Mat Ishbia, chairman and chief executive officer at United Wholesale Mortgage (UWM), provided more than half of the mortgage company’s outstanding shares as a guarantee to secure loans ahead of the acquisition of the Phoenix Suns, according to a Bloomberg report.
According to the report, Ishbia pledged stock he controls to back two loans that were finalized days before his purchase of the Suns was approved. The deal, which values the Suns at $4 billion, first became public in December. The executive received the NBA blessing in February.
In total, 805 million shares, currently worth $4.6 billion, secured two loans with JP Morgan Chase & Co. Ishbia holds his UWM stake via SFS Holding Corp., which owns 94% of UWM’s outstanding stock and pledged the shares, per the firm’s 2023 proxy statements.
“The number of shares of Class A common stock beneficially owned by SFS Corp. also includes a total 805,281,450 shares of Class A common stock which are pledged as security for two separate loan facilities,” the proxy statement states.
The risk of tying up the shares to the loans is that if the value of the stock falls, the bank can usually request additional collateral or for the loan to be repaid. And if the borrower fails to comply, the bank can seize and sell the shares.
The Bloomberg Billionaires Index shows Ishbia’s fortune dropped by $3.4 billion after the pledged shares were removed from his net worth calculation.
UWM and JP Morgan Chase declined to comment on the topic.
The seller of the Suns Legacy Holdings, which owns the Phoenix Suns and Mercury, was Robert Sarver. The executive acquired both teams in 2004. Earlier in 2022, Sarver was fined $10 million and suspended for one year following an NBA investigation regarding workplace conduct.
Ishbia and his brother Justin bought 50% ownership of the franchises, including Sarver’s interest. They also acquired a portion of the interest of minority partners, who were granted additional sale rights. Mat serves as governor and Justin as alternate governor.
During the past two years, regulators and lawmakers have introduced and adopted new rules and guidelines aimed at curbing the impacts of racial bias on home valuations. But some appraisers and researchers insist these efforts have been based on faulty data.
Conflicting findings from a pair of non-profit research groups call into question whether or not recent actions will improve financial outcomes for minority homeowners without leading to banks and other mortgage lenders taking on undue risks.
The debate centers on a 2018 report from the Brookings Institution, which found that homes in majority-Black neighborhoods are routinely discounted relative to equivalent properties in areas with little or no Black population, a trend that has exacerbated the country’s racial wealth gap. The study, which adjusts for various home and neighborhood characteristics, found that homes in Black neighborhoods were valued 23% less than homes in other areas.
“We believe anti-Black bias is the reason this undervaluation happens,” the report concludes, “and we hope to better understand the precise beliefs and behaviors that drive this process in future research.”
The study, titled “Devaluation of assets in Black neighborhoods,” has been cited by subsequent reports published by Fannie Mae and Freddie Mac, academics and White House’s Property Appraisal and Valuation Equity, or PAVE, task force, which used the data to inform its March 2022 action plan to address racial bias in home appraisal.
Meanwhile, as the Brookings’ findings proliferated, another set of research — based on the same models and data — has largely gone untouched by policymakers. In 2021, the American Enterprise Institute replicated the Brookings study but applied additional proxies for the socioeconomic status of borrowers.
By simply adding a control for the Equifax credit risk score for borrowers, the AEI research asserts, the average property devaluation for properties in Black neighborhoods falls to 0.3%. The researchers also examined valuation differences between low socioeconomic borrowers and high socioeconomic borrowers in areas that were effectively all white and found that the level of devaluation was equal to and, in some cases, greater than that observed between Black-majority and Black-minority neighborhoods.
“That, to us, really suggests that it cannot be race but it has to be due to other factors — socioeconomic status, in particular — that is driving these differences in home valuation,” said Tobias Peter, one of the two researchers at the AEI Housing Center who critiqued the Brookings study.
Contrasting conclusions
Peter and his co-author, Edward Pinto, who leads the AEI Housing Center, acknowledge that there could be bad actors in the appraisal space who, either intentionally or through negligence, improperly undervalue homes in Black neighborhoods. But, they argue, the issue is not systemic and therefore does not call for the time of sweeping changes that the PAVE task force has requested.
Brookings researchers have refuted the AEI findings, arguing that, among other things, their controls sufficiently rule out socioeconomic differences between borrowers as the cause of valuation differences. They also attribute the different outcomes in the AEI tests to the omission of the very richest and very poorest neighborhoods.
Jonathan Rothwell, one of the three Brookings researchers along with Andre Perry and David Harshbarger, said the conclusion reached by AEI’s researchers ignored the well documented history of racial bias in housing.
“No matter how nuanced and compelling the research is, no one can publish anything about racial bias in housing markets, without our friends Peter and Pinto insisting there is no racial bias in housing markets,” Rothwell said. “Everyone agrees that there used to be racial bias in housing markets. I don’t know when it expired.”
Mark A. Willis, a senior policy fellow at New York University’s Furman Center for Real Estate and Urban Policy, said the source of the two sets of findings might have contributed to the response each has seen. While both organizations are non-partisan, AEI, which leans more conservative, is seen as having a defined agenda, while the centrist Brookings enjoys a more neutral reputation.
Still, Willis — who is familiar with both studies but has not tested their findings — said while the Brookings report notes legitimate disparities between communities, the AEI findings demonstrate that such differences cannot solely be attributed to racial discrimination.
“The real issue here is there are differences across neighborhoods in the value of buildings that visibly look alike, maybe even technically the neighborhood characteristics look alike, but aren’t valued the same way in the market,” Willis said. “Whatever that variable is, Brookings hasn’t necessarily found that there’s bias in addition to all of the other real differences between neighborhoods.”
Setting the course or getting off track?
The two sets of findings have become endemic to the competing views of home appraisers that have emerged in recent years. On one side, those in favor of reforming the home buying process — including fair housing and racial justice advocates, along with emerging disruptors from the tech world — point to the Brookings report as a seminal moment in the current push to root out discriminatory practices on a broad scale.
“It’s been really helpful in driving the conversation forward, to help us better define what is bias and be specific about how we communicate about it, because there’s a number of different types of bias potentially in the housing process,” Kenon Chen, executive vice president of strategy and growth for the tech-focused appraisal management company Clear Capital, said. “That report really … did a good job of highlighting systemic concerns and how, as an industry, we can start to take a look at some of the things that are historical.”
Appraisers, meanwhile, say the Brookings findings made them a scapegoat for issues that extend beyond their remit and set them on course for enhanced regulatory scrutiny.
“What’s causing the racial wealth gap is not 80,000 rogue appraisers who are a bunch of racists and are going out and undervaluing homes based on the race of the homeowner or the buyer, but rather it’s a deeply rooted socioeconomic issue and it has everything to do with buying power and and socioeconomic status,” Jeremy Bagott, a California-based appraiser, said. “It’s not a problem that appraisers are responsible for; we’re just providing the message about the reality in the market.”
Responses to the Brookings study and other related findings include supervisory guidelines around the handling of algorithmic appraisal tools, efforts to reduce barriers to entry into the appraisal profession and greater data transparency around home valuation across census tracts.
