will reassure a bank that a borrower is a good risk, said Bruce E. Ruffin, the bank's manager of community services.

Banks defend decisions

Isolated cases don't signify widespread discrimination, lenders say.

"We can't afford to" discriminate, said Mike Lyon, residential mortgage manager at Michigan National Corp. in Farmington Hills. "It's in our best interest to originate and approve every loan applicant who comes in the door."

Even with those efforts, upper-income blacks applying for refinance and home loans at Michigan National Corp. in 1997 faced a 14.3-percent denial rate; for upper-income whites it was 8.1 percent.

Walter Watkins, NBD's newly appointed vice-president, said his bank is making an effort to attract more minority borrowers and ensure the loan process remains fair.

"We have training on a consistent basis. ... We have continued our efforts to recruit minorities and diversify our staff," Watkins said. "We have increased our efforts to recruit mortgage originators who are African American."

The bank's denial rates are among the lowest of large lenders in Metro Detroit. But they still showed a gap between the races. Upper- income blacks faced a 1.1-percent denial rate for mortgages and refinances; whites faced a 0.6-percent denial rate.

Many banks have had homeownership fairs and in some cases opened branches in minority neighborhoods to better serve black applicants.

Those efforts may help some. Among lower-income blacks, more than 40 percent were denied mortgages in Metro Detroit in 1992. In 1997, 27 percent were denied loans – an improvement of 13.8 percentage points.

But among upper-income blacks, the improvement between 1992 and 1997 denial rates was just 4.6 percentage points. Middle-income blacks saw even less of an improvement – just 3.5 percentage points between 1992 and 1997 denial rates.

Blacks face more scrutiny

Dolores Lawson thought she knew what to expect when she and her husband, Berkley, decided to refinance their $65,000 northwest Detroit home. As a homeownership counselor, her success stories include guiding an 18-year-old homeless woman into a mortgage.

But three months into the process, they were denied even after they wrote a letter explaining Dolores' recent surgery and met other requests.

"I was so outdone. Why do they need to know all of that?" Lawson said. "The mortgage was not even in my name; it was in Berkley's."

Housing discrimination experts say the Lawsons' plight is common.

"African Americans are much more scrutinized than their white counterparts," said Veronica Williams, director of Detroit's Fair Banking Alliance, a community group which monitors lenders for discrimination. "There are just so many more questions, especially when the applicant is an African American."

In the Lawsons' case, Norwest Mortgage said the couple didn't have enough assets, and refused to count over $8,000 in a 401(k) account, claiming it was "forced savings," Berkley Lawson said.

The Lawsons had an ally, though.

The loan processor thought the underwriter – who approves the loan – was not being fair, so he appealed the case to a bank executive. A few weeks later, the Lawsons got their loan.

Still, the couple was advised to file a complaint with the Fair Housing Center. The investigation is ongoing. But Norwest said the underwriter no longer works for the company. Attempts for additional comment from Norwest were unsuccessful.

Norwest denied refinance and mortgage loans to 21 percent of upper-income black people, such as the Lawsons, while denying 5.5 percent of upper income whites.

Ruffin of First Federal advises anyone who suspects discrimination to complain to the bank. Loudly.

In 1993, he won a $15,000 racial discrimination settlement against First Nationwide Bank, after he tried to buy a West Bloomfield house owned by the bank. As he pursued the deal, details – including the sales price – started to change, according to Fair Housing Center records. Center testers helped back up his case.

Ruffin won't talk about specifics of the case because of his position then and now as a bank vice-president. But he said the whole situation has sensitized him.

"The seniors at the top always want (fair treatment for customers), but it doesn't always happen that way on the line," he said.

One problem is loan officers are paid on commission. For loan officers in the city, it may take five $10,000 deals to equal one $50,000 deal in the suburbs, Ruffin said. City loan officers salaries are considerably less than suburban loan officers, Ruffin said.

"They may break their neck to get the $50,000 deal and step on the $10,000 deal," he said. "Many times it's not purposeful discrimination, but it's a lot more work in the city. (Applicants) may not save paycheck stubs or know what will be asked of them. In

the suburbs, deals walk themselves through. We have to work harder to make sure people aren't wronged."

