Allen Gross, raised in a rented apartment in Brooklyn, N.Y., is now a trailblazer in helping urban people buy homes.

But Mr. Gross, president of GFC Capital Resources Group, New York, and a number of other mortgage bankers are making single-family home loans in urban areas not just to improve minority lending records, but to make money. And they are succeeding.

"There is plenty of business" in urban areas," said Francine C. Justa, executive director at Neighborhood Housing Services of New York City Inc.

Modest Beginnings

GFC, once a small Brooklyn loan brokerage shop, is now a billion-dollar-a-year mortgage bank. Inner-city lending is a major reason why.

Last year GFC originated $670 million of home loans in New York, New Jersey, Connecticut, and Florida. It sells most of its loans to investors.

"Urban business is a tough business," said Mr. Gross, and urban lenders need to be more flexible in their lending practices. "The majority of lenders never got their feet wet in the city," he said. He has seen many try in New York and fail.

Many lenders use nationwide appraisers to evaluate urban buildings. Bad move, Mr. Gross said. Nationwide appraisers don't understand the intricacies of a neighborhood, he said -- for example, why Poles want to live in the Greenpoint section of Brooklyn and will do anything to remain there.

Urban-Borrower Traits

He said nationwide lenders hold urban borrowers to credit standards that are too high. Granted, many inner-city borrowers have poor credit ratings, he said. But many also hold down two jobs or are part of two-salary families.

Urban borrowers also have a higher rate of divorce. That means lenders must be sure to check on how burdensome a potential borrower's child support payments are, he said.

Christopher Walker, director of the community and economic development program, the Urban Institute, Washington, said crime and deteriorating property values create among some mortgage bankers a "perception of risk" in inner-city lending.

In fact, Mr. Walker said the risk of an inner-city borrower defaulting on a loan "could be less or comparable" to nonurban homeowners.

Minority Refinancings Lag

Education is the most glaring deficiency among poor to moderate-income borrowers, said Ms. Justa of Neighborhood Housing Services.

According to a report being released today by the Woodstock Institute, a Chicago advocacy group, a smaller proportion of local minority homeowners than of white homeowners applied for refinancings. And a higher proportion of minority applicants were rejected.

But lenders should not give up on inner-city lending, said Neighborhood Housing's Ms. Justa.

Lenders should not give up on inner-city lending, said Neighborhood Housing's Ms. Justa.

"You have to know the business, true," she said. "But once you know the business, you are reasonably successful."

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