Thoughts on Responsible Banking from MFR’s Andrew Speizman and Frank Linnehan

Lee Huang, Senior Vice President & Principal of ESI, hosts a Q&A with Andrew Speizman, Chief Financial Officer, and Frank Linnehan, Senior Director of Corporate Strategy, of MFR Consultants to discuss the City’s annual fair lending study and more.


LH: What is the annual study that ESI and MFR do for the Office of the City Treasurer, and why is it a City requirement to commission and publish such a report?

FL & AS: Approximately 15 years ago, cities across the country began enacting laws known as “Responsible Banking Ordinances” These ordinances allow large municipal governments to leverage its size as a banking customer and require lenders to submit plans and their past performance on how they will address the credit needs of low and moderate income residents and businesses.

In 2005, The City of Philadelphia passed Resolution # 051161 which states:

Commission an annual study of lending disparities by city depositories and produce a report deliverable to the Mayor and the City Council. The annual report shall include a comprehensive analysis of home lending, small business lending, and branching patterns as well as the measurement of the community reinvestment and fair lending performance of banks receiving City deposits.

The study focuses on whether members of underrepresented groups and women have equal access to capital relative to majority group members and males, in the granting of loans for home purchases (both prime and subprime mortgages, as well as owner and non-owner occupied), home improvements and home loan refinances in the region. Similar analyses are conducted across income tract levels (high, moderate and low). In addition, the study also looks at small business lending activity made to applicants in low, moderate, and high income neighborhoods.


LH: The most recent study covered Calendar Year 2017 data.  What were the key findings?

FL & AS: First, regarding home lending (home purchase, improvement and refinancing) – in 2017 as interest rates increased, the number of prime loans decreased while the number of subprime loans increased – particularly among borrowers of color.

  • Total loans made by all institutions in the region decreased by 4.7% from 2016 to 2017. But home purchase loans were up 5.4% from 2016.
  • Overall loan application denial rate decreased 24% from 2016-2017.
  • Number of prime loans decreased by 6% from 2016-2017. This was true across all income categories except the moderate group. Subprime loans increased across all income groups, with upper income groups having the largest increase of 15.5% in the 2016-2017 period.
  • Home purchase loan applications increased 6.7% (2016-2017). Loans made increase 5.4%.
  • Number of loans made to African Americans increased 7% from 2016-2017. From 2009 to 2017, this number decreased 8.7%.  However, African Americans were 17.5% more likely to be denied a home improvement loan than Whites, 11.7% more likely to be denied a home refinance loan, 6.8% more likely to be denied a home purchase loan and 2.8% more likely to receive a subprime loan than members of the majority group.
  • From 2016-2017 loans made in census tracts with less than 50% minority residents decreased by 10.2%; loans made in census tracts with more than 50% minority residents increased 3.5%.
  • Hispanic prime home purchase loans fell 7.8%, while these loans increased for all other racial groups.

Second, small business lending increased overall as would be expected within the current growth environment, however lending activity in our poorest neighborhoods continues to lag.

  • The number of loans to small businesses increased 5.7% from 2016-2017. Levels are now 69% higher than during the 2009 low.
  • 9% more loans were made to businesses with less than $1 million in annual revenue than in 2016. This was 180% higher than the number of loans made to this group in 2009.
  • These same businesses in low-and moderate-income neighborhoods, however, received a disproportionally lower number of loans than those in high income neighborhoods.

Third, we continue to see fewer and fewer bank branch locations which reflects a nationwide trend. Tech-based banking can be an alternative but also creates new barriers to entry for certain populations, particularly older or low-income households.


LH: What is needed from a policy standpoint (at the local, state, and/or federal level) in order to level the playing field for all businesses?  What is the payoff for our region’s competitiveness if we get this right?

FL & AS: There is a need for additional studies of capital access to ascertain the true impact of lending disparities across income and racial groups on small business creation, sustainability and growth. This will require more detailed reporting requirements that make additional lending activity data available (including data at the individual borrower level) to local, state and federal levels of government. These reporting requirements should be applicable to all lenders, not just commercial banks.  Once these data are made available, independent, third party studies can be conducted to better understand the impact of financial institution policies and practices on small businesses. Governments can then use this information to develop appropriate policies.

There are numerous causes of the high poverty rate within the City of Philadelphia and a lack of equality in capital access is certainly one of them. Ensuring that capital access is more equally distributed will make for a more vibrant and inclusive economy.


LH: From your vantage point as an entrepreneur, what is the role of capital access (both personal and business) in achieving your business aspirations?

FL & AS: Access to capital is imperative for small business owners, across all demographic groups and income levels. This is especially true for lower income entrepreneurs who may not have access to a bank of “Friends and Family”. While capital needs are often considered for growth or expansion of a small business, small business owners know that sufficient working capital is a critical element in the day to day operation of their businesses and their ongoing sustainability. Expenses are often incurred well before revenue is realized, putting stress on the business’ cash flow and its ability to pay vendors and other creditors.

Disparities in capital access such as credit lines and small business loans for business owners from under-represented groups, women and lower income neighborhoods will eventually adversely affect the survival rates of these business, and fewer and fewer small businesses owned by members of underrepresented groups and women will survive. If this occurs, it will discourage others to start their own businesses and thus lead to a cycle of decline in women and minority owned businesses.


Andrew Speizman is the Chief Financial Officer and Director of Financial Consulting Services at MFR Consultants, Inc.  Prior to joining MFR Consultants, Mr. Speizman had over 25 years of finance and operations experience in Commercial Real Estate.  Mr. Speizman has been involved in the Fair Lending project over the past four years.


Frank Linnehan is the Senior Director of Corporate Strategy at MFR Consultants, Inc.  Dr. Linnehan has extensive experience in both the financial services industry as well as academia where he recently retired as Dean of the LeBow College of Business.  Dr. Linnehan has previously testified before Philadelphia City Council regarding Fair Lending Practices.

Lee Huang is Senior Vice President & Principal of ESI. Lee brings over 20 years of experience in economic development to his public, private, institutional, and not-for-profit clients. His economic inclusion work has included analyses of the utilization of minority- and women-owned businesses in municipal contracts in Philadelphia, as well as examinations of home lending, business lending, and branch location patterns in Philadelphia, Washington, DC, and New York City.

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