If you're a first-time home buyer, a minority-group member or a tenant searching for affordable housing, you've probably never heard of Banyan Bank or the federal Community Reinvestment Act.
But because of actions by federal regulators, your local banks and savings and loans are likely to be more receptive to your housing finance needs than ever before.
Banyan Bank of Boca Raton, Fla., last week became the first lending institution in the nation to have its Community Reinvestment Act rating by federal banking authorities revealed to the public. The rating was negative, indicating the bank "needs to improve" its lending activities to meet "community credit needs."
The Banyan Bank rating release is considered a landmark by housing advocates across the country: It is the first of what will become a steady stream of potentially embarrassing public evaluations of banks and S&Ls in every community.
Under last year's S&L-cleanup legislation, federal regulators are required to release community-reinvestment reports on each banking institution they audit after July 1 of this year. Prior to passage of the law, lenders ignoring or minimizing attention to local credit needs -- particularly mortgage lending in lower-income neighborhoods -- could avoid public disclosure unless they sought to add new branch offices or merge with another bank. Under the Community Reinvestment Act, lenders with negative ratings may be denied the right to expand or conduct business ventures requiring federal approval.
In the wake of the 1989 law change, many lenders have been scrambling to gear up for tougher federal oversight and public scrutiny. In dozens of large metropolitan areas, banks and S&Ls have announced multimillion-dollar mortgage-lending campaigns aimed at minority neighborhoods, lower-income families and first-time buyers.
Some of the biggest banks in the country have been the most visible in the effort:
Chase Manhattan Bank's Community Development Corp. subsidiary has targeted $200 million to "affordable" housing and mortgage programs over the next five years.
Security Pacific Bank of Los Angeles is putting aside $2.4 billion for housing and small-business development for low- and moderate-income families.
American Security Bank in the District of Columbia has committed $250 million for financing a wide array of "community lending" projects, including rental apartments and single-family homes.
A coalition of Massachusetts banks has begun distribution of $1 billion of commitments to help fund new low-income rental apartments and home mortgages at discount costs.
First Chicago Bank has put $225 million into its community-development lending war chest.
Desires to comply with the letter and spirit of the amended federal law have also led to highly innovative mortgage programs by local banks. Cleveland's Society Bank has come up with a 5 percent down payment home mortgage program that includes a $1,000 "grant" toward each borrower's down payment. The "HomeAssist" program is targeted at households with incomes ranging from $19,050 for single persons to $34,000 for a family of eight.
In addition to chipping in $1,000 for the down payment, the bank is also offering to fund a first-year mortgage insurance premium on its HomeAssist loans. The net financial effect on an average-sized loan is to reduce the cash equity from the home buyer to about 3 percent. The bank has closed nearly 700 loans with "grants," the vast majority of them in the Cleveland metropolitan area.
In the case of Boca Raton's Banyan Bank, federal auditors criticized the lender for failing to develop any program aimed at community-based credit needs. Banyan "has not developed marketing strategies to ensure effective communication of its services to all segments of the community," according to auditors from the Federal Reserve Bank.
Banyan's sole apparent civic contact, according to the audit report, appeared to be with the Boca Raton Chamber of Commerce. Boca Raton is one of Florida's wealthiest "Gold Coast" communities and has a serious affordable-housing problem.
Asked for comment on the rating, Banyan President Walter F. Mortimer said the bank "has instituted some programs" aimed at community lending. But he disputed the federal auditors' overall ranking as "subjective." Even though the auditors noted that the bank has made no low- or moderate-income mortgages whatsoever, Mortimer insisted that "we try to be as involved in our community as possible."