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The purpose of this research project is to examine the equity lending practices of unregulated mortgage companies in Boston, Massachusetts from 1985 to 1990. The scope of the inquiry is limited to the lending practices by regulated banks and unregulated mortgage companies in Roxbury, Dorchester and Mattapan from 1985 to 1990. The research is done in response to the so-called second mortgage scam that affected minority residents in Roxbury, Dorchester and Mattapan. To review these lending practices, four major questions are answered in this report. The questions are: 1) What are the lending patterns of Boston's major banks in Roxbury, Dorchester and Mattapan? 2) What finance structure enables unregulated mortgage companies to operate? 3) Who are the unregulated lenders in violation of established lending standards, and in what neighborhoods do they operate? 4) What efforts are being made at a city and state level to promote industry standards and prevent future foreclosures? The research indicates that Boston's regulated banks have redlined the areas of Roxbury, Dorchester and Mattapan, creating a demand for home mortgage and home improvement financing that was met by unregulated lenders. Some of the unregulated mortgage companies, particularly the Resource Companies, have packaged loan products that are very burdensome to the borrowers. The consequence to homeowners for borrowing from these companies was often foreclosure. The key findings of this report are as follows: • Boston's major banks have redlined Roxbury, Dorchester and Mattapan. • There was a disproportionate amount of loans contracted by homeowners with unregulated mortgage companies in Roxbury, Dorchester and Mattapan. • Available information on interest rates and terms of loans from some unregulated mortgage companies operating in Roxbury, Dorchester and Mattapan were usurious (in excess of 30-percent). • The foreclosure rate on properties with a mortgage company claim was 42.2 percent. Another 27.9 percent were at risk of foreclosure. These figures are based on the review of Suffolk County Registry of Deeds records of 660 properties in Roxbury, Dorchester and Mattapan. • This practice cheats the homeowners of the equity they have built in their homes, and has a destabilizing effect on the neighborhoods. City officials and community leaders are seeking remedies to the situation. Their efforts included regulating mortgage companies in Massachusetts as of January 1, 1992; imposing a moratorium on foreclosures to provide an opportunity to review the loan agreements; and establishing a multi-million fund for the purposes of providing home mortgage and home improvement financing in Roxbury, Dorchester and Mattapan. While these remedies provide short-term solutions to the problem, the structure of the banking industry might promote such lending practices over the long-term. Long-term solutions, such as strict enforcement of the Community Reinvestment Act, need to be addressed to prevent this situation in the future.

Equity Lending Practices and Home Mortgage Foreclosure in Selected Boston Inner-City Neighborhoods