But appraisers say other initiatives — including what some see as a lowering of the threshold for challenging an appraisal — will make it harder for them to perform their key duty of ensuring banks do not overextend themselves based on inflated asset prices.
Even those who favor reform within the profession have taken issue with the Brookings’ findings. Jonathan Miller, a New York-based appraiser who has deep concerns about the lack of diversity with the field — which is more than 90% white, mostly male and aging rapidly — said using the study as a basis for policy change put the government on the wrong track.
“There’s something wrong in the appraisal profession, and it’s that minorities are not even close to being fairly represented, but the Brookings study doesn’t connect to the appraisal industry at all,” Miller said. “Yet, that is the linchpin that began this movement. … I’m in favor of more diversity, but the Brookings’ findings are extremely misleading.”
Willis, who previously led JPMorgan Chase’s community development program, said appraisers are justified in their concerns over new policies, noting this is not the first time the profession has shouldered a heavy blame for systemic failures. The government rolled out new reforms for appraisers following both the savings and loan crisis of the 1980s and the subprime lending crisis of 2007 and 2008.
But, ultimately, Willis added, appraisers have left themselves open to such attacks by allowing bad — either malicious or incompetent — actors to enter their field and failing to diversify their ranks.
“It seems clear that the burden is on the industry to ensure that everybody is up to the same quality level,” he said. “Unless the industry polices itself better and is more diverse, it is going to remain very vulnerable to criticism.”
JPMorgan Chase has tightened mortgage terms on jumbo loans for co-operatives and condominiums in Manhattan amid shrinking buyer demand, Bloomberg reported on Friday.
Chase announced that, beginning this week, it would limit jumbo loans to 70% of the sale price. The new standards apply to loans of more than $765,600 not guaranteed by Fannie Mae and Freddie Mac — which account for 95% of the Manhattan market, according to the report.
JPMorgan’s new loan-to-value restrictions will apply to all Manhattan apartments, including re-sales and co-ops, many of which are relatively affordable, older units that price sensitive buyers turn to first.
A JPMorgan spokesperson confirmed the new loan terms are due to “current economic conditions.”
Jonathan Miller, real estate appraiser and consultant with Miller Samuel Inc., told HousingWire it’s “unusual” for one of the New York boroughs to be singled out.
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“Manhattan is one of the highest-cost housing markets in the United States, and a large chunk of the mortgage loans are jumbo,” he said. “But the Manhattan market has been the slowest to recover because its residents have the most wealth and mobility in the city. Large numbers were able to leave with COVID lockdown occurred.”
Miller added that the lack of a vaccine has discouraged many who initially left from returning to Manhattan.
“That’s weakening the market as prices have softened,” he said. “Unlike conforming lenders, many jumbo loans are held in portfolio, and future economic conditions are awash in uncertainty at the moment.”
Melissa Cohn, a mortgage lender and broker with William Raveis Mortgage, added that an influx of condominium inventory in New York City created “a perfect storm.”
“Prices have fallen by a greater percentage in New York City than anywhere else in the country,” Cohn said. “Chase and other lenders have chosen to restrict loan values in order to protect themselves.”
Cohn added that many lenders are following similar paths during the pandemic: raising maximum credit score requirements, lowering maximum loan amounts, requiring more cash reserves, and even limiting or eliminating home equity loans
In March, HousingWire asked the question “Did non-QM just disappear from the market?” as many of the biggest lenders specializing in lending to borrowers outside the Qualified Mortgage lending box were pausing their activities due to uncertainty in the market. The two main holdouts were Angel Oak Mortgage Solutions and Citadel Servicing, which remained in the non-QM lending business as long as possible before eventually bowing out.
But non-QM lending staged a comeback in May, as several companies that halted non-QM lending in March went back on the market, including Sprout Mortgage, GreenBox Loans, and Angel Oak.
Banks seeking to sell commercial-property loans are encountering a dried-up market with few options for an easy exit.
Lenders including Goldman Sachs Group Inc. and JPMorgan Chase & Co. have been trying to sell debt backed by offices, hotels and even apartments in recent months, but many are finding that tidying up loan books is no easy feat when concerns about commercial real estate have surged.
This year’s rise in borrowing costs has made commercial real estate one of the hardest-hit areas of the economy. Property sales, especially for office buildings, have slowed to a trickle, giving landlords and lenders few markers to determine the value of certain assets. In the absence of transactions, stakeholders are closely watching the loan sale market to see what price banks can ultimately nab for some of the loans.
Banks have been eager to sell what they can, at times to shore up liquidity or to avoid complicated situations that may crop up when a loan is maturing and needs to be refinanced. For some lenders, taking a slight haircut on the price may be better than running the risk that the lender has to foreclose and ultimately ends up stuck with the property, according to Gregory Hagood, president of SOLIC Capital, which has an investment banking practice.
“Even if most of these are performing loans today, they’re trying to reduce their exposure by selling loans at a discount as they head into a refinance cycle,” Hagood said. “A lot of these banks will say, ‘I’d rather take the hit there than take the hit on a foreclosure and have to deal with the asset after.'”
Goldman and JPMorgan, along with other banks including Capital One Financial Corp. and M&T Bank Corp., have sought to sell property debt in recent months, seeking buyers both for one-off sales and transactions for portfolios of loans, according to people familiar with the matter, who asked not to be identified citing private information.
While pressure is building on banks to reduce their commercial-property exposure, distressed loan sales are still relatively rare. Many banks are opting to hold onto the debt for longer and work out situations with different borrowers.
Hit the Numbers
With so few sales occurring, it’s been hard to figure out exactly what the loans are worth. On top of that, some sellers have become more cautious about what bids they’ll accept, especially after the spate of bank failures earlier this year. Too low of a price could spook investors and raise concerns about the health of the financial institution, according to Josh Zegen, co-founder of Madison Realty Capital, a non-bank lender.
“Some banks have tested the market on office loans and they just can’t hit the numbers,” Zegen said. “There’s too much of a bid-ask spread, and there’s really nothing to talk about because agreeing to the lower pricing would make these banks more insolvent.”
Given the banks’ caution about accepting too low of a price, some lenders have opted to entice buyers through other means. Seller financing has become one option, where the seller helps the loan’s buyer finance the purchase.
It’s become particularly challenging for debt tied to offices — the property type that’s seen its value plummet the most over the past 12 months. Job cuts and the rise in remote work have led to record vacancies across major cities, while higher borrowing costs have made financing more difficult.
“We don’t know yet where tenant demand shakes out, and in the absence of that, you can’t have stability in the market,” said Winston Fisher, a partner at New York-based real estate investment firm Fisher Brothers. “We’re a contractual income business. If you don’t know where that contractual income is going to stabilize, how do you value it?”
Shopping Loans
Capital One has struggled to offload a large office debt portfolio with a heavy concentration in the tri-state area including parts of New York, according to people familiar with the matter who asked not to be identified discussing private information.
Capital One Chief Financial Officer Andrew Young told investors in July that the bank had moved about $900 million of loans from its office portfolio to a “held for sale” designation as it seeks to offload the debt.
