Academic journal article Boston College Journal of Law & Social Justice

One Mortgage: A Model of Success for Low-Income Homeownership

Academic journal article Boston College Journal of Law & Social Justice

One Mortgage: A Model of Success for Low-Income Homeownership

Article excerpt

INTRODUCTION

In 1968, elected officials and bankers in Boston designed a mortgage program in the wake of the urban rioting that followed the assassination of Reverend Martin Luther King. It was called Boston Banks Urban Renewal Group, or B-BURG, and the legacy of that program is one of foreclosure, redlining, and blockbusting. "Drive-by" home inspections, 100% govern ment guarantees, lack of community input, and no down payments were just some of the problems that plagued the program from the outset and led to record foreclosure rates in just a few years, as detailed in the book The Death of an American Jewish Community: A Tragedy of Good Intentions. (Levine & Harmon 1992).

Some twenty years later, most banks had become wary of inner-city mortgage lending and had largely stayed away from engaging in Boston's communities of color. Mortgage lending suffered and bank branches were closed in the communities that needed them most. (Dreier 1991, 18-19). Eventually, a 1989 study by the Federal Reserve Bank of Boston was leaked to the press, and found a pattern of racial bias in Boston's mortgage lending over the intervening period that could not be explained by income, credit history, or other legitimate loan underwriting factors. (Munnell et al. 1992, 50-51).

In response to public outcry and a community-led campaign about the Federal Reserve study, representatives from the Massachusetts Housing Partnership (MHP), the Massachusetts Bankers Association, the Commonwealth of Massachusetts, the City of Boston, the Massachusetts Affordable Housing Alliance (MAHA), and other community advocacy groups began meeting to find common ground and potential solutions. This working group, informed by regular feedback from potential first-time homebuyers, focused on designing a mortgage product that would promote responsible new underwriting standards for inner-city properties. It sought to address common barriers to low-income, first-time homeownership, particularly high minimum down payments and costly private mortgage insurance.

The process resulted in the SoftSecond Loan Program, a collaborative program between the banking industry and state government. SoftSecond was initially launched as a pilot program in Boston in 1991 and expanded statewide in 1992 to ensure that mortgage lending would be available on reasonable terms to traditionally underserved borrowers and neighborhoods. The program operated with few changes through 2013 when MHP launched SoftSecond's successor, the ONE Mortgage program. ONE Mortgage maintained the same features that made SoftSecond so affordable, discussed in detail in Sections II and III below, and simplified the structure of the loan, enabling more lenders to participate.

Since the program's inception, it has served over 5,000 first-time homebuyers in the City of Boston and nearly 20,000 first-time homebuyers statewide. Two-thirds of the loans in Boston support home purchases by households of color, and half of the loans statewide support households of color. The program is administered by MHP, which oversees loan origination by participating lenders, and support services are delivered by homebuyer education and counseling partner agencies.

The program also has two other "owners"-the lenders themselves who originate, hold, and, in most cases, service the loans, and the community organizations, led by MAHA and its Homeownership Action Network, which work to encourage lender participation and increase the impact of the program across the state. This unique buy-in from three sectors-public, private and non-profit-contributes to the staying power of the program. There is no other multi-bank affordable mortgage lending program with the scale and duration of the ONE Mortgage Program anywhere else in the country.

I. LENDER PARTICIPATION AND LOAN PROCESSING

Under the Community Reinvestment Act (CRA) and its Massachusetts counterpart, banks have an obligation to reinvest in the communities where they do business. …

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