Lending Banks Shun Minority Areas, Boston Study Says

FOR the second time in three months, Boston banks have received a stern rebuke for their mortgage lending patterns in minority neighborhoods. A study released by the Boston Redevelopment Authority (BRA) last week shows that from 1981 to 1987, major local banks made three times the numbers of mortgages in white neighborhoods as they did in black.

Boston is not alone. A study in June by the Washington-based Center for Community Change found that in 14 other cities the rate of lending for single and multifamily housing is lower for minorities than for whites.

Responding to the BRA study, Richard Pollard, chairman of the board of the Massachusetts Bankers Association, says: ``It looks like people coming in are not getting served because they're black. It's not that. The black community is not well serviced financially for lots of reasons.'' He says mortgages were not being denied, they were just not being generated due to a combination of factors including low incomes and the high housing prices.

Lew Finfer, staff director for the Massachusetts Affordable Housing Alliance, says that a similar study by the Federal Reserve Bank of Boston, even after factoring out lowered income and other factors, found a 24 percent difference between black and white neighborhoods.

The idea for the city's study of the issue was born in the summer of 1988 when the BRA was trying to build affordable housing on city-owned land, using city subsidies, says Peter Dreier, the BRA's director of housing.

``We found it was like pulling teeth to get banks to invest in these projects which were financially feasible,'' Mr. Dreier says. The agency hired Charles Finn, an economist at the University of Minnesota, to do a study.

When the findings of the Federal Reserve Bank study were leaked in March, there was great community uproar. Banks, city officials, and community groups began to meet. The three groups are working on a new reinvestment plan that provides for a $100 million affordable-housing mortgage pool, a $100 million revolving fund for rental housing construction, and $10 million for economic development that is intended to leverage $60 million in federal money and bank loans.

The plan also calls for improved banking services in minority communities: 15 new branches over the next five years, increasing personal banking services, and 30 new automated teller machines.

THE groups are now stuck on two points: Bankers are balking at being asked to issue mortgage rates at one to two points below the standard, and to allow more flexible underwriting.

The study found that there was a demand for mortgages that was being met in other ways: through seller financing, mortgage companies, and credit unions.

``One of the key findings of the report is that banks have overlooked opportunities to make profitable investments in Boston's minority neighborhoods, due to what might be called institutional blindness for a variety of reasons,'' says Dreier. ``There are a substantial number of working families with good credit histories, making $25,000-$30,000, that want to buy homes.''

Many of the investments that were made, he says, were for investor-owned condos in lower-income white neighborhoods. Many of those loans have since been defaulted on.

Banks are required under the federal Community Reinvestment Act to invest in and actively promote themselves in all the neighborhoods in their charter. The BRA study indicates that the banks have failed to meet their responsibilities, and that federal and state bank regulators have failed to enforce the act.