Earlier this year, Webster Financial Corp. sold an $80 million portfolio tied to offices and mixed-use properties in Connecticut, New Jersey and New York.
JPMorgan is exploring a sale of a $350 million loan that’s backed by Manhattan’s HSBC Tower, Bloomberg reported in July. The bank has approached potential buyers to sell the loan at par, while offering cheaper-than-market financing.
Spokespeople for Capital One and JPMorgan declined to comment.
Banks have also sought to sell debt on other types of real estate besides offices, such as apartments or hotels. Pricing has held up better for those property types, with apartment values dropping 16% over the past 12 months through July compared with a 27% decline for offices, according to real estate analytics firm Green Street. Hotel prices were unchanged over that time period.
Goldman has sought to offload hotel and apartment loans, according to people familiar with the matter, who asked not to be identified citing private information. Meanwhile, M&T is in the market with a hotel loan too, the people said.
Spokespeople for Goldman and M&T declined to comment.
Lenders that have found buyers for loan portfolios have used the deals to help shore up liquidity at a time of increased stress across the banking industry. PacWest Bancorp, for example, has been selling construction loans and other real estate debt.
Because recent loans at higher rates are more profitable, banks are becoming more inclined to get rid of low-yielding, high-maintenance “dead money” loans with limited prospects for returns, according to Will Sledge, senior managing director in Jones Lang LaSalle Inc.’s capital markets group.
“Liquidity is a prized possession,” Sledge said.
The industry is keenly watching one big potential sale that’s being managed by brokerage Newmark Group Inc. The Federal Deposit Insurance Corp. is seeking to offload about $60 billion of loans — many of which are tied to real estate — from the failed Signature Bank.
Walking Away
Banks are facing the prospects of getting stuck holding the properties in some situations. Large institutions, such as Brookfield Asset Management Ltd., Blackstone Inc. and an office landlord tied to Pacific Investment Management Co., have chosen to cut their losses on some buildings, defaulting on debt. In some instances, landlords have handed the keys back for certain properties.
Aareal Bank AG is working to sell debt on two Manhattan buildings where owners walked away. A unit of the bank is offering non-performing loans on two large offices, one in the Financial District and one in Midtown’s prestigious Plaza District, according to people familiar with the matter. A spokesperson for Aareal Bank declined to comment.
Even if banks are struggling to offload loans, some lenders are controlling their exposure to commercial real estate by halting origination of new debt. Banks including Fifth Third Bancorp have said that they’ve stopped originating office loans.
More deals for old loans would give better clarity on pricing, which could reveal just how different valuations are these days, according to Martin Nussbaum, principal of Slate Property Group.
“There’s a complete fear around office values and where they stand,” Nussbaum said. Repricing “could be a seismic shift in the asset class.”
Amid the fallout of the Silicon Valley Bank and Signature Bank collapses in March, depositors looked for safer places for their savings, and big banks benefited from some customer flows during the flight to safety. Earnings for JP Morgan Chase and Wells Fargo also beat expectations, easing concerns about the health of the country’s banking system.
Deposits at Bank of America were above $1 trillion for the seventh straight quarter, posting $1.91 trillion in the first quarter of 2023, down 1% from $1.93 trillion during the same quarter in 2022.
Consumer banking division posted a net income of $3.1 billion, a 13.1% decline from the previous quarter’s $3.58 billion, but still up 4.4% from the previous year’s $3 billion, according to its filing with the Securities and Exchange Commission (SEC).
“We had a great quarter for our micro products (…) We have positive returns there. So mortgages, credit, munis, financing, futures, FX, all of them had a pretty good quarter,” Alastair Borthwick, Bank of America’s chief financial officer, told analysts.
Mortgage, home equity business
Its mortgage business, however, reported disappointing numbers, an issue led by elevated 30-year fixed mortgage rates.
Mortgage originations totaled $3.9 billion during the first quarter, a 25% drop from $5.2 billion posted in the second quarter, and 76.2% below the $16.4 billion in the first quarter of 2022.
BofA’s production decline follows the track of JPMorgan Chase and Wells Fargo, which also posted double-digit mortgage loan production decreases during the first quarter.
The bank’s home equity originations remained flat in the first quarter, posting $2.6 billion from the previous quarter. That’s up from the first quarter of 2022, when BofA originated $2.0 billion in home equity loans.
Bank of America had $229.3 billion in outstanding residential mortgages on its books through March 31, down from $229.4 billion from Q4 2022 and $224 billion in the first quarter of 2022.
The home equity portfolio was $26.5 billion at the end of the first quarter, down from $27 billion from the previous quarter — and a decline from $$27.8 billion a year prior.
Bank of America’s total mortgage-backed securities reached a $32.1 billion fair value as of March 31, compared to $32.5 billion as of December 31, 2022.
Looking forward, Borthwick expected the Federal Reserve to raise interest rates one more time, followed by a couple of cuts this year.
“That obviously assumes our current client positioning and the forward rate expectations. We continue to expect modest loan growth (…) driven by credit card, and to a lesser degree, commercial,” Borthwick said.
The bank expects further Fed balance sheet reductions to continue to reduce deposits for the industry, leading to lower deposits and rotational shifts.
Teresa Bryce Bazemore, who held a front-row seat during the bank liquidity crisis this year as president and CEO of the Federal Home Loan Bank of San Francisco, plans to retire when her term expires in 2024, citing personal reasons.
The San Francisco bank’s board chose not to renew Bazemore’s contract after she asked to retire in 2025, though her contract expires in 2024. The board instead initiated a search for a new CEO, said Simone Lagomarsino, the board’s chairman, who also is president and CEO at Luther Burbank Savings.
Bazemore “indicated that, due to personal and other considerations, she would like to retire in March 2025,” Lagomarsino said in a press release. “As a result, and in consultation with Teresa, the board has decided to move forward with a search to identify a new CEO who will deliver long-term continuity and engaged leadership.”
The decision followed “extensive deliberation and discussion” about the Home Loan bank’s long-term goals, including “the implementation and integration of strategic changes that may arise from the ‘FHLBank System at 100’ review currently being conducted by the Federal Housing Finance Agency,” Lagomarsino said in the release. “The board recognized the critical importance of a CEO who would be engaged for the next several years to lead the organization forward and implement a vision and strategy to align with the outcome of the FHFA’s review.”
The San Francisco Home Loan Bank played a central role in the bank liquidity crisis in March, when it served as lender of next-to-last-resort to Silicon Valley Bank, which was taken over by the Federal Deposit Insurance Corp. and ultimately sold to First Citizens BancShares in Raleigh, N.C. Other major borrowers of the San Francisco Home Loan bank this year included San Francisco-based First Republic Bank, which was sold to JPMorgan Chase in May, and Silvergate Bank of La Jolla, Calif., which self-liquidated in March.
Last year, Bazemore earned $2.4 million, which included a base salary of $910,000 and other incentive compensation. When she joined the San Francisco Home Loan bank in 2021, she received a $100,000 signing bonus. Her employment agreement provides for 12 months of severance pay, equal to her base salary, plus other awards, according to the Home Loan banks’ combined financial report for 2022.
