Imagine a mortgage rate of 6.8 percent in Atlanta.
That's the rate that could be offered to about 250 working-class homebuyers in the city from a $10 million lending pool formed by Atlanta's largest banks.
Maybe.
Although the pool was proposed by a neighborhood coalition 18 months ago, although plans were drawn up by bankers a year ago, and although negotiations among banks began six months ago, the pool today is dry.
"You've got to know how difficult it is to bring seven or eight lenders together and agree," said Jim Mynatt, a first vice president of Trust Company Bank, which is leading the pool effort. "We have commitments from everybody, but we're working on the details."
The effort suffered a blow in February when Citizens and Southern Bank (C&S), the state's largest bank, pulled out. C&S had been expected to make the largest contribution, more than $2 million. C&S said it could help neighborhoods more through its own efforts.
Pool leaders declined to discuss many details. However, a copy of "working drafts" was obtained by The Atlanta Journal-Constitution, and several participants discussed negotiations.
Trust Company called the pool meetings last fall after a community alliance filed a redlining claim against the bank's parent, SunTrust Banks. Regulators with the Federal Reserve Board cited the effort to set up the pool as one of their reasons for dismissing the complaint filed by the Atlanta Community Reinvestment Alliance (ACRA).
"The mortgage consortium, I guess, is a response to ACRA's desires," Mynatt said.
At the same time, Trust Company's Willis Johnson suggested that the need for such a pool may have been overstated.
"We hope it will meet some of the needs that have been raised -- even if they aren't that awesome," he said.
This pool would be small compared with those in some other cities -- three Chicago banks committed $150 million for special home loans. And it keeps getting smaller.
-- As proposed in 1986 by the alliance, the pool would have included $10 million a year each from 10 banks for single-family homes, a total of $100 million. That would fund 2,500 loans at $40,000 apiece.
-- As modified in March 1987 by Trust Company, the pool would include $5 million a year from 10 banks, a total of $50 million or about 1,250 loans.
-- As now being discussed, the pool would include eight banks and a total of $10 million, or about 250 loans.
-- The original Trust Company proposal also identified multifamily housing as a great need in the city, and included an additional $5 million a year per bank for loans to non-profit developers of multifamily buildings. However, no multifamily housing is now included.
"We'll learn to walk before we can run," Mynatt said.
-- The original plan also allowed for "creative" underwriting and appraisal, allowing more homebuyers to qualify. This proposal has been hotly debated.
"Unfortunately, my feeling is it isn't going to work unless you lessen the underwriting criteria," said Frank Burke, chairman and chief executive officer of Bank South. "You won't have the applicants."
"There's no doubt you'll get applicants. The question is, will you get applicants who are qualified," said Thomas Boland, vice chairman of First Atlanta. "I wouldn't mind some with lesser underwriting criteria, but the worst thing we could do is to make a loan to a fellow and he not be able to repay it properly. He's lost his down payment and he's lost his dignity."
The original plan called for each bank to take turns handling pool paperwork. Trust Company volunteered to be the first lead bank, handling all paperwork until the job rotated to another. Borrowers would pay only one origination fee, which the referring bank and the lead bank would share.
However, a majority of the lenders preferred creation of a separate company to make the loans, Trust Company officials said. Legal questions about that possibility are being worked out with state officials.
"I can't tell you how fast this will happen," said Johnson, a Trust Company spokesman. "We're not dragging our feet over here."
The largest setback so far was the pullout by C&S.
"We traditionally will do better if we're competing with somebody than if we're holding hands," said Bill VanLandingham, C&S president. "We're looking at some things that could be done. It's not as if we're not doing things now."
On Tuesday, C&S spokesman Dallas Lee said the bank plans to offer $5 million in home-purchase loans, about 125 loans, at 1 percentage point below its normal interest rate. The loans would be available south of Interstate 20 inside the Perimeter. Lee said the program has been planned for months, but VanLandingham had not been in a position to announce it earlier.
The banks that were invited to a meeting on the pool last October by Trust Company were C&S, First Atlanta, Bank South, First Union, First American and Citizens Trust. Georgia Federal Bank was added later. Each bank would contribute according to size, as measured by deposits. Others have since agreed to make up the amount lost by the C&S pullout.
The low interest rate would be achieved by a combination of bank and government effort. The banks would offer an interest rate half a percentage point below market rate. The Georgia Residential Finance Authority would push that lower by using a mortgage credit certificate, which provides a homebuyer a federal income tax credit of up to 20 percent of the annual mortgage interest, in addition to the normal interest deduction for homebuyers. Homebuyers could adjust their tax withholding at their place of employment to receive the tax credit up front.
So, if the market rate were 9.5 percent, the pool would offer loans at 9 percent. The tax credit would reduce the effective rate to about 6.8 percent.
"That's dynamite," said David Crum of the residential finance authority.
The proposal called for 30-year, fixed-rate loans to homebuyers with household income of $33,000 or less. The proposal also said borrowers would have to have at least one month's payment set aside, a provision opposed by neighborhood groups. The proposal allowed loans of 97 percent of home value on loans up to $35,000, and 90 percent on larger loans up to $50,000.
The pool also would have an effective income minimum.
"You're not going to find much (housing) under $40,000 in the Atlanta market that can stand up to a 30-year mortgage," Crum said. "People can only afford a home valued at a little more than two times their annual income, so this program would be good for anyone who makes more than about $18,000."
"The only way of serving the really, really low-income people with housing, not ghetto housing, is multifamily," said Ginny Montez, state coordinator for the Georgia Housing Coalition, a member of the alliance.
Some neighborhood advocates are critical of the pool.
"They're throwing us a bone," said Grant Williams, an Atlanta organizer for ACORN, the Association of Communities Organized for Reform Now.
Others welcome the idea.
"We are concerned that the amount of money is low and the commitment is questionable," Ms. Montez said. "But it is the first time they've done anything. I hope they put it together."
Crum, of the residential finance authority, said the bankers also are tired of the delays. Many bankers believe a pool could serve as shark-repellent against challenges such as the one against Trust Company.
"These are frustrated bankers," Crum said. "They've been backed and backed and backed into the corner. This is yet another attempt on their part to make an effort. It ought to be given a shot, not shot at."
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