Pawn-Shop Mortgages

FAST-BUCK artists seem never to sleep. In our town, the latest scam has been to saddle minority homeowners with high-interest rehab loans many of them can ill afford, and then quickly to foreclose on the dwellings when the borrowers fall behind. In many cases, these second-mortgage hucksters have worked in cahoots with unscrupulous contractors, who pitch the loans - sometimes with interest rates above 20 percent - along with their roofing or siding bids.A recent study by a Boston watchdog group disclosed that in several of the city's minority neighborhoods, three-fourths of the borrowers from two high-interest lenders either have had to give up their homes or are facing foreclosure. As a result of the scandal, Massachusetts rightly is cracking down on second-mortgage lenders. This summer it became the 35th state to license private mortgage lenders and loan brokers. Many second-mortgage lenders are highly reputable; realizing that their industry is being tainted by some fly-by-nighters, however, they acceded to the legislation. Although not directly implicated in the scandal, local banks have been watching its unfoldment uncomfortably. Some of them have financed the dubious lenders, asking few questions as they furnished lines of credit for the lucrative home-improvement loans. More generally, banks have been stung by criticisms that minority homeowners must resort to lenders who gouge because minority neighborhoods are denied their fair share of bank credit. Whether or not banks have a legal duty to discipline the lending practices of mortgage companies to which they extend credit, they have a responsibility not to abet, through "willful ignorance," schemes that prey on the inexperience or desperation of lower-income homeowners - any more than honest bankers would blithely accept suitcases of cash from suspicious depositors. As to redressing the charge that banks shun minority neighborhoods - a claim made in cities across the United States - Massachusetts banks have made headway under a community-reinvestment project worked out with Boston officials and community leaders about two years ago. Organizations have been formed to channel millions of dollars of mortgage, development, and small-business credit into minority communities. The project is still building up steam, though; let's hope that this summer's disclosures will s toke the boilers. Massachusetts banks insist that their anemic presence in minority neighborhoods is due to legitimate credit-risk analysis, not to discriminatory "redlining." Yet many of them acknowledge that they could do far more to improve access to their banking services by credit-worthy people in such neighborhoods - for instance, by more active community outreach and by locating more branches and automatic tellers there. Wider availability of bank credit in minority neighborhoods would lower demand for the "services" of the green-eyeshade lenders.