Last year, the Federal Housing Finance Agency that oversees that Home Loan bank system, launched a holistic review of the government-sponsored enterprise, its first in 90 years. Critics have questioned the system’s hybrid public-private business model and whether the banks are engaged in the primary mission of supporting housing. FHFA Director Sandra Thompson is set to issue a report with policy and congressional recommendations sometime later this year.
Separately, Fitch Ratings on Thursday downgraded certain ratings of the Federal Home Loan banks of Atlanta and Des Moines citing the “high and growing general government debt burden,” of the U.S. government. The ratings actions followed the downgrade of the U.S. to ‘AA+,’ from ‘AAA.’
The Home Loan banks are bank cooperatives that provide low-cost funding to 6,500 members including banks, insurance companies and credit unions. Created in 1932 to bolster housing during the Depression, the system incentivizes banks to buy mortgage-backed securities and agency bonds that can be pledged as collateral in exchange for liquidity.
More than 2,200 different multifamily lenders provided $480.1 billion in new mortgages for apartment buildings with five or more units in 2022, a reduction of around 1% when compared to 2021 levels. This is according to an annual report of the multifamily lending market compiled and released by the Mortgage Bankers Association (MBA).
One-third of active multifamily lenders made five or fewer loans over the course of 2022, according to MBA. The association characterized the market as generally healthy, despite challenges that faced lending industries broadly last year.
“Multifamily borrowing remained strong in 2022, largely as a result of lending by banks,” said Jamie Woodwell, MBA’s head of commercial real estate research. “Beginning in last year’s third quarter, rising and volatile interest rates, uncertainty about property values, and questions about some property fundamentals led to a fall-off in borrowing and lending across commercial property types, including multifamily.”
While capital sources of lending fell, the amount by which it fell was almost offset by activity seen from banks, Woodwell explained.
“Most capital sources saw a significant decline in lending activity in 2022, but bank activity increased by an almost equal amount,” he said. “It’s unlikely that this momentum is occurring this year, given current evidence that banks have tightened underwriting standards and borrower demand has weakened.”
In terms of dollar volume, the greatest amount (42%) of the $480.1 billion in new mortgages for apartment buildings with five or more units went to depositories, MBA said.
“The top five multifamily lenders in 2022 by dollar volume were JPMorgan Chase, Wells Fargo, Walker & Dunlop, Berkadia, and Capital One Financial Corp,” MBA said.
Data from the report is sourced from both MBA and data released by the U.S. government under the Home Mortgage Disclosure Act (HMDA).
The Jefferson Avenue commercial district in Buffalo, New York, is anchored by a supermarket.
There are dozens of other businesses and services along the 12-block corridor — a couple of bank branches, a library, a coffee shop, gas stations, a small plaza with a dollar store and a primary care clinic and a business incubator for entrepreneurs of color.
But Tops Friendly Markets, the only grocery store on Buffalo’s vast East Side, is the center of activity. More than just a place to buy food, pick up medications and use an ATM, the store is a communal gathering space in a predominantly Black neighborhood that, for generations, has been segregated, isolated and disenfranchised from the wealthier — and whiter — parts of the city.
Which explains how it came to be the site of a mass shooting on a spring day in May of last year. On that Saturday, a gunman, who lived 200 miles away in another part of the state, drove to Jefferson Avenue and went into Tops, and in just a few minutes killed 10 people, injured three and inflicted mass trauma across the community.
It is a scenario that has sadly, and repeatedly, played out in other parts of the country that have experienced mass shootings. But this one came with a twist: The gunman’s intention was to kill as many Black people as possible.
To achieve that, he specifically targeted a ZIP code with one of the highest percentages of Black residents in New York state. All 10 who died that day were Black.
“The mere fact that someone can research, ‘Where will the greatest number of Black people be … on a Saturday morning,’ that’s not by chance,” said Franchelle Parker, a community organizer and executive director of Open Buffalo, a nonprofit focused on racial, economic and ecological justice. “That’s not a mistake. It’s a community that’s been deeply segregated for decades.”
The day of the shooting, Parker, who grew up in nearby Niagara Falls, was driving to Tops, where she planned to buy a donut and an unsweetened iced tea before heading into the Open Buffalo office, which is located a block away from Tops. The mother of two had intended to complete the mundane task of cleaning up her desk — “old coffee cups and stuff” — after a busy week.
She saw the news on Twitter and didn’t know if she should keep driving to Jefferson Avenue or turn around and go back home. She eventually picked the latter.
When she showed up the next day, there were thousands of people grieving in the streets. “The only way that I could explain my feeling, it was almost like watching an old war movie when a bomb had gone off and someone’s in, like, shell shock. That’s how it felt,” said Parker, vividly recounting the community’s collective trauma in a meeting room tucked inside of Open Buffalo’s second-story office on Jefferson Avenue.
Almost immediately following the May 14, 2022, massacre, which was the second-deadliest mass shooting in the United States last year, conversations locally and nationally turned to the harsh realities of the East Side and how long-standing factors that affect the daily life of residents — racism, poverty and inequity — made the community an ideal target for a white supremacist.
Now, more than a year after the tragedy, there is growing concern that not enough is being done fast enough to begin to dismantle those factors. And amid those conversations, there are mounting calls for the banking industry — whose historical policies and practices helped cement the racial segregation and disinvestment that ultimately shaped the East Side — to leverage its collective power and influence to band together in an effort to create systemic change.
The ideas about how banks should support the East Side and better embed themselves in the neighborhood vary by people and organizations. But the basic argument is the same: Banks, in their role as financiers and because of the industry’s history of lending discrimination, are obligated to bring forth economic prosperity in disinvested communities like the East Side.
I know banks are often looked upon sort of like a panacea, but I don’t particularly see it that way. I think others have a role to play in all of this.
Chiwuike Owunwanne, corporate responsibility officer at KeyBank
“Banks have been very good at providing charitable contributions to the Black community. They get an ‘A’ for that,” said The Rev. George Nicholas, an East Side pastor who is also CEO of the Buffalo Center for Health Equity, a four-year-old enterprise focused on racial, geographic and economic health disparities. “But doing the things that banks can do in terms of being a catalyst for revitalization and investment in this community, they have not done that.”
To be sure, banks’ ability to reverse the course of the community isn’t guaranteed — and there is no formula to determine how much accountability they should hold to fix deeply entrenched problems like racism. Several Buffalo-area bankers said that while the Tops shooting heightened the urgency to help the East Side, the industry itself cannot be the sole driver of change.
“There are a lot of institutions … that can certainly play a part in reversing the challenges that we see today,” said Chiwuike “Chi-Chi” Owunwanne, a corporate responsibility officer at KeyBank, the second-largest bank by deposits in Buffalo. “I know banks are often looked upon sort of like a panacea, but I don’t particularly see it that way. I think others have a role to play in all of this.”
A long history of segregation
How the East Side — and the Tops store on Jefferson Avenue — became the destination for a racially motivated mass murderer is a story about racism, segregation and disinvestment.
