A State-Chartered Bank's Participation In The Massachusetts Housing Finance Agency's Mortgage Insurance Fund For Qualification Under The Commonwealth's Community Reinvestment Act ("CRA ") - Q1 2000

By the Division of Banks

The Mortgage Insurance Fund is an independent division of the Massachusetts Housing Finance Agency ("MHFA") and provides mortgage insurance for the lending programs of MHFA's Single Family Division. The majority of the loans insured by the Mortgage Insurance Fund are concentrated in inner city neighborhoods and in low and moderate-income condominium projects. Over 75% of these loans have loan to value ratios of 95% or higher, which makes them a higher risk. The Mortgage Insurance Fund insures loans that are included in state revenue bonds and as such is independently reviewed by national credit agencies. The strict requirements of the credit rating agencies and the size of the Mortgage Insurance Fund will make it difficult for the Fund to continue to insure loans in the future.

In order to continue providing insurance for the MHFA lending programs, the Mortgage Insurance Fund is proposing a strategy whereby it would negotiate reinsurance contracts with private mortgage insurance companies and build revenues by insuring less risky loans.

Providing insurance for loan programs will allow the Mortgage Insurance Fund to increase its insurance activity through diversifying its market and product mix. Under the proposal, lenders could utilize the Mortgage Insurance Fund as an alternative insurance choice when private mortgage insurance is required for approved loans. The revenues generated from these less risky loans would be used to insure affordable housing loans made under the MHFA lending programs.

The Division has reviewed this lending program under the CRA "lending test," set forth in 209 CMR 46.22, and the small institutions or streamlined test set forth in 209 CMR 46.12.

Based on the provisions of the regulations, the Division would give CRA consideration to a state-chartered bank's participation in the Mortgage Insurance Fund provided the affordable housing loans insured by the Fund benefit the institutions assessment area(s) or a broader statewide or regional area that includes the assessment area(s). For those institutions examined under the lending test, the Division would consider this activity under innovative or flexible lending practices. For small institutions, the Division would give consideration as a lending related activity.

It remains the position of the Division that each financial institution is to determine which actions will allow it to comply with CRA within safe and sound banking practices.