Enough bad rates to go around

AT LEAST one of the patterns that UMass-Boston's Jim Campen identified by crunching mortgage data will look familiar to housing experts. He shows that black and Latino homebuyers in Greater Boston rely heavily on higher-interest mortgages -- loans that typically go to those with subprime credit. This finding jibes with past research.

But a second, more surprising pattern also emerges. Within each racial category, middle- and high-income borrowers were more likely to take out subprime loans than those with low incomes. The pattern is most pronounced among affluent minority homebuyers. About 70 percent of high-income black borrowers took out high-rate loans -- compared with 14 percent of low-income black buyers and 7 percent of low-income white buyers.

So, as low-rate teaser periods lapse, low-income families won't be the only ones facing exorbitant mortgage costs. Yet Campen's findings also suggest that public policy can help head off another orgy of irresponsible borrowing and lending in the future.

In Greater Boston, the few low-income residents who are in a position to buy homes often get mortgage counseling and loan assistance through programs sponsored by nonprofits. This is why so few low-income homebuyers have taken out subprime loans, affordable housing advocates say.

Many upper-income buyers could benefit from similar counseling. The data available to Campen did not include applicants' credit scores. Still, some borrowers who ended up with subprime loans might have qualified for conventional mortgages.

So what now? The Joint Committeeon Housing is slated to hear legislation Tuesday that would subject mortgage companies to Community Reinvestment Act rules that already apply to banks and credit unions. By directing all lenders to do business throughout a community, even in low-income areas, the law would prompt mortgage companies that now cherry-pick affluent suburban borrowers to offer more conventional loans in areas now dominated by subprime lenders.

But regulators also need to interpret the law's requirements in more far-reaching ways. For decades, affordable-housing advocates have sought to expand access to loans, and almost any loans that financial institutions make in poorer areas have helped them pass muster under the community-reinvestment rules. Yet today, subprime lenders are all too willing to lend in low-income neighborhoods.

The state can't stand over buyers' shoulders to keep them from making bad decisions. But regulators should be able to consider whether the mix of loans that an individual lender is offering will help stabilize a neighborhood -- or sap it by leading to foreclosure and bankruptcy. That scrutiny should lead to better lending, up and down the income scale.