Even as it bears the nickname “the city of good neighbors,” Buffalo has long been one of the most racially segregated cities in the United States. Of the 114,965 residents who live on the East Side, 59% are Black, according to data from the 2021 U.S. Census American Community Survey. The percentage is even higher in the 14208 ZIP code, where the Tops store is located. In that ZIP code, among 11,029 total residents, nearly 76% are Black, the census data shows.
The city’s path toward racial segregation started in the early 20th century when a small number of job-seeking Black Americans migrated north to Buffalo, a former steel and auto manufacturing hub at the far northwestern end of New York state. Initially, they moved into the same neighborhoods as many of the city’s poorer immigrants and lived just east of what is today the city’s downtown district. As the number of Blacks arriving in Buffalo swelled in the 1940s, they were increasingly confronted with various housing challenges, including racist zoning laws and restrictive deed covenants that kept them from buying homes in more affluent white areas.
Black Buffalonians also faced housing discrimination in the form of redlining, the practice of restricting the flow of capital into minority communities. In 1933, as the Great Depression roiled the economy, a temporary federal agency known as the Home Owners’ Loan Corporation used government bonds to buy out and refinance mortgages of properties that were facing or already in foreclosure. The point was to try to stabilize the nation’s real estate market.
As part of its program, HOLC created maps of American cities, including Buffalo, that used a color coding scheme — green, blue, yellow and red — to convey the perceived riskiness of making loans in certain neighborhoods. Green was considered minimally risky; other areas that were largely populated by immigrant, Black or Latino residents were labeled red and thus determined to be “hazardous.”
“The goal was to free up mortgage capital by going to cities and giving banks a way to unload mortgages, so they could turn around and make more mortgage loans,” said Jason Richardson, senior director of research at the National Community Reinvestment Coalition, an association of more than 750 community-based organizations that advocates for fair lending. “It was kind of a radical concept and it has evolved over the decades into our modern mortgage finance system.”
The Federal Housing Administration, which was established as a permanent agency in 1934, used similar methods to map urban areas and labeled neighborhoods from “A” to “D,” with “A” considered to be the most financially stable and “D” considered the least. Neighborhoods that were largely Black, even relatively stable ones, were put in the “D” category.
The result was that banks, which wanted to be able to sell mortgage loans to the FHA, were largely dissuaded from making loans in “risky” areas. And Buffalo’s East Side, where the majority of Blacks were settling, was deemed risky. Unable to get loans, Blacks couldn’t buy homes, start businesses or build equity. At the same time, large industrial factories on the East Side were closing or moving away, limiting job opportunities and contributing to rising poverty levels.
“Today what we’re left with is the residue of this process where we’ve enshrined … a pattern of economic segregation that favors neighborhoods that had fewer Black people in them and generally ignores neighborhoods that had African Americans living in them,” Richardson said.
Case in point: Research by the National Community Reinvestment Coalition shows that three-quarters of neighborhoods that were once redlined are low- to moderate-income neighborhoods today, and two-thirds of them are majority minority communities.
Adding to the division between Blacks and whites in Buffalo was the construction of a highway called the Kensington Expressway. Built during the 1960s, the below-grade, limited-access highway proved to be a speedy way for suburban workers to get to their downtown jobs. But its construction cut off the already-segregated East Side even more from other parts of the city, displacing residents, devaluing houses and destroying neighborhoods and small businesses.
As a result of those factors and more, many Black residents have become “trapped” on the East Side, according to Dr. Henry Louis Taylor Jr., a professor of urban and regional planning at the University at Buffalo. In 1987, Taylor founded the UB Center for Urban Studies, a research, neighborhood planning and community development institute that works on eliminating inequality in cities and metropolitan regions. In September 2021, eight months before the Tops shooting, the Center for Urban Studies published a report that compared the state of Black Buffalo in 1990 to present-day conditions. The conclusion: Nothing had changed for Blacks over 31 years.
As of 2019, the Black unemployment rate was 11%, the average household income was $42,000 and about 35% of Blacks had incomes that fell below the poverty line, the report said. It also noted that just 32% of Blacks own their homes and that most Blacks in the area live on the East Side.
“Those figures remain virtually unchanged while the actual, physical conditions that existed inside of the community worsened,” Taylor told American Banker in an interview in his sun-filled office at the center, located on the University at Buffalo’s city campus. “When we looked upstream to see what was causing it, it was clear: It was systemic, structural racism.”
Banks’ moral obligations
As the East Side struggled over the decades with rampant poverty, dilapidated housing, vacant lots and disintegrating infrastructure, banks kept a physical presence in the community, albeit a shrinking one. In mid-2000, there were at least 20 bank branches scattered across the East Side, but by mid-2022, the number had fallen to around 14, according to the Federal Deposit Insurance Corp.’s deposit market share data. The 14 include four new branches that have opened since early 2019 — Northwest Bank, KeyBank, Evans Bank and BankOnBuffalo.
The first two branches, operated by Northwest in Columbus, Ohio, and KeyBank, the banking subsidiary of KeyCorp in Cleveland, were requirements of community benefits agreements negotiated between each bank and the National Community Reinvestment Coalition. In both cases, Northwest and KeyBank agreed to open an office in an underserved community.
Evans Bank opened its first East Side branch in the fall of 2021. The office is located in the basement of an $84 million affordable senior housing building that was financed by Evans, a $2.1 billion-asset community bank headquartered south of Buffalo in Angola, New York.
Banks have been very good at providing charitable contributions to the Black community. They get an ‘A’ for that. But doing the things that banks can do in terms of being a catalyst for revitalization and investment in this community, they have not done that.
The Rev. George Nicholas, an East Side pastor who is also CEO of the Buffalo Center for Health Equity
On the community and economic development front, banks have had varying levels of participation. Buffalo-based M&T Bank, which holds a whopping 64% of all deposits in the Buffalo market and is one of the largest private employers in the region, has made consistent investments in the East Side by supporting Westminster Community Charter School, a kindergarten through eighth-grade school, and the Buffalo Promise Neighborhood, a nonprofit organization focused on improving access to education in the city’s 14215 ZIP code.
Currently, Buffalo Promise Neighborhood operates four schools. In addition to Westminster, it runs Highgate Heights Elementary, also K-8, as well as two academies that serve children ages six weeks through pre-kindergarten. Twelve M&T employees are dedicated to the program, according to the Buffalo Promise Neighborhood website. The bank has invested $31.5 million into the program since its 2010 launch, a spokesperson said.
Other banks are making contributions in other ways. In addition to the Jefferson Avenue branch and as part of its community benefits plan, Northwest Bank, a $14.2 billion-asset bank, supports a financial education center through a partnership with Belmont Housing Resources of Western New York. Meanwhile, the $198 billion-asset KeyBank gave $30 million for bridge and construction financing for Northland Workforce Training Center, a $100 million redevelopment project at a former manufacturing complex on the East Side that was partially funded by the state.
BankOnBuffalo’s East Side branch is located inside the center, which offers KeyBank training in advanced manufacturing and clean energy technology careers. A subsidiary of $5.6 billion-asset CNB Financial in Clearfield, Pennsylvania, BankOnBuffalo’s office opened a month after the shooting. The timing was coincidental, but important, said Michael Noah, president of BankOnBuffalo.
