Are Alaska banks redlining rural Alaska?

I was in college in the early 1970s and it was a turbulent time. For the first time in American history a president had to resign after orchestrating the criminal cover-up of a burglary at the Watergate Hotel. America's status in the world was reduced when the last allies were plucked off the roof of the U.S. embassy in Saigon by a Marine helicopter just before the Viet Cong raided the compound. In Vietnam, America lost the first war in our history and the tumult led to significant social changes. American institutions were under attack and the establishment was seriously questioned.

As a young student, I campaigned against Richard Nixon, was tear-gassed in anti-war protests, questioned my religion and challenged the practices of other institutions. Due to unfair lending practices, banks were another institution under attack. My best friend in college, after graduating in 1976, became a VISTA volunteer in California, fighting a practice known as redlining.

Today, 40 years later, as a federal official faced with the challenge of improving living conditions in rural Alaska, I am reminded of the battles over redlining. I ask one fundamental question: "Are the banks redlining rural Alaska?" I don't know the answer. But first, what is redlining?

Part of the turbulence of the 1960s and '70s was due to the continuing battle over civil rights. Significant social and demographic changes were happening in American cities. More and more African-Americans were moving to urban cores while whites moved to new and expanding suburbs. Along with this "white flight" went local banks, which led to the closure of local businesses and overall disinvestment in urban neighborhoods. Urban blight and lack of credit available to local residents contributed to race riots in the '60s.

Starting in Chicago, local activists questioned why it was so difficult for individuals to get loans to buy or improve their homes in certain neighborhoods even though the applicants had acceptable credit and income. What was learned was that banks literally drew a red line around certain neighborhoods and refused to lend there regardless of the applicant's qualifications. This practice of redlining was unfair to applicants, amounted to covert, nonpublic zoning, and was leading to the decay of American cities.

In response to redlining and other unfair banking practices, Congress passed a number of laws including the Community Reinvestment Act in 1977. My friend went to California to work with community organizations to promote and implement the new law. Under the CRA, banks are required to show their lending, investments and services in low- and moderate-income neighborhoods or distressed and underserved communities. They are awarded CRA credits, which impact the banks' ability to merge and open or close branches. In the early '80s, I worked for Anchorage Neighborhood Housing Services, which was created by the CRA as a means of investment in the low-income neighborhood of Spenard.

Which brings us to present-day Alaska. As I mentioned in an article a few months ago, the housing conditions in rural Alaska are very bad. I have been working with other federal agencies, tribal housing entities, the state, housing nonprofits, the Federal Reserve Bank and others to overcome the challenges. In November, we sponsored a full-day forum on rural homeownership. At the Governor's Housing Summit in January, rural homeownership was one of the primary topics of conversation.


Missing from the discussion have been private-sector banks, which have not come to the table. It makes me wonder if the banks are writing-off rural Alaska. While there may not literally be a red line on a map, the effect is the same: Rural Alaskans, particularly those living in villages, are not given the same opportunity for credit as urban Alaskans. I am not suggesting banks take inordinate risk or make bad loans, nor does the CRA. But the CRA does encourage banks to at least assist in confronting barriers to credit. Those of us who are at the table could use the expertise of the banking industry to strategize and tear down barriers to rural investment. It is understood that the economic challenges in Alaska's villages are great, but there are some individuals in some communities who have the credit and income to afford a loan. To write off an entire area due to poor economic conditions, regardless of the circumstances of individuals that live there, is redlining.

I had the opportunity to attend a three-day meeting on community reinvestment, held by the banking regulators Federal Reserve, FDIC and Comptroller of the Currency. While the teeth to enforce the CRA are not very sharp, if a pattern of discriminatory lending practices can be shown, the regulators turn the issue over to the U.S. Department of Justice and that's when it gets serious for banks. Redlining is not a thing of the past. For example, last year, federal prosecutors approved a $32 million settlement with an East Coast bank that was practicing redlining. The Consumer Finance Protection Bureau, created after the 2008 mortgage meltdown sent our economy into a tailspin, is now vigorously pursuing unfair lending practices. I am not talking about the philanthropic activities of banks (consider the major contributions made by the Rasmuson Foundation due to the generosity of a banking family), but rather the basic lending practices of a bank.

Estimates show there are probably 10,000 homes that need to be built or repaired in rural Alaska. Additional help from the state is unlikely given our fiscal crisis, and federal funding sources will not come close to meeting the need. Additional sources of capital are needed and private-sector banks can play a role. Frankly, the federal agencies can do more as well. I run an agency that has invested $650 million in housing loans and grants in rural Alaska over the past seven years, but we made very few loans in the villages.

It will take economic development and investment to help rural Alaska survive and prosper. Homeownership is the most fundamental form of investment in a community. This means a paradigm shift for many rural residents who will need to adjust their reluctance to take on debt in order to significantly improve housing conditions in their villages. It will also require housing loans are affordable and sustainable with carefully designed and underwritten mortgages. This is not without risk, but there is almost always some risk associated with a meaningful investment.

My father was a banker his entire working life, so I don't enjoy challenging the banks. It was his income that paid the mortgage on our home and helped put me through college. I just think banks can do more to assist with the desperate housing conditions in rural Alaska.

Jim Nordlund is the Alaska state director for rural development for the U.S. Department of Agriculture. Since 2009, the agency has invested nearly $2 billion in housing, community facilities, business, energy, telecom, electric, water and sewer improvements in 226 rural Alaska communities.

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary@alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com or click here to submit via any web browser.

Jim Nordlund

Jim Nordlund is the executive director of NeighborWorks Alaska. Previously, he was the Alaska State Director for USDA Rural Development, a private contractor building contractor, Director of Public Assistance for Alaska, and a member of the Alaska State House of Representatives.