Making Change: Community Reinvestment

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The Mill Creek Development feels like any new suburban subdivision. All the houses are less than ten years old, the grass is neatly trimmed, there's even a central green with a New England-like pavilion. But this place is not suburban; it's located in the corner of the city near the border with Garfield Heights. There more than 200 homes and town-houses, ranging in price from around $130,000 to well over $200,000.

Pat Shields: This is the house. People are always a little surprised when they come inside. They don't look this big from the outside.

Pat Shields and her husband John were among the first to buy a house in the development - a house with a large front porch and that backs up to the Metropark. The Shields had lived in Shaker Heights for ten years, but when their youngest daughter graduated high school, they were ready to downsize. Pat Shields says it was a bit of a risk, but the incentives were good.

Pat Shields: Obviously, one of the incentives is the abatement and the lower interest rates. I think that made the decision for us because it was so easy to make the move. And we had talked for some time that the only way the city was going to survive is if people who have the means move back into the city and take a stake in the city. This made it an easy way to do that.

Eight years ago, the Mill Creek Development would have seemed like a risky investment to anyone, but it wasn't risky enough to prevent KeyBank from financing the project. Alex Staneff is vice president of Community Development Lending for KeyBank.

Alex Staneff: I think the thought was this project would bring new residents back to the city that have ties to the City of Cleveland or people as they move in find this location as a viable alternative to suburban living.

Staneff says by the time the Mill Creek Development got off the ground, there was already ample development in other parts of the city, encouraged by something called the Community Reinvestment Act. Ruth Clevenger, vice president of the Federal Reserve Bank of Cleveland, says the federal government instituted CRA in 1977 because of evidence that banks were arbitrarily deciding where to lend or not to lend.

Ruth Clevenger: As a result, the Community Reinvestment Act simply says a bank has to make credit equally available in it entire assessment area.

Banks are evaluated on how much they lend, invest and provide service to low and moderate income populations in their service areas - areas that many lending institutions had once believed to be too risky. But, Clevenger says, an odd thing happened once banks upped their involvement in low and moderate income neighborhoods.

Ruth Clevenger: Once these neighborhoods were opened up and lending began to occur people came to the conclusion that it really wasn't as risky as was once perceived.

Pat Ramsey: Let's put it this way, we're not losing money by doing this.

Pat Ramsey is vice president and regional manager for Community Development at U.S. Bank. She says over the past ten years, U.S. Bank has invested more than $600 million in the city, financing or refinancing homes, home improvement and small businesses. She says it may have started as a way to simply comply with the law, but it turned out to be good business practice, too.

Pat Ramsey: We try to take it beyond just doing what we're supposed to do. We do it because it's the right thing and we can be profitable at doing it and I think that's the key thing.

Many of Cleveland's lenders consistently receive an "outstanding" ratings in CRA compliance. Some attribute this to an agreement forged by former Mayor Mike White in the early 90's. Under that agreement banks were compelled to exceed, not merely meet CRA standards. That agreement, which was renewed when Jane Campbell took office, contributed significantly to the rehabilitation of neighborhoods like Tremont and Ohio city - so says Linda Hudecek, senior vice president of community finance at the non-profit group Neighborhood Progress. But she says, it remains to be seen whether CRA and White's neighborhood reinvestment agreement can reverse the city's continuing out-migration.

Linda Hudecek: Were those enough to do a turnaround on the census data to show population gain? Not across the city. We still lost, but we lost the smallest percentage that we had lost as a city in 50 years.

In the last 13 years, lenders have invested more than $6.7 billion in city projects. Still, most of the deals come together through a jigsaw of public grants and incentives, foundation dollars and private financing. Hudecek says most developers still rely on these complex deals, but the banks are now firmly committed to investing in neighborhood development, and that's bound to pay off eventually.

Linda Hudecek: We're hoping that it has a ripple effect. We believe in it. We're committed to making sure the ripple effects show up in the quality of people's lives, in the way Cleveland neighborhoods become a place of choice.

In Cleveland, Shula Neuman, 90.3.

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