“I think it just cemented the point that this is a place we need to be, to be able to be part of these communities and this community specifically, and be able to build this community up,” Noah said.
In terms of public-private collaboration, some banks have been involved in a deeper way. In 2019, New York state, which had already been pouring $1 billion into Buffalo to help revitalize the economy, announced a $65 million economic development fund for the East Side. The initiative is focused on stabilizing neighborhoods, increasing homeownership, redeveloping commercial corridors including Jefferson Avenue, improving historical assets, expanding workforce training and development and supporting small businesses and entrepreneurship.
In conjunction with the funding, a public-private partnership called East Side Avenues was created to provide capital and organizational support to the projects happening along four East Side commercial corridors. Six banks — Charlotte, North Carolina-based Bank of America, the second-largest bank in the nation with $2.5 trillion of assets; M&T, which has $203 billion of assets; KeyBank; Warsaw, New York-based Five Star Bank, which has about $6 billion of assets; Northwest and Evans — are among the 14 private and philanthropic organizations that pledged a combined $8.4 million to pay for five years’ worth of operational support, governance and finance, fundraising and technical assistance to support the nonprofits doing the work.
Laura Quebral, director of the University at Buffalo Regional Institute, which is managing East Side Avenues, said the banks were the first corporations to step up to the request for help, and since then have provided loans and other products and education to keep the program moving.
Their participation “is a signal to the community that banks cared and were invested and were willing to collaborate around something,” Quebral said. “Being at the table was so meaningful.”
Richard Hamister is Northwest’s New York regional president and former co-chair of East Side Avenues. Hamister, who is based in Buffalo, said banks are a “community asset” that have a responsibility to lift up all communities, including those where conditions have arisen that allow it to be a target of racism like the East Side.
“We operate under federal charters, so we have an obligation to the community to not only provide products and services they need but also support when you go through a tragedy like that,” Hamister said. “We also have a moral obligation to try to help when things are broken … and to do what we can. We can’t fix everything, but we’ve got to fix our piece and try to help where we can.”
In the wake of a tragedy
After the massacre, there was a flurry of activity within banks and other organizations, local and out-of-town, to respond to the immediate needs of East Side residents. With the community’s only supermarket closed indefinitely, much of the response centered around food collection and distribution. Three of M&T’s five East Side branches, including the Jefferson Avenue branch across the street from Tops, became food distribution sites for weeks after the shooting. On two consecutive Fridays, Northwest provided around 200 free lunches to the community, using a neighborhood caterer who is also the bank’s customer. And BankOnBuffalo collected employee donations that amounted to more than 20 boxes of toiletries and other items that were distributed to a nonprofit.
At the same time, M&T, KeyBank and other banks began financial donations to organizations that could support the immediate needs of the community. KeyBank provided a van that delivered food and took people to nearby grocery stores. Providence, Rhode Island-based Citizens Financial Group, whose ATM inside Tops was inaccessible during the store’s temporary closure, installed a fee-free ATM near a community center located about a half-mile north of Tops, and later put a permanent ATM inside the center that remains there today. And M&T rolled out a short-term loan program to provide capital to East Side small-business owners.
One of the funds that benefited from banks’ support was the Buffalo Together Community Response Fund, which has raised $6.2 million to address the long-term needs of the East Side.
Bank of America and Evans Bank each donated $100,000 to the fund, whose list of major sponsors includes four other banks — JPMorgan Chase, Citigroup, M&T and KeyBank. Thomas Beauford Jr., a former banker who is co-chair of the response fund, said banks, by and large, directed their resources into organizations where the dollars would have an immediate impact.
“Banks said, ‘Hey, you know … it doesn’t make sense for us to try to build something right now. … We will fund you in the work you’re doing,'” said Beauford, who has been president and CEO of the Buffalo Urban League since the fall of 2020. “I would say banks showed up in a big way.”
Fourteen months later, banks say they are committed to playing a positive role on the East Side. For the second year, KeyBank is sponsoring a farmers’ market on the East Side, an attempt to help fill the food desert in the community. Last fall, BankOnBuffalo launched a mobile “bank on wheels” truck that’s stationed on the East Side every Wednesday. The 34-foot-long truck, which is staffed by two people and includes an ATM and a printer to make debit cards, was in the works before the shooting, and will eventually make four stops per week around the Buffalo area.
Evans has partnered with the city of Buffalo to construct seven market-rate single family homes on vacant lots on the East Side. The relationship with the city is an example of how banks can pair up with other entities to create something meaningful and lasting, more than they might be able to do on their own, said Evans President and CEO David Nasca.
The bank has “picked areas” where it can use its resources to make a difference, Nasca said.
“I don’t think the root causes can be ameliorated” by banks alone, he said. “We can’t just grant money. It has to be within our construct of a financial institution that invests and supports the public-private partnership. … All the oars [need to be] pulling together or this doesn’t work.”
‘Little or no engagement with minorities’
All of these efforts are, of course, welcomed by the community, but there is still criticism that banks haven’t done enough to make up for their past contributions to segregating the city. And perhaps more importantly, some of that criticism centers on banks failing to do their most basic function in society — provide credit.
In 2021, the New York State Department of Financial Services issued a report about redlining in Buffalo. The regulator looked at banks and nonbank lenders and found that loans made to minorities in the Buffalo metro area made up 9.74% of total loans in Buffalo. Overall, Black residents comprise about 33% of Buffalo’s total population of more than 276,000, census data shows.
The department said its investigation showed the lower percentage was not due to “excessive denials of loan applications based on race or ethnicity,” but rather that “these companies had little or no engagement with minorities and generally made scant effort to do so.”
“The unsurprising result of this has been that few minority customers or individuals seeking homes in majority-minority neighborhoods have made loan applications … in the first instance.”
Furthermore, accusations of redlining persist today, even though the practice of discriminating in housing based on race was outlawed by the Fair Housing Act of 1968.
In 2014, Evans was accused of redlining by the New York State Attorney General, which said the community bank was specifically avoiding making mortgage loans on the East Side. The bank, which at the time had $874 million of assets, agreed to pay $825,000 to settle the case, but Nasca maintains that the charges were unfounded. He points to the fact that the bank never had a fair lending or fair housing violation, no specific incidents were ever claimed and that the bank’s Community Reinvestment Act exam never found evidence of discriminatory or illegal credit practices.
The bank has a greater presence on the East Side today, but that’s because it has grown in size, not because it is trying to make up for previous accusations of redlining, he said.
“Ten years ago, our involvement [on the East Side] certainly wasn’t what you’re seeing today,” Nasca said. “We were looking to participate more, but we were participating within our means and our reach. As we have grown, we have built more resources to be able to do more.”
Shortly after accusations were made against Evans, Five Star Bank, the banking arm of Financial Institutions in Warsaw, New York, was also accused of redlining by the state Attorney General. Five Star, which has been growing its presence in the Buffalo market for several years, wound up settling the charges for $900,000 and agreeing to open two branches in the city of Rochester.
KeyBank is currently being accused of redlining by the National Community Reinvestment Coalition. In a 2022 report, the group said that KeyBank is engaging in systemic redlining by making very few home purchase loans in certain neighborhoods where the majority of residents are Black. Buffalo is one of several cities where the bank’s mortgage lending “effectively wall[ed] out Black neighborhoods,” especially parts of the East Side, the report said.
