South Boston-based Mt. Washington Bank is one of the smaller banks to offer the SoftSecond loan.
In the past 15 years, one loan program has helped first-time homebuyers purchase a home and at the same time avoid mortgage insurance. That program is SoftSecond.
With only 26 foreclosures in its history, SoftSecond recently made its 8,000th loan and surpassed the $1 billion mark.
“It feels like a little piece of history,” said Clark Ziegler, executive director of the Massachusetts Housing Partnership.
After a 1989 Federal Home Loan Bank of Boston study concluded that Boston’s banking community was denying mortgage loans to many more minority homebuyers than equally qualified white borrowers, the Massachusetts Bankers Association, the Massachusetts Affordable Housing Alliance and MHP created SoftSecond.
SoftSecond combines a conventional first mortgage with a second bank mortgage that is supported by a one-time state subsidy. The blend of private and public funds helps to lower a borrower’s monthly payments for the first 10 years. According to MHP, a first-time homebuyer earning $43,000 annually could afford a home priced at $148,000 with a conventional mortgage and would pay $1,530 a month. With a SoftSecond loan, that same homeowner could afford $192,670 and would pay $1,180 a month.
Every $7,000 the state puts in leverages $215,000 in private mortgage financing, according to MHP. When SoftSecond borrowers pay off their loans, the state puts the repaid funds back into the program.
The program requires a 3 percent down payment and homebuyers must take pre- purchase and post-purchase homebuyer classes. As a result, delinquent payment and foreclosure rates are significantly lower with SoftSecond compared to other targeted loan programs, according to MHP.
“It’s critical that people know what they’re getting into,” said Ziegler. “We want people to succeed and build up [their] net worth.”
The program also requires a down payment as a way to teach financial discipline. Ziegler said saving for a down payment teaches responsibility that buyers need to be a good homeowner.
‘Really Excellent’
Ziegler said MHP has been “pleasantly surprised” by the performance of SoftSecond loans.
The milestones are being celebrated, but Ziegler said they weren’t goals for which the organization was waiting. After taking a step back to review the program, MHP noticed the 8,000th loan and $1 billion mark were upon them.
According to Ziegler, the program has been successful because it has helped the intended people. When it was first introduced, no one knew what would come of SoftSecond.
“We really didn’t know how long it would last or how effective it would be,” Ziegler said.
While the pressure from the community has calmed down, he added, many banks participate in the program because it’s good business.
“This has become a mainstream product,” Ziegler said.
Thomas Kennedy, senior vice president at Pennsylvania-based Sovereign Bank, was one of the original bankers involved with the creation of SoftSecond.
“The community said [15 years ago] one of the roadblocks for low- to moderate-income people was coming up with down payment assistance,” Kennedy said, referring to the typical 20 percent down payment to avoid mortgage insurance.
The program originally was intended to focus strictly on Boston. However, because the state was providing money for the second mortgage, the program expanded statewide.
Regionally, Boston has been the leader in SoftSecond loans, receiving 3,084 loans from 1992 to 2004. Western Massachusetts ranks second with 1,731 loans followed by communities north of Boston receiving 680 loans and finally, Cape Cod with 423 loans.
“We see it in various pockets,” Kennedy said.
Between 2001 and 2004, Sovereign has provided 280 loans through SoftSecond with the average household income of the buyer at $48,138. Sovereign is fifth highest among participating banks in that time frame.
“The product has performed extremely well,” Kennedy said.
Sovereign has a broad array of first-time homebuyer products, including SoftSecond.
“We’re very pleased to be a part of it,” Kennedy said, adding it is a significant part of the bank’s loan portfolio.
Sovereign has offered the product in branches throughout its footprint, but Kennedy said he is seeing more people in Brockton, Fall River, New Bedford, Lawrence and Lowell who use SoftSecond to buy their first home.
“This is the way in which community reinvestment is supposed to work,” Kennedy said.
The product also has created opportunities for the bank to cross-sell other products.
Boston Private Bank, with $1.8 million in assets, also participates in the SoftSecond program.
“The city of Boston has largely been our focus,” said Esther Schlorholtz, Community Reinvestment Act officer and senior vice president at Boston Private.
With a focus on both Boston and Brookline, the bank ranks as the fourth highest among participating banks between 2001 and 2004. In that time frame, the bank has made 350 loans with the average household income of the borrower at $41,978.
“The performance has been really excellent,” Schlorholtz said. “[SoftSecond] has one of the best performances of all our lending programs.”
When Schlorholtz joined the bank in 1995, she began looking for a product that met the needs of low- to moderate-income families. The fact that the program is “well thought-out,” Schlorholtz said, is one reason the program has survived 15 years.
South Boston-based Mt. Washington Bank, with $359 million, is one of the smaller banks to offer the SoftSecond loan. According to Laura Dorfman, senior vice president at Mt. Washington, the bank approached MAHA and MHP because the product was suitable for the bank’s service area: South Boston and Dorchester.
“Because we have a significant amount of low- to moderate-income people in the area, this program fits nicely,” Dorfman said.
The bank has completed four loans since joining the program last summer.
For a small bank, the only risk with the program is offering too many loans below market rate. Because of its size, Mt. Washington can’t provide as many of the SoftSecond loans as larger banks, but Dorfman said the institution is pleased to be part of the program.
“This is exactly the kind of thing we like to do to help the community,” Dorfman said.
While the program is celebrating a collective 8,000 loans, Ziegler said many areas of the state have reached individual goals.
“In every major metropolitan area, we have achieved milestones,” Ziegler said.
Jennifer Jope may be reached at jjope@thewarrengroup.com.
