Your Mortgage : Network to Supply Loans in Low-Income Areas

One of the country’s largest sources of mortgage capital has quietly created a new nationwide network designed to pump home loans into one of the least-served areas: Minority and lower-income neighborhoods of central cities.

GE Capital Mortgage Services--a subsidiary of General Electric Co.--has begun installing computerized loan origination (CLO) software in small, community-based lending institutions owned by minorities or women in cities across the country. The firm expects to generate what it calls “substantial new volume” in home loans from urban neighborhoods in the coming six to 12 months.

The new system essentially allows small banks and S&Ls; to plug into the national capital market--often for the first time--and to offer loan terms and electronic application and processing that would normally be found only in the largest lending institutions.

Called Residential Express, the program is targeted exclusively at institutions located and connected with urban or minority markets. Among the early participants, for example, are African-American, Latino and Native-American owned or oriented community banks and S&Ls.; Locations range from big cities--such as Washington, D.C., Philadelphia, Chicago and San Antonio--to tiny communities such as Glasgow, Mont., and Hulbert, Okla. GE expects to kick off the program in many other locations in the near future.

Mortgage industry studies have shown that lenders with small capitalizations serving minority areas often have difficulty providing home loans with rates and terms that are competitive with those at larger institutions hooked into the secondary mortgage market.

Without the in-house capability to sell their loans into the national marketplace, community-based banks tend to require tougher terms and higher yields from their borrowers. Rather than 5% minimum down payments, for instance, they may require 15% or 20% down. Rather than a menu of 50 different loans for customers, they may offer just a handful of fixed- and adjustable-rate alternatives at premium rates--all of which they retain in their portfolios.

Small lenders also rarely can afford to offer virtually paper-free, electronic mortgage qualification, application and processing services when they originate loans. Yet an applicant under the new program can walk into a participating community lender, provide basic information on household income and then scan dozens of loan possibilities by computer, including cut-rate national programs targeted at central cities by Fannie Mae.

Once a home buyer or owner chooses to make an application, nearly every step thereafter is electronic. The bank’s computer dials a local number that ties into GE Capital Mortgage Services’ national underwriting database in Cherry Hill, N.J. While the bank’s mortgage officer is entering the applicant’s name, address and Social Security number, the underwriting center calls up the borrower’s latest credit report from a national credit reporting service. Should the borrower care to see that document, the bank can pull it off the screen instantly and print it out in hard copy.

That’s a service that borrowers in even the largest, most sophisticated lending institutions generally cannot obtain while sitting at the application table. Yet an instant “read” on credit status can save consumers--and lenders--huge amounts of wasted time if the report is negative. Equally important, it allows the applicant to contact the credit bureau immediately to challenge any incorrect information contained in the report.

“What we’re trying to do,” says Ray Sims, the national head of GE’s new program, “is to take the latest technology and put it into locations that frankly have been ignored” or have been difficult to reach for many national lenders.

Major financial institutions around the country have come in for criticism and congressional scrutiny over their minority-area lending activities during the past two years. Bills have been introduced in Congress this session to further tighten federal agency oversight of lenders’ minority-lending efforts--a policy goal supported by the Clinton administration.

GE Mortgage’s CLO concept attempts to jump a major hurdle in minority and low-income lending by targeting not borrowers themselves but the community-based banks who exist primarily to serve those borrowers. By offering advanced technology to those lenders, says Sims, GE’s mortgage company “creates business where we hadn’t seen it before.”

Sims makes no bones about GE’s main motivation. “We see this as a potentially large, underserved market. We are in this to make a profit” by underwriting and purchasing the loans originated by lenders.

The community-based organizations, for their part, stand to earn fees by selling the loans to GE, or they can retain the mortgages in their portfolios. A spokeswoman and director of one of the participating minority-owned lenders, Jeanne Viner Bell of Washington D.C.’s Independence Federal Savings Bank, put it this way: “Do we expect this to generate more home mortgage volume (from minority borrowers)? You bet!”