Risky business: How KC means to get banks lending in neighborhoods starving for recovery

Kansas City banks that want a piece of City Hall’s business will soon need to listen to urban core rehabbers like Jan Johnson and Jessica Brown.

The city is taking ideas on how it will compel banks to be “socially responsible” by making them show in bids for city contracts how they’re helping distressed neighborhoods finally join the economic recovery.

It’s about time, say Johnson and Brown, who have been restoring apartments and houses in the East Side neighborhood they grew up in with little help from lenders.

It’s 2017, seven years since the peak of the subprime lending crash, and there are three things they believe should be self-evident by now.

1. The city needs to cop “an attitude” in insisting banks come to the table, Johnson said.

2. Banks “need to see value in these neighborhoods,” she said.

“These are gorgeous old homes,” Brown said.

3. “And the community,” Johnson said, “needs to see hope here where they live.”

While much of the city is recovering, the urban core with its sea of vacant and deteriorating properties has remained a no-go for most banks.

“Other cities have been more aggressive in their socially responsible banking resolutions,” said Kansas City Finance Director Randy Landes.

The last resolution enacted by the City Council in 2012 only requires that the city manager “consider” a list of criteria in weighing bids for banking services.

Other cities have oversight bodies, more public participation, stronger evaluation procedures and published bank community service records.

Most banks are ready to participate, said attorney Jeff Williams with Legal Aid of Western Missouri, and the time is ripe.

“Everyone has been trying to bail water with a thimble out of the Titanic,” he said. “We’re so awash in distressed property.

“But the market is improved now to the point people are ready to renovate,” Williams said.

He acknowledges the subprime lending crisis put banks in peril, he said. The lessons were hard-learned and account for some of the chilling caution.

“Yes, banks are in the business to make money,” he said. “But who bailed them out?

“Taxpayers.”

The art of compromise

Kansas City’s banking and lending habits, when plotted onto a map by the National Community Reinvestment Coalition, remain starkly divided.

Few branches are opened east of Troost Avenue, and bubbles showing the number and size of home purchase loans stop at the line altogether in the 2016 analysis.

Banks don’t like the looks of it either, said Sidney King, Liberty Bank’s president for the Kansas and Missouri region.

“Banks, even if they do not go into the urban core, want to see it grow,” King said. “It’s good for everybody.”

Liberty Bank, with a branch at 4701 Troost Ave., is one of several involved in discussions with the city looking at creative ways to share the risks to bring capital into the East Side — such as contributing into a pool to help capitalize loans together.

“They (banks) may not want the loans on their books,” King said, “but I think they’ll be willing to put funds into a pool.”

There is “an art” to the city’s process as it seeks the right balance in what it might demand of banks, Landes said.

On one hand, the city’s business and its $1.5 billion annual budget represents a prize for banks, he said.

But on the other hand, there are not that many that can provide services for that large of an account.

If the city’s demands are too high, Landes said, it could be left with no bidders.

The city is continuing to work with the banks and solicit ideas from other agencies and community groups, he said.

“It’s a fluid process knitting this together,” he said. “We want banks to meet their needs, but also leverage relationships to improve services to the city.”

‘Side streets…not Wall Street’

Johnson and Brown like this rising feeling of hope. Because frustration has been the rule.

Each of them has her own set of loan stories — of chipper and encouraging conversations with loan officers that roll along all-systems-go until something brings the process “to a screeching halt,” Brown said.

These are women determined to rebuild properties in the neighborhood where they grew up.

Johnson owns apartment buildings at 29th Street and Benton Boulevard that she says have helped anchor a neighborhood angling for revival. She’s also rehabbing a nearby three-story house that she intends to make her home.

Brown is reviving a three-story house east of Benton on 30th Street.

Without the financing to support the rehab work, they push it along more slowly, but they keep at it.

“There is a sense of pride to come back into your neighborhood,” Johnson said. “The people who understand this movement should embrace it.”

John Wood, director of the city’s Neighborhoods and Housing Services Department, believes banks are ready to do just that.

He has been working on a risk-sharing pool with the banks to capitalize loans, as well as with community development financial institutions like AltCap that have been supporting redevelopment in the urban core.

“Banks are enlightened a little more than they used to be, to be community-minded in lending,” Wood said. “They realize they are a key piece to the puzzle to revitalize neighborhoods.”

The city will need to set up a rigid review in choosing its partners, said Ajamu Webster, CEO of DuBois Consultants in Kansas City.

The federal tool Congress enacted 40 years go to monitor banks — the Community Reinvestment Act — clearly does not go far enough, he said.

More than 95 percent of the nation’s banks are rated as satisfactory or outstanding in their community reinvestment services, he pointed out, “but 44 percent of the black population is unbanked.”

Of the 121 banks listed in Kansas City on the CRA ratings site, 73 are rated satisfactory, 36 outstanding, eight need improvement and four are out of compliance.

St. Louis stiffened its banking leverage in 2014 with a responsible banking ordinance. Advocates for more community services said the ordinance made long strides but hasn’t gone far enough.

Banks making bids for St. Louis city business have to list mortgage data, small business loans, home improvement loans and community development loans, said Elisabeth Risch, director of education and research for the Metropolitan St. Louis Equal Housing and Opportunity Council.

The banks also have to list locations of their branches and show detail of the diversity of their workforce and boards of directors.

But St. Louis is publishing only data that are already public. Information, such as the diversity data, is not made available.

Kansas City’s version — whether the City Council decides to make it an ordinance or a resolution — is still probably two to three months away, with more public conversations still to come, Landes said.

“This is a good step for the city,” he said. “We’re looking forward to working with all the community partners.”

The investors buying and rehabbing the homes are the backbone of community redevelopment, King said. Everything follows from there.

“Businesses want those homeowners,” he said. “We need to rebuild the community from the side streets, not Wall Street.”

This story was originally published February 28, 2017 at 3:53 PM with the headline "Risky business: How KC means to get banks lending in neighborhoods starving for recovery."