Drawn in thick marker along the map of upstate New York, the line snaked down the Niagara River and zigzagged east to outline a swath of Buffalo and its surrounding neighborhoods.
But one area of the city — neighborhoods in east Buffalo, where more than 75 percent of the city’s African-American population lives — was explicitly excluded, cut off from access to mortgage credit.
That map, ringed by a line, is at the center of a sweeping investigation by the New York attorney general, Eric T. Schneiderman, into whether banks are “redlining” — deliberately choking off mortgage lending to predominantly minority communities.
The investigation reached its first target on Tuesday, with Mr. Schneiderman’s office taking aim at Evans Bank, a regional lender whose business in the Buffalo area dates to 1920, accusing it of denying mortgages to African-Americans regardless of their credit.
The case, accusing Evans Bank of violating the Fair Housing Act — a federal law intended to ensure equal access to credit — is a harbinger of other lawsuits that could be brought against some of the nation’s largest banks, several people briefed on the investigations said.
In the suit, filed in state court, prosecutors outlined how, since 2009, Evans Bancorp has created a map that defined the “trade area,” places in the Buffalo metropolitan region where the bank would make mortgages and other loans. The bank, prosecutors contend, deliberately excised much of Buffalo’s East Side.
Rival banks, the authorities said, lent to neighborhoods on the East Side at a far higher rate than Evans Bank, suggesting that thelending patterns did not stem from a dearth of willing minority borrowers.
“We believe that the allegations being made by the New York State attorney general are unfounded and without substance, and we will vigorously defend this complaint through the legal system,” David J. Nasca, president and chief executive of Evans Bank, said in a statement, adding that he was “disappointed” to learn about the pending action.
Mr. Nasca said the bank was “confident that our residential lending practices meet all applicable laws and regulations.”
Also in a statement, Mr. Schneiderman said, “It is crucial that all New Yorkers, regardless of the color of their skin or the racial composition of their neighborhood, be afforded an equal opportunity to obtain credit.”
The suit offers a detailed look at the uneasy state of lending in the United States. In the heady days before the 2008 financial crisis, as Wall Street’s mortgage machine hummed, the nation’s largest banks made loans in black and Hispanic neighborhoods, although often at steep rates. Since then, though, the authorities nationwide have grown concerned that the pendulum has swung too far in the opposite direction, creating a patchy credit drought as banks refuse to lend in those same minority communities where credit once flowed.
That unequal access to credit, the authorities say, threatens to exacerbate the country’s yawning wealth gap. Part of the problem is that the foreclosure crisis disproportionately affected black and Hispanic communities, wiping out billions of dollars of housing wealth, federal mortgage data shows.
Mortgage lending is critical, the authorities say, to bolster homeownership — a cornerstone of upward mobility — in minority communities still trying to dig out from the recession. Denied access to credit, state and federal authorities warn, minority communities are helpless to address problems like boarded-up homes, foreclosures and blight that have long ravaged neighborhoods.
Pointing to the damage wrought, in part, by such problems, the City of Providence, R.I., sued Santander Bank in May, accusing it of systematically refusing to lend in predominantly minority neighborhoods. From 2009 to 2012, the lawsuit said, new mortgages in Providence’s white neighborhoods proliferated while those in minority neighborhoods plummeted by 63 percent a year from the number of new mortgages made in 2006 and 2007.
“It’s a civil rights issue,” said John P. Relman, the lead lawyer in the suit against Santander.
“We categorically reject this accusation and we will vigorously defend ourselves against the legal action,” said a spokesman for Santander, which is fighting the suit. “However, we are willing to work with the City of Providence to allay their concerns.”
Providence is not alone. The city’s lawsuit is one of many cases that have been filed against banks in the aftermath of the financial crisis. The Los Angeles city attorney, Mike Feuer, sued JPMorgan Chasein May, accusing it of both reverse redlining — the practice of steering minority borrowers toward expensive, predatory loans — and traditional redlining.
In a kind of perverse symbiosis, the lawsuit against JPMorgan argues, one practice depends on the other. Reverse redlining comes first, making it difficult for minority communities to obtain loans, except at high rates. Once those loans sour, though, minority communities are left in a credit drought, the suit says.
“These foreclosures often occur when a minority borrower who previously received a predatory loan sought to refinance the loan, only to discover that JPMorgan refused to extend credit at all,” the suit says. The action against JPMorgan came on the heels of similar cases against Wells Fargo and Bank of America.
The original lawsuit against JPMorgan was dismissed, but the city is refiling.
The term “redlining” traces back to the 1930s, when the Federal Housing Administration used red ink to designate areas that the housing agency considered far too risky to receive loans. Since then, the term has come to describe how banks would draw a red line around areas they refused to lend in.
Such a line figures prominently in the lawsuit expected against Evans Bank, according to a copy of the suit reviewed by The New York Times.
Outlining the geographic region where it focused its business, Evans Bank drew a line “bisecting the city,” according the suit. Outside the line — a boundary that prosecutors said excluded “all of the majority African-American neighborhoods” in Buffalo — the bank did not solicit customers or extend mortgage loans.
The city was already racially segregated, but prosecutors contend that Evans Bank’s lending practices only aggravated the divide. Buffalo, a city that, like many along the East Coast, has been battling a prolonged economic downturn, ranked as one the most highly segregated large metropolitan areas in the nation, according to 2010 census data.
The redlining “has had damaging effects over time,” prosecutors say in the lawsuit, “contributing to increased vacancies due to unavailability of new purchase loans and increased deterioration of housing stock.”
Virtually all of the bank’s efforts to attract customers were focused within its so-called trade area, prosecutors say. The “vast majority” of Evans’s print marketing efforts appeared in local newspapers that were not circulated on the East Side of Buffalo, the suit says. Evans Bank also clustered its branches in predominantly white neighborhoods, according to prosecutors. Of its 14 branches throughout New York State, 11 were in Buffalo’s suburbs, which largely consist of white borrowers.
The lending policy at Evans, prosecutors say, walled off people living outside the trade area from qualifying for certain products at all, regardless of their creditworthiness. For example, one loan product, Evans Community Solutions, was available only to borrowers living within the bank’s trade area.
Poring over reams of information from the Home Mortgage Disclosure Act, a federal law requiring banks to report data on their loans so that regulators can identify patterns of racial discrimination, prosecutors discovered a lending gulf. From 2009 to 2012, the data shows, Evans received 1,114 applications for residential mortgages, but only four — or less than 1 percent — came from applicants who identified as African-American.
Because some areas in Buffalo were hit harder by the foreclosure crisis, it makes sense that all lenders, including Evans Bank and its rivals, received fewer applications from minority borrowers.
Still, prosecutors say, Evans Bank’s lending in African-American communities lagged behind its rivals. Compared with other banks that maintained a branch in Buffalo, prosecutors found that Evans “drew mortgage applications from African-American borrowers and East Side borrowers at by far the lowest rate,” the lawsuit says.
Even banks without an office in Buffalo, prosecutors say, managed to make more loans to African-American borrowers in the area at more than “double the rates that Evans did.”
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