Home Savings of America, continuing its effort to build profitability, has decided it will no longer finance low-income multi-family housing.

The move may have stirred up a hornet's nest. Five California community groups are protesting to get Home Savings to drop the plan.

The groups say they fear the pullback by the nation's largest thrift - a unit of Irwindale, Calif.-based H.F. Ahmanson & Co. - may open the door for other thrifts to follow suit as they seek to redefine their businesses.

Home Savings has so far invested some $300 million in affordable multifamily housing, a speck compared with its multibillion-dollar portfolio of single-family loans. The amount, however, is significant in the multifamily sector.

Beyond the impact on forthcoming multifamily projects, activists say they fear the move signals that Home Savings will be less flexible in financing single-family housing for low-income borrowers. Most of Home Savings' low-income lending falls in that category.

"It looks to us as if Home Savings is withdrawing from affordable- housing lending, both for multifamily rental housing and most likely for single-family as well, to a large extent," said Alan Fisher, executive director of the California Reinvestment Committee.

Mr. Fisher and representatives of four other housing groups protested the move to Charles Rinehart, Ahmanson's chairman. Joining Mr. Fisher were representatives of the California Coalition for Rural Housing; the Non Profit Housing Association of Northern California; the Nonprofit Federation for Housing and Community Development; and the Southern California Association for Non Profit Housing.

Home Savings denies it is backing away from low-income lending, pointing to its record so far - it received the top CRA rating in its most recent examination.

The thrift is pulling back from the multifamily market because it is uncertain of the returns and prefers to focus on other lines of business, according to Mary Trigg, senior vice president and director of public relations.

All of Home Savings' lines of business are being reviewed for profitability, Ms. Trigg said, because of competitive pressures in the mortgage business and the high price thrifts must pay for deposit insurance.

"We don't know whether this (multifamily business) is going to be profitable for us because the loans are too new," said Ms. Trigg. "We prefer to spend our time on that kind of low-income lending that we know how to do, which is single-family."

The thrift will disband its 29-person multifamily division during the next two years, Ms. Trigg said, as it fulfills its existing commitments. The two top executives in the division will be reassigned to single-family lending and charged with developing affordable lending there, she said.

Mr. Fisher's main concern is Home Savings' decision to boost profitability by cutting back on its $50 billion-asset portfolio, which consists largely of mortgage investments.

Mr. Fisher said he fears that as Home Savings cuts back its own mortgage portfolio and operates more like a mortgage banker, the neediest borrowers will suffer.

By and large, loans made for sale to Fannie Mae and Freddie Mac are "much less flexible and offer less access to low-income families and families of color," Mr. Fisher said.

That's an argument that thrifts themselves have long made in demonstrating their service to low-income and minority borrowers.

At rival American Savings Bank, Irvine, Calif., chairman Mario Antoci said Mr. Fisher's concerns were logical.

"If you are going to be primarily a mortgage banker, you have to make salable product," Mr. Antoci said, "and salable product tends to take a cookie-cutter approach." That means fewer affordable housing loans will be made, he said.

But he added that unless Home Savings shrinks drastically, it is likely to retain a large portion of its assets in mortgages, and thus do substantial low-income business.

Indeed, Ms. Trigg said Home Savings would continue to invest in affordable-housing loans, as well as originating such loans for sale to the government-sponsored secondary market agencies.

Not all housing activists are taking issue with Home Savings. "They have very legitimate concerns regarding their future, their profitability, and their competitiveness with banks," said Robert Gnaizda, general counsel of the Greenlining Institute, San Francisco. "I think they are overreacting when they cut off the lower end, (but) I don't believe we'll be very successful in convincing them," he said.

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