Harris Bank has launched an initiative to make $12 million in mortgages available to low- and moderate-income borrowers.
Harris, a $26 billion-asset subsidiary of Bank of Montreal, announced this week that it is working with the Illinois Housing Development Authority to lend primarily to borrowers in Chicago's West and South Side neighborhoods and in the suburbs of Maywood and Harvey. The $12 million in loans will be available for individuals to purchase one- to four-family homes at interest rates from 5% to 5.99% -- as much as 3 percentage points below market rates for similar mortgages.
Harris joins a list of Chicago banks offering similar programs. In June, Bank One unveiled an effort to make more Small Business Administration-backed loans for borrowers who have had difficulty qualifying for traditional loans. And seven banks -- including Wheeling, Ill.-based Cole Taylor Bank, Northern Trust Corp., and South Shore Bank of Chicago -- now participate in a recently expanded $219 million mortgage and home equity loan pool administered by the Chicago Department of Housing.
Lending programs for lower-income borrowers have been on the rise in recent years as strong economic growth and low interest rates have prompted more nontraditional borrowers to consider mainstream loans, said Malcolm Bush, the president of the Woodstock Institute, a Chicago-based watchdog group that monitors community reinvestment lending. "Lifelong renters want to jump into houses," he said.
Mr. Bush said the latest programs often include assistance with down payments, which many poorer individuals have trouble raising on their own. The initiatives also include breaks on interest rates and closing costs.
The home equity loans give lower-income borrowers an alternative to credit card debt or subprime, high-rate loans. "We have a new set of homeowners in these areas, and they need good home equity loans," Mr. Bush said.
The banks often use the programs to test new markets and get Community Reinvestment Act credit. Harris Bank's mortgage program, for example, is part of a larger push to boost the banks' profile in inner-city neighborhoods.
Servicing the loans is also relatively easy for participating banks. Government agencies and not-for-profit groups that co-sponsor the programs, such as the City of Chicago, the Illinois Housing Development Authority, and the Chicago Association of Neighborhood Development Organizations, help by distributing paperwork, targeting qualified borrowers, and hosting personal finance courses that many borrowers are required to take as part of a loan agreement.
The Woodstock Institute favors the banks' efforts, Mr. Bush said, as long as their contributions are consistent with the size of their loan pools to higher-income individuals.
"Such programs are good news as long as they reach scale," he said.