Southfield economist Karl Gregory, who is African American, said blacks are held to a higher standard even when assets are equal.

"Whites can have a load of debt ... with mortgages on homes in Traverse City, but blacks get called into question for having high credit debts," said Gregory, professor emeritus at Oakland University's business school.

The Fair Housing Center has documented several cases of that type of extra scrutiny for black applicants by sending in black and white testers to apply for loans.

"We found differences in the terms of the loan and differences in how people were encouraged to work through different real estate companies based on their race," Center Director Cliff Schrupp said. "Some of the more glaring stuff is in a case that's in litigation right now and I can't talk about it."

That case is a lawsuit against Flagstar Bank of Bloomfield Hills. According to court documents, black and white testers were treated differently when they posed as mortgage applicants at Flagstar. Attempts to reach company officials for comment were unsuccessful.

In July 1994, a black tester visited an Ann Arbor Flagstar office and was steered toward homes in Ypsilanti, which has a significantly higher African-American population. The white tester was neither encouraged nor discouraged from considering either city. In the same test, the white tester was informed of a possible discount on closing costs, while the black tester was not, according to court documents obtained by The Detroit News.

Also in July 1994, a black tester visiting a Flagstar office was encouraged to consider housing in Rosedale Park, a predominantly African-American neighborhood in Detroit. A similarly qualified white tester was referred to the East Village area of Detroit, an east side neighborhood with a large white population.

Lack of wealth

Kimberly Garner, 30, of Detroit, earns more than $100,000 a year, but a lot of that goes toward "keeping up the show," she says, pointing to a home, car and clothes that reflect her upper-income lifestyle.

She represents another trend that means fewer home loans for blacks. Many experts say the disparity in denial rates is due to a lack of generational wealth and assets among blacks – a critical ingredient for a down payment.

For Garner, who also helps pay for college expenses for her nieces and nephews, saving money is a struggle.

"After taxes ... and during that process of trying to help them come up, you're really making $50,000 a year," Garner says. "You feel obligated to give back to the family and the community and your expenses have gone up. It's an everyday struggle. You want to help your friends and family but don't want to give up the things you have."

On average, blacks who make more than $50,000 a year save half as much as whites each month, not including retirement funds, according to a survey by Ariel Mutual Funds and Charles Schwab & Co. Inc.

Minority families had about one-fifth the assets whites had in 1995, which includes assets such as cars, stocks and retirement funds. The median white family had a net worth of $74,000; the median minority family had $16,500.

About 75 percent of all families carry some debt, but blacks carry relatively more on less income.

In 1995, the median black family had about $34,000 in credit card and other nonmortgage debt; whites had about $42,000 in debt, Federal Reserve Board statistics show.

But blacks are paying off that debt with about two-thirds of the income of whites. Add to that smaller and fewer inheritances for blacks and that means less overall wealth and more difficulty getting a home loan, lenders and other housing experts say.

"It's not that they don't know how to handle money," said Don Davis, chairman of the minority-owned First Independence National Bank of Detroit. "It's just that they never had the opportunity to handle money, which is different. It takes time to learn how to have the discipline to handle money."

Many blacks have made inroads into high-income jobs, but some still have poor credit and few assets that help them build wealth.

"The assumption tends to be, 'Because I make more money I may have more access to credit,"' said Richard A. Collister, Comerica executive vice-president. "But just because a person makes more money doesn't mean they have the other things that are important, like a good debt-to-income ratio or a good credit history."

But a lack of assets, which prevents so many blacks from owning a home, has a lot to do with the banks' own practices, said Schrupp of the Fair Housing Center.

Whites, for example, move every five to seven years, cashing out the equity in their home and usually moving to a bigger home.

Blacks, on the other hand, tend to move less, and many black neighborhoods tend to appreciate less. When they can't get a loan and don't have much money to move up, they stay, perpetuating the cycle, experts said.

