Curtailing lending excesses

By Alan Solomont and Esther Schlorholtz  |  May 5, 2006

THE NEWS lately about mortgage lending is not good. Consider these developments:

The Fair Housing Center of Greater Boston reported this week that, in recent
testing it conducted, discrimination against minorities by mortgage lenders
occurred in nearly half of the test cases.

The Massachusetts Community & Banking Council released a report earlier this
year showing that blacks and Latinos are more than five times more likely than
whites to get high cost mortgages.

According to the council, 17 suburban communities in Greater Boston report that
the percentage of high cost loans in their communities has grown beyond 10
percent, proving that this type of mortgage lending is spreading.

The Sunday Globe Magazine correlated the growing percentage of high cost loan
rates in Boston's neighborhoods with the growing rate of foreclosures in those
same neighborhoods.

While these troubling trends continue, out-of-state mortgage companies are
disparaging local banks in advertisements, implying falsely that banks say ''no"
to most loan requests. Of course, bank mergers and acquisitions, along with
aggressive marketing tactics by non-Massachusetts lenders, have changed the
mortgage lending landscape. In 1990, local banks and credit unions controlled
nearly 80 percent of the home mortgage market; today in Boston, it is 22
percent.

Despite this, Massachusetts banks consistently out-perform out-of-state mortgage
companies in lending to lower income and minority groups, and their loans are
solid and well-performing. Much of this is due to the federal and state
Community Reinvestment Acts as well as good regulatory oversight. But banks with
a local presence are also responsible lenders who understand that healthy
business and healthy communities go hand-in-hand. High cost loans and
foreclosures mean a loss of wealth in the community and a downward spiral of
destabilization that benefits no one.

Many local banks have outstanding records in serving low-income populations --
nine of the top 10 banks in Massachusetts have outstanding ratings under the
Community Reinvestment Act. They work in partnership with the state,
municipalities, and not-for-profit organizations dedicated to ensuring long-term
stable homeownership opportunities with mortgage products like the
state-supported SoftSecond Loan Program and MassHousing lending programs. These
innovative products work not only for the lender, but also for the borrower, and
if the loans are good for the borrower, they are good for the community.

Lenders dedicated to fairness and service to their communities have shown that
it is possible to lend responsibly, to do good in the community, and to do
business profitably as well. We have also learned that successful lending to
first-time home buyers requires quality pre-purchase counseling. Borrowers not
ready to buy because of credit history problems or too much debt need help to
improve their situations before buying a home and mortgaging themselves over
their heads. No lender should take advantage of inexperienced borrowers who lack
the ability or means to pay back debt. Because of the virtual absence of
affordable housing in the Commonwealth, many families try to stretch beyond
their means to buy homes. Lenders should not make this situation worse by
preying on people desperate to own their own homes.

State legislation is pending that would require largely out-of-state mortgage
companies to have Community Reinvestment Act-like responsibilities similar to
local banks. Passage of the Homeownership Investment Act would extend
responsible lending requirements to these mortgage companies, including those
that engage in questionable lending practices. The legislation would encourage
them to join area banks and credit unions in providing affordable and
responsible mortgage lending options for all of the Commonwealth's homebuyers
and homeowners.

Alan Solomont is a director of Boston Private Bank and chairman of the Community
Reinvestment Act Committee. Esther Schlorholtz, senior vice president of Boston
Private Bank, chairs the board of the Massachusetts Community & Banking Council.