Bank of New England Reviews Its Loans to Secondary Lenders
The failed Bank of New England said it is reexamining about $40 million in loans made to secondary mortgage companies that allegedly charged high interest rates to low-income borrowers.
Bank of New England and its acquirer, Fleet/Norstar Financial Group Inc., are two of several banks whose relationships with the unregulated mortgage lenders have come under fire in the local press.
Growth Mortgage Co. of Brookline, Mass., which Bank of New England said it has extended a $4 million line of credit, has been cited for making second mortgages with rates as high as 24%.
The Bank of New England has extended lines of credits to 25 secondary mortgage companies operating in Massachusetts, said James R. Dorsey, a spokesman for the bank. The bank is surveying interest rates on the subsequent loans made by the mortgage companies and is seeking to determine if the loans are concentrated in low-income and minority neighborhoods.
Some Loans Being Restructured
So far, it has found that 30 of 478 loans assigned to the bank as collateral for its credit line were made in such neighborhoods, Mr. Dorsey said. The bank is taking steps to restructure some of these loans to make them "more affordable," he said.
Meanwhile, the Federal Reserve Bank of Boston is investigating allegations by a community group that Fleet/Norstar made loans to secondary mortgage companies that charged "outrageous" rates.
The community group, the Union Neighborhood Assistance Corp., appealed to the Fed on May 29 to block Fleet's acquisition of the Bank of New England, citing Fleet's dealings with the mortgage firms.
Fleet has acknowledged it made $7.5 million of loans to Resources Northeast Inc. of Hinham, Mass., from 1987 through 1990. The community group accuses the mortgage company of making loans at extraordinarily high rates that led some low-income and minority borrowers to lose their homes.
Fleet says it is no longer making loans to the company and was unaware of the high rates at the time. Fleet spokesman Robert W. Lougee said the bank is reviewing its portfolios to determine if other loans have been made to secondary mortgage companies.