KeyBank denied the allegations. In March, the coalition asked regulators to investigate the bank’s mortgage lending practices.
Beyond providing more credit, some community members believe that banks should be playing a larger role in addressing other needs on the East Side. And the list of needs runs the gamut from more grocery stores to safe, affordable housing to infrastructure improvements such as street and sidewalk repairs.
Alexander Wright is founder of the African Heritage Food Co-op, an initiative launched in 2016 to address the dearth of grocery store options on the East Side, where he grew up. Wright said that while banks’ philanthropic efforts are important, banks in general “need to be in a place of remediation” to fix underlying issues that the industry, as a whole, helped create. (After publication of this story, Wright left his job as CEO of the African Heritage Food Co-Op.)
Aside from charitable donations, banks should be finding more ways to work directly with East Side business owners and entrepreneurs, helping them with capital-building support along the way, Wright said. One place to start would be technical assistance by way of bank volunteers.
“Banks are always looking to volunteer. ‘Hey, want to come out and paint a fence? Want to come out and do a garden?'” Wright said. “No. Come out here and help Keshia with bookkeeping. Come out here and do QuickBooks classes for folks. Bring out tax experts. Because these are things that befuddle a lot of small businesses. Who is your marketing person? Bring that person out here. Because those are the things that are going to build the business to self-sufficiency.
“Anything short of the capacity-building … that will allow folks to rise to the occasion and be self-sufficient I think is almost a waste,” Wright added. “We don’t need them to lead the plan. What we need them to do is be in the community and [be] hearing the plan and supporting it.”
Parker, of Open Buffalo, has similar thoughts about the role that banks should play. One day, soon after the massacre, an ATM appeared down the street from Tops, next to the library that sits across the street from Parker’s office. Soon after the ATM was installed, Parker began fielding questions from area residents who were skeptical of the machine and wanted to know if it was legitimate. But Parker didn’t have any information to share with them. “There was no outreach. There was no community engagement. So I’m like, ‘Let me investigate,'” she said. “I think that’s a symptom of how investment is done in Black communities, even though it may be well-intentioned.”
As it turns out, the temporary ATM belonged to JPMorgan Chase. The megabank has had a commercial banking presence in Buffalo for years, but it didn’t operate a retail branch in the region until last year. Today it has four branches in operation and plans to open another two by the end of the year, a spokesperson said.
After the Tops shooting, the governor’s office reached out to Chase asking if the bank could help in some way, the spokesperson said in response to the skepticism. The spokesperson said that while the Chase retail brand is new to the Buffalo region, the company has been active in the market for decades by way of commercial banking, private banking, credit card lending, home lending and other businesses.
In addition to the ATM, the bank provided funding to local organizations including FeedMore Western New York, which distributes food throughout the region.
“We are committed to continuing our support for Buffalo and helping the community increase access to opportunities that build wealth and economic empowerment,” the spokesperson said in an email.
In the year since the massacre, there has been some progress by banks in terms of their interest in listening to the East Side community and learning about its needs, said Nicholas. But he hasn’t felt an air of urgency from the banking community to tackle the issues right now.
“I do experience banks being a little more open to figuring out what their role is, but it’s slow. It’s slow,” said Nicholas. The senior pastor of the Lincoln Memorial United Methodist Church, located about a mile north from Tops, Nicholas is part of a 13-member local advisory committee for the New York arm of Local Initiatives Support Coalition, or LISC. The group is focused on mobilizing resources, including banks, to address affordable housing in Western New York, specifically in the inner city, as well as training minority developers and connecting them to potential investors, Nicholas said.
Of the 13 members, seven are from banks — one each from M&T, Bank of America, BankOnBuffalo, Evans and KeyBank, and two members from Citizens Financial Group. One of the priorities of LISC NY is health equity, and the fact that banks are becoming more engaged in looking at health disparities is promising, Nicholas said. Still, they have more work to do, he said.
“I need them to think more on how to strengthen and build the economy on the East Side and provide leadership around that, not only to provide charitable things, but using sound business and banking and community development principles to say, ‘OK, if we’re going to invest in this community, these are the types of things that need to happen in this community,’ and then encourage their partners and other people they work with … to come fully in on the East Side.”
Some bankers agree with the community activists.
“Putting a branch in is great. Having a bank on wheels is great,” said Noah of BankOnBuffalo. “But if you’re not embedded in the community, listening to the community and trying to improve it, you’re not creating that wealth and creating a better lifestyle for everyone.”
What could make a substantial difference in terms of banks’ impact on the community is a combination of collaboration and leadership, said Taylor. He supports the idea of banks leading the charge on the creation of a comprehensive redevelopment and reinvestment plan for the East Side, and then investing accordingly and collaboratively through their charitable foundations.
“All of them have these foundations,” Taylor said. “You can either spend that money in a strategic and intentional way designed to develop a community for the existing population, or you can spend that money alone in piecemeal, siloed, sectorial fashion that will look good on an annual report, but won’t generate transformational and generational changes inside a community.”
Banks might be incentivized to work together because it could mean two things for them, according to Taylor: First, they’d have an opportunity to spend money in a way that would have maximum impact on the East Side, and second, if done right, the city and the banks could become a model of the way to create high levels of diversity, equity and inclusion in an urban area.
“If you prove how to do that, all that does is open up other markets of consumption all over the country because people want to figure out how to do that same thing,” Taylor said.
Some of that is already happening, at least on a bank-by-bank case, said KeyBank’s Owunwanne. Through the KeyBank Foundation, the company is able to leverage different relationships that connect nonprofits to other entities and corporations that can provide help.
“I see this as an opportunity for us to make not just incremental changes, but monumental changes … as part of a larger group,” Owunwanne said “Again, I say that not to absolve the bank of any responsibility, but just as a larger group.”
Downstairs from Parker’s office, Golden Cup Coffee, a roastery and cafe run by a husband and wife team, and some other Jefferson Avenue businesses are trying to build up a business association for existing and potential Jefferson-area businesses. Parker imagined what the group could accomplish if one of the banks could provide someone on a part-time basis to facilitate conversations, provide administrative support and coordinate marketing efforts.
“In the grand scheme of things, when we’re talking about a multimillion dollar [bank], a part-time employee specifically dedicated to relationship-building and building out coalitions, it sounds like a small thing,” Parker said. “But that’s transformational.”
JPMorgan Chase will buy nearly $2 billion worth of mortgages to grease Banc of California‘s purchase of PacWest Bancorp, Bloomberg reported.
The bank entered into an agreement to buy $1.8 billion of single-family residential loans at a discount, according to the outlet.
Banc of California and PacWest announced on Tuesday an all-stock merger with a $400 million equity raise from Warburg Pincus and Centerbridge Partners to create a bank with $36 billion in assets.
Banc of California said Tuesday in a presentation that it entered into a “contingent forward asset sale agreement” for its residential mortgage portfolio in a presentation without naming the buyer.
