Local bank ads criticize other lenders

Rules kept them away from subprime mortgage fallout

Trying to turn the ongoing credit crunch to their advantage, some Massachusetts banks are ramping up their criticism of other mortgage lenders.

From advertisements that slam Wall Street's "over-zealous investments" in subprime loans to conversations with customers, community bankers around the state are driving home the message that because they stuck by their lending standards in the frenzy of the past few years, they can keep making loans today.

In Essex County, Enterprise Bank ran recent newspaper ads citing "banks and mortgage companies that engaged in lending that provided short-term gratification at the expense of long-term soundness." Now those other lenders are "paying for this sin," said Richard W. Main, Enterprise's president, while he's still offering loans to residential and commercial customers.

In North Andover, River Bank has been advertising rates of 6.75 percent on so-called jumbo mortgages - those for more than $417,000 - even as national lenders raise similar rates. River Bank chief executive Gerald Mulligan said it is able to keep rates lower because it doesn't sell mortgages to third parties.

"There's a hysteria out there that mortgage money isn't there, and that's not true," Mulligan said. "If you're creditworthy, the money is still there and at affordable levels."

After years of losing borrowers to national mortgage companies, independent brokers, and other competitors, community banks find themselves in the driver's seat because of others' problems with subprime loan portfolios. Partly because of regulations, few of these banks offered cheaper rates or overlooked low credit scores as did many so-called subprime lenders.

Now those loans are coming back to haunt many institutions with rising numbers of defaults, creating secondary problems for the banks and Wall Street firms that bought and sold securities based on these loans. The fallout also has been severe for the trade group representing many subprime issuers, the Massachusetts Mortgage Bankers Association, which has seen membership fall to about 360 organizations from 425 at the start of the year.

Many of the departures have been national mortgage companies no longer doing business in the state, including New Century Financial Corp. and the GreenPoint Mortgage unit of Capital One Financial Corp., said Kevin Cuff, the association's executive director.

Many of the subprime loans now being criticized were previously praised as a way to increase homeownership rates, a stabilizing force in many poorer communities. "Despite some market correction of late, mortgage lending has evolved tremendously over the past 10 years, providing greater access to credit and homeownership or other wealth-building opportunity than ever before," Cuff said.

Cuff said exact default rates among his members weren't available yesterday but said many are higher than figures reported by community banks. In a recent poll, the Massachusetts Bankers Association, the trade group that represents most of the community institutions, found that 72 percent of banks in Massachusetts had no foreclosures last year, while 99 percent had fewer than five foreclosures.

At a time when overall foreclosures have been rising, many bankers say their records deserve more attention. Edward J. McDonald, president of the mortgage unit of Salem Five Bank, said it had fewer than 10 foreclosures last year even though it services about 16,000 mortgages. "There have been a lot of people lending in this market, licensed by the state, who have probably been putting consumers in the wrong products," he said.

Daniel J. Forte, president of the bankers group, said local banks continue to hold most of the loans they make, giving them incentives to scrutinize customers that mortgage brokers don't have when they make money only a mortgage's initial transaction fees.

"We're not attempting to pick a fight with the mortgage companies. But one distinction we would make is that many loans these days are initiated by mortgage brokers, and they've got no allegiance to anyone," Forte said.

That distinction might come across in ads Middlesex Savings of Natick expects to run in coming weeks, said chief executive John Heerwagen. While it plans mainly to advertise rates on loans, he said, the bank also expects to position itself as what he called "a trusted source of mortgage financing" compared to other lenders.

In Rockport, Peter Anderson, president of Rockport National Bank, says it also expects to run print advertisements soon boosting its loans, though they may not be sharply critical of other lenders. "The point we want to overcome is the perception that mortgages are hard to get, and that's not true," Anderson said.

Ross Kerber can be reached at kerber@globe.com.