"There is a critical, vicious cycle going on here," said Susan Wachter, chairperson of the real estate department at the Wharton School of Business at the University of Pennsylvania. "(Whites) are able to move up. They'll have the wealth to trade up. (But) blacks may have a locked-in effect where the value of their house hasn't gone up sufficiently or it's even declined. So they can't access the equity in their house."

In addition, more mortgage lenders use credit scoring to determine who is approved for mortgage loans. Credit tracking agencies say the method is fair, but critics suggest the method is unfair to minorities because of their history of alternative financing.

Traditionally used for credit cards, credit scoring has been touted as an objective formula that can assess how likely an applicant will pay back debt. An ideal score ranges from 650-800. Timely payments increase the score; too many credit cards lower the score.

"Our concern is that the mortgage market is changing quickly with credit scoring and increased automation," said Fishbein of the Center for Community Change. "And we know minorities do poorly when that happens.

"Credit scoring penalizes African Americans because many of them have had to use alternative financing when banks turned them down in the past for loans and the credit scoring system does not look favorably on alternative financing methods."

Discrimination 'insidious'

Fighting discrimination and knowing when it occurs can be a murky problem. Detroiter James Stephenson, a 32-year-old married postal worker, sought help from the Fair Housing Center after Towne Mortgage of Sterling Heights denied him a loan on an eastside home in 1995.

A homeowner already, Stephenson had applied for a $18,000 mortgage on a duplex but had difficulty meeting the bank's requests. The mortgage company also required a 20 percent down payment on the loan.

"It was nothing more than a car loan," Stephenson lamented. "The majority of the time, people don't know they're being discriminated against because they don't understand how lending works.

"I kept satisfying the reasons and they kept changing the questions. It was up to the time the closing came and there was another reason. That was the final denial."

But Towne officials have a different story. Stephenson was not discriminated against, but decided to drop the loan request when bank officials asked him to extend a fire wall in the duplex, mortgage company owner Don Calcaterra said.

The case had no merit, Calcaterra said, still bitter over the lawsuit settlement, which netted Stephenson at least $100,000.

"It was all about money," Calcaterra said. "It had absolutely nothing to do with race, not even remotely."

Stephenson's case shows just how difficult it can be to determine if a potential borrower was discriminated against. Mortgage discrimination lawsuits are rare, in part because of that difficulty, housing activists said.

Of the 254 cases handled by the Fair Housing Center of Metropolitan Detroit last year, only five dealt with mortgage financing discrimination. The rest involved rental housing or home sales.

Wading through the bureaucracy makes building a case very difficult, Fair Housing Center director Schrupp said.

"But we're getting better at it. Sometimes you have people who are not policy makers who are causing the problems. (But) some institutions have made willful decisions not to loan to blacks," Schrupp said.

Home lending discrimination exists, said Mark Magidson, the attorney who handled Simmons' case. "It's still very insidious and easily covered up with bureaucracy."

Often victims are unaware discrimination has taken place, since nearly everyone has at least one late payment in their credit history, Magidson said. Others don't want the hassle of a court fight, or settle for a higher-interest loan elsewhere.

Southfield attorney Stephen Tomkowiak is among the few attorneys nationwide who handle mortgage discrimination cases, and he knows that often answers are hard to find.

"It's not a hard and fast thing," he said. Discrimination "is rarely overt."

In this Detroit News special report:

Poor whites hit

Loans denied: Whites making $27,000 a year are refused twice as often as blacks, according to a mortgage analysis.

Scoring hurts

Critics: Home lenders adopt a credit scoring system, which upsets some civil rights advocates.

Bias suggested

Detroit: Blacks have always found it difficult to buy homes or qualify for mortgages in one of the nation's most segregated cities.

Help available

Financing: Fannie Mae and NAACP offer $110 million loan pool for qualified buyers.

5-month Detroit News mortgage analysis shows:

Upper-income blacks were denied home loans twice as often as whites with the same income.

Black families generally have less accumulated wealth, which contributes to the disparity.

Black applicants are scrutinized more closely than white borrowers.

This page was last updated on 23 April 1999