The mortgage transaction is expected to close by late 2023 or early 2024 when the merger is scheduled to be completed, Reuters reported.
Banc of California and PacWest plan to sell about $7 billion of loans, mortgage bonds and other assets in their securities portfolios to pay down expensive debt, according to Bloomberg.
It’s not clear whether JPMorgan Chase plans to retain the $1.8 billion in loans or sell them to investors.
Banc of California and JPMorgan declined to comment.
JPMorgan acquired First Republic Bank‘s mortgage loans – almost entirely jumbos – when it bought the troubled bank in May.
JPMorgan acquired about $173 billion in First Republics loans – of which about 60% of First Republic’s loans were single-family mortgages, according to the firm’s annual report.
Following the earlier failures of the three regional banks — Silicon Valley Bank, First Republic and Signature Bank — there was fear that PacWest would be next to fail.
PacWest has a similar business model to First Republic Bank, which served wealthy clients by offering interest-only mortgages in which the borrower didn’t have to pay back any principal for the first 10 years of the loan.
As with many other regional banks, PacWest had billions of dollars worth of unrealized losses in its bond portfolio and uninsured deposits that were at risk of being pulled.
Inside: Need help with do credit cards have routing numbers? This guide teaches you the basics of credit card money management.
Have you ever wondered if credit cards have routing numbers?
If so, you’re not alone.
In fact, this is a question that we get asked quite often here with money management.
The short answer is no, credit cards do not have routing numbers. But there’s a bit more to it than that.
Keep reading to learn more about why credit cards don’t have routing numbers and what other options are available if you need to make a direct deposit or automatic payment using your credit card.
What are Routing Numbers?
A routing number, often known as ABA or Transit number, is a unique nine-digit code that identifies your bank in the U.S. and helps to direct your transactions correctly.
Here’re a few things to take note of:
It is indispensable for online transactions, direct deposits, and financial exchanges.
Banks and financial institutions use it to identify themselves during transactions.
It usually appears at the bottom of your checks.
There may not be a routing number for all financial institutions.
Cherished for over a century, these magic digits aid in a seamless banking experience.
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Do Credit Cards Have Routing Numbers?
Here’s the deal, no, credit cards do not have routing numbers.
So, when you’re making a payment or doing a transaction, you won’t need any routing number.
You just enter your credit card’s account number, and you’re good to go.
Confusing it with routing numbers? Learn how to read a check.
Why Credit Cards Don’t Have Routing Numbers?
Your credit card and bank accounts are two completely different methods of paying.
While routing numbers are nine-digit codes that identify your bank. They’re used to process payments and deposits, and they appear on the bottom of your checks.
So, naturally, you might assume that credit cards have routing numbers. But they don’t—and there are a few reasons why.
1. Debit Cards Do Not Need Routing Numbers
Primarily, routing numbers are for bank transactions like wire transfers, checks, and direct deposits. When you use a debit card, you’re not performing these actions.
Hence, there is no routing number involved.
Your debit card is directly linked to your bank account, and that’s how transactions are processed.
For kids… Using a Greenlight debit card is a great way to teach responsibility.
2. Credit Cards Do Not Need Routing Numbers
Credit cards function entirely differently from your usual bank account! Here are the key points:
A credit card has a unique 16-digit account number, not a routing number.
It’s not about moving funds from your account to another when you’re using your credit card. Instead, you’re essentially borrowing bucks from your card issuer, sort of like a personal money-lender.
In short, your credit card enjoys its own exclusive payment processing lane, no routing numbers required!
Understanding Credit Card Numbers
Credit card numbers, much like routing numbers, hold critical account information that extends beyond just a unique identifier.
Each series of digits serve a purpose – revealing the card network, issuer, and your specific account number, and even acting as a key validation tool.
Understanding the structure of credit card numbers can help you not only identify your card type but also the financial institution it’s associated with.
1. Account number
An account number on your credit card is a unique 16-digit identifier. Think of it like your card’s fingerprint.
For example, if you’re holding a Mastercard, your account number likely starts with the number “5”. This number is different from your card security code or pin. It’s crucial for processing transactions and differentiates your card from others. Each time you transact, this account number comes into play.
So, knowing what it represents adds to your financial literacy!
2. Brand identifier
American Express, Discover, MasterCard, and Visa all have different systems for generating credit card numbers.
A routing number is not used in the credit card number generation process. Therefore, a credit card does not have a routing number.
Think of credit card numbers like a secret map. That first digit? It’s the Major Industry Identifier (MII), a fancy name for the network your credit card belongs to:
3 for American Express
4 for Visa
5 for Mastercard
6 for Discover.
The next handful of numbers is your Issuer Identification Number (IIN), the ‘who’s who’ of banks showing the issuer of your card. For example, a card starting with 475050 is a Visa from JPMorgan Chase.
The remaining digits are your unique account number with a check digit for validation.
3. CVV number
CVV stands for Card Verification Value.
Your credit card’s CVV number is that extra little bit of security magic for online shopping. This 3-digit (or 4, for you Amex users) number hangs out on the back of your card—except for American Express, where it lounges on the front.
It’s an anti-fraud champion, making sure the wizard behind the curtain really has the card itself, not just the number.
Remember, this little number works best when kept a secret, so keep it under wraps!
4. Cardholder name
The cardholder name on your credit card is just your own name — simple as that. It’s printed right on your card.
This is to help the retailers verify that you, the cardholder, are indeed the legit owner of the card when making a purchase.
So, it’s just another security step to keep your card safe from theft!
Credit Card Example Number
Here is a quick example of how credit card numbers are used in real life.
Imagine card number 4298 6512 9087 6543.
That ‘4’ indicates it’s a Visa. The ‘2986’ might say it’s from Bank XYZ, and the ‘5129087654’ is just you! Now, isn’t that a cool language to learn?
How Credit Card Transactions Work
When you use a credit card, you are borrowing money from the card issuer. It is not a “free” unlimited supply of funds.
If you pay your credit card in full by the payment date, you don’t owe interest. However, if you don’t pay the balance in full, you will start to accumulate interest and possibly feed.
Here are some key points of knowledge to know:
The billing cycle refers to the period, about thirty days, where all your financial transactions are tracked. This period generally lasts for an entire month.
The statement balance is the amount of money you owe at the end of your billing cycle. Once this amount is determined, you’re given a due date, which is typically 25 days after the end of your billing cycle, to repay the full amount. If you’re able to pay off your entire statement balance by this due date, you’ll avoid any interest charges on your credit card. However, if you fail to pay, you’ll have to incur an additional fee.
The outstanding balance consists of all your transactions from your grace period statements. This is the sum that you need to pay off in order to have a zero balance on your credit card.
Did you know you can use a Visa Gift Card on Amazon?
Now, You know the Account Number for Credit Card
We hope this guide has helped you understand a little more about credit cards and how to use them wisely.
Remember, a credit card is a powerful tool that can help you build your credit and improve your financial status.
Use it wisely and always pay your balance in full and on time to avoid costly fees and interest charges.
So next time you pull out your card, impress your friends with this cool trivia on credit cards!
Now, learn how many bank accounts should I have…
Know someone else that needs this, too? Then, please share!!