THE IMPOSSIBLE DREAM

By ELIZABETH GLEICK

IF ANYONE HAD TOLD TERRENCE PAYNE, as he watched the wall of flames destroy his family business on April 29, 1992, that four years later his lot deep in the heart of South Central Los Angeles would still be empty, he would have refused to believe it. Payne figured he could rebuild the small grocery store and rental apartments, which had been in his family since 1944, within a year of the L.A. riots. But last week, when Payne met for the umpteenth time with the cadre of bankers and financial advisers trying to close the deal on his project, he was discouraged. "I never thought it would take this long," he says. "And I never imagined it could be so painful."

In the wake of the 1992 riots there was a flurry of hopeful talk, a tidal wave of good intentions and a number of special programs set up to rebuild the neighborhoods hardest hit by fire and looting. Yet Payne has jumped through more hoops than a circus tiger, and still has not managed to cobble together the financing to rebuild and expand Taylor's Corner into a 16,000-sq.-ft. minimall, containing a full-service grocery store, a laundry and a real estate office. His journey through the system of public and private lenders has shown him that when it comes to approving loans in questionable zip codes, lenders have not come as far as they promised. Of 1,100 structures that were destroyed or damaged during the riots, about half were rebuilt with the help of loans, insurance money or the owner's own funds. Of the remaining half, about 250 are still vacant lots. "He's not atypical," says Linda Griego, a former L.A. deputy mayor who is now president of RLA, a redevelopment organization formed just weeks after the riots. "There were others like him who every time they took two steps forward went back 10."

Two years before the riots, Payne's insurance policy was canceled because he was in a "geographically undesirable location." Like some 66% of those who applied after the riots, he managed to get a Small Business Administration construction loan, for $212,700. When he began searching for the additional $1.2 million he needed to complete construction and stock his businesses with inventory, however, he hit a wall. Payne spent his life savings of $100,000, plus an additional borrowed $85,000, on building permits, blueprints, and the like, but could not get a city-sponsored loan because, he believes, of the scale of his project. He trudged to more than a dozen banks, which rejected his application because his investment did not represent a sufficient portion of the plan.

When First Interstate Bank, which last month merged with Wells Fargo to create the second largest bank in California, also turned him down, Payne wrote a letter to the Federal Reserve Bank threatening to file a complaint of redlining (loan discrimination against minority neighborhoods). First Interstate then offered $585,000, on the condition that Payne put up his lot and $100,000 of his mother's property as collateral. Even so, Payne is still about $350,000 shy of what he needs to begin construction--and losing ground. Vacant, the land is declining in value. "It puts the applicant on a slippery slope," says Payne. "I have no income, I have no building, and I have a debt of more than $1,000 a month I hadn't had before the riots."

While Payne's experience is more extreme than most, according to RLA's Griego, it reflects the difficulties inner-city borrowers routinely encounter. In 1977 the federal Community Reinvestment Act required banks to serve all customers equally in the neighborhoods where they accept deposits. But only in 1989 did the government begin requiring that banks report their home mortgages by gender, race and income. Even now, black applicants are rejected more than twice as often as whites with similar incomes and credit histories. In 1994, the Clinton Administration extended the CRA reporting requirements to small-business loans, which banks must divulge by ZIP code.

More effective than legislation, however, is the pressure of public opinion. At 1992 hearings on the merger of Bank of America with Security Pacific, for instance, banking reformers insisted that banks' CRA performance be a condition of all future mergers. And when Wells Fargo merged with First Interstate, it committed an unprecedented $45 billion to investment in low-income areas. "They made the decision to do something because they were pushed," says Robert Gnaizda, general counsel for the Greenlining Institute, an advocacy group. But those who have changed their lending practices are starting to claim it is worth it. "This is not only the right thing to do," says Richard M. Rosenberg, chairman and outgoing CEO of Bank of America. "It is the smart thing to do."

Payne, who hopes to get his last piece of financing from the L.A. Development Corporation, knows this firsthand. He points out the small measure of good his minimall would bring to the neighborhood. For now, the nearest supermarket is half a mile away. Across the street from his vacant lot is a new high school, a last-chance facility where Payne has become a sponsor. And though his proposal provides for only 16 employees, it is a start.

--Reported by Sylvester Monroe/Los Angeles

With reporting by Sylvester Monroe/Los Angeles