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Bank of America retreats from affordable loan program

Bank of America, the largest bank in Massachusetts, has pulled out of one of the state’s leading first-time homebuyer programs, a move that will make it harder for low-income and minority borrowers to get home loans, according to housing advocates.

Instead of participating in the Massachusetts loan program, Bank of America is directing lower-income borrowers to a federal program with higher interest rates and additional fees, a new report by a network of affordable housing organizations found.

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Those loans can cost borrowers nearly $300 more a month in mortgage payments on a $220,000 single-family home, according to the Massachusetts Affordable Housing Alliance, which helped produce the report.

Esther Maycock-Thorne, the president of the housing alliance board, said Bank of America should do more to help lower-income homebuyers. Bank of America has an extensive branch network in the state, takes in nearly $58 billion in deposits from Massachusetts customers, and offers other products, including wealth management, she noted.

“They’re in our communities and in our neighborhoods, why aren’t they offering this product?” Maycock-Thorne.“I really don’t get it why the largest bank in the state isn’t offering the most affordable loan program.”

T.J. Crawford, a Bank of America spokesman, said the bank still reaches borrowers with modest incomes. Last year, 38 percent of the bank’s mortgages in Boston area went to low- and moderate-income borrowers, compared to the industry-average of 34 percent, Crawford said.

Bank of America, based in Charlotte, N.C., has streamlined its business over the past few years, and these types of state programs no longer fit in with the bank’s lending strategy, Crawford said.

“Offering one-off products on a state-by-state basis doesn’t align with our efforts to simplify the company,” Crawford said.

He declined to comment on whether the bank has withdrawn from affordable lending programs in other states.

Bank of America has retreated from the mortgage market since the housing bust and subsequent financial meltdown. The bank’s purchase of Countrywide Financial Corp. and its large holdings of subprime mortgages in 2008 proved disastrous. In addition to losses from defaults, Bank of America has settled billions of dollars in lawsuits with government agencies related to loans.

In Massachusetts, Bank of America originated 10 percent all mortgages in 2009, but last year it accounted for just 4.3 percent of the state’s home loans, according to the Warren Group, which tracks the state’s housing market.

The state’s affordable home loan program, today known as One Mortgage, was created in 1991, after studies found that the local financial institutions were discriminating against minority buyers. Under the program, first-time homebuyers who earn below the statewide median income, but have good credit, can qualify for mortgages, which require a lower down payment. Participating banks agree to provide a certain number of loans to these qualified homebuyers and the state provides some subsidy to help offset the risk to banks, although default rates on these loans are lower than statewide averages.

Until this year, Bank of America was the biggest lender in the state program. Bank of America and its predecessor banks provided 40 percent of 17,380 home loans made through the program’s 23-year history, according to the report.

But when low-income borrowers with good credit go to Bank of America now, they are usually directed to the Federal Housing Administration, said Clark Ziegler, the executive director Massachusetts Housing Partnership, a quasi-public agency that administers the One Mortgage program.

The FHA loans require borrowers to purchase private mortgage insurance, because they are making a smaller down payment. The interest rates also can be higher than the One Mortgage program, Ziegler said.

Governor Deval Patrick last year set a goal of pushing lenders to make 10,000 mortgages over the next five years for first-time home buyers who have modest incomes.

That goal will be harder to achieve without Bank of America participating, Ziegler said, since it has a large network of branches in the state and the ability to reach more consumers than any other institution.

Deirdre Fernandes can be reached at deirdre.fernandes@ globe.com. Follow her on Twitter @fernandesglobe.
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