Over the past five years, European American Bank has transformed itself from a reluctant mortgage lender to a champion of home loans that other institutions shun.

The conversion wasn't easy for the Uniondale, N.Y., bank. Executives there say it took trial and error, old-fashioned grunt work, and a willingness to bend lending rules.

Its experience is fairly typical among lenders. Most have found that fair-lending is complex and labor-intensive, and that one-dimensional solutions are ineffective.

"There's a more aggressive outreach on our part," said William Redmond, group senior vice president for mortgage lending. "We've realized that the world of everyone being a perfect credit is unrealistic."

In the early 1990s, the bank emphasized commercial real estate lending, which paid off until the market for office buildings virtually disappeared. In 1991, regulators turned up the heat on banks' mortgage lending practices by making their activities public under the Home Mortgage Disclosure Act.

When it pulled back sharply from commercial loans, the bank, a unit of Dutch banking giant ABN Amro Holding, turned more toward residential lending and began using the Home Mortgage Disclosure Act to spur a lower-income lending drive that has strengthened each year.

By 1995, it had reduced the rejection rate for minority applicants to 11%, from 23% in 1991, while processing many more applications.

Certainly progress has been made, Mr. Redmond said, but "we still have a ways to go."

Still, there's no disputing that European American's mortgage lending has mushroomed. Its $100 million outlay for residential loans in 1992 has grown to an estimated $400 million this year. Loans to minority borrowers are a growing part of the mix, including $50 million in credits to targeted low-income areas over the past few years, Mr. Redmond said.

A recent mortgage made on a home in one of New York's lower-income neighborhoods demonstrates European American's newfound flexibility. By applying innovative credit standards, the bank was able to finance a first home in Brooklyn for a Hispanic couple - a loan it would not have made a few years earlier (see accompanying graphic).

This and similar efforts have won European American plaudits from community groups that are otherwise quick to criticize when lenders don't measure up. European American "went beyond the call of duty" in finding a way to make the Brooklyn loan, said Mariadele Priest, executive director of Neighbors Helping Neighbors, a community group that works with low-income residents in the borough.

"They're a presence out there," she said.

European American runs its mortgage program from a low-slung cement building in a Long Island industrial park. From the offices, which the mortgage unit moved into this summer, loan commitments are considered according to factors like applicants' income and where the property is based.

The Home Mortgage Disclosure Act program, crafted to reach the poorest parts of New York, does present a challenge. It isn't easy building an operation that can meet the needs of residents in low-income areas like Harlem and the Bronx, while making the bank money, Mr. Redmond said.

"You can't just go into a community and say 'We're here,'" he said. Residents may not have regular dealings with a bank and can be leery about forging a relationship, he added.

Instead of immediately unfurling its banner in poorer areas of metropolitan New York, European American prefers to connect with community leaders who know the residents and their needs. The bank also looks for brokers who are known in the community and can sell pools of loans.

Taking a soft-sell approach, European American introduces itself by hosting seminars to familiarize residents with the homebuying process and the bank's products, said Mark McAfee, a vice president who runs the mortgage program.

The sessions, which Mr. McAfee said have reached several thousand people over the past few years, typically feature industry representatives, ranging from housing lawyers to property appraisers.

"We try to help people understand what they need and go from there," he said.

European American does not promote its usual array of mortgages to this clientele. Instead, it has devised loans that are subsidized, models that allow smaller down payments, and some that accept high debt-to-income ratios.

The Home Mortgage Disclosure Act has made both banks and borrowers aware of the opportunities for low-income lending, Mr. McAfee said. "We certainly always have HMDA in mind as we build our mortgage program."

And the housing act doesn't stray far from the minds of European American compliance executives, who must gather and make sense of the relevant information before sending it to regulators.

The compliance group spends more than 200 hours each year ensuring that the data are a complete, accurate reflection of European American's efforts. Most of the information can be pulled off mortgage applications, but bank executives often find themselves digging for more comprehensive data.

The process can take its toll, especially as the bank comes down to the deadline for submitting the report. "It's nerve-racking," said Catherine A. Mullarkey, compliance chief at European American. "There have been a few sleepless nights making sure all the data is done."

But the effort is worth it, she said, because the information acts as a barometer of European American's program. "It's a way to judge the success of the program in different areas. Do we have to scrap it, change it, expand it."

To improve accuracy, European American requires all mortgage representatives to attend an annual class on Home Mortgage Disclosure Act compliance, and what the act requires of loan officers.

European American is also part of a formal network of banks that share tips on the housing act, especially when it comes to approaching new markets. "You discuss things with each other," Ms. Mullarkey said.

For instance, individual banks will sponsor a community group's programs and seminars in hopes of establishing a relationship that will produce loans.

But these efforts are not always fruitful - a situation the banks have had to come to terms with. "You talk about how did you deal with this," Ms. Mullarkey said. "We're giving that group money, and they're not giving any mortgages to us."

European American executives also talk more informally with other bankers about their Home Mortgage Disclosure Act efforts. But the unity only goes so far. "There is brainstorming," she said. "But there is also a matter of proprietary programs."

The challenges notwithstanding, the housing act is seen by European American as a welcome stimulant to business. "It's got a double benefit," Ms. Mullarkey said. "It's good for the community and good for the bank."

Tomorrow: One bank's view

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