Banks earning profits on loans in inner cities But Congress may make lending more difficult

KANSAS CITY, MO. — KANSAS CITY, Mo. -- U.S. banks are discovering they can profit handsomely on loans to homeowners in America's inner cities, according to the Federal Reserve Board's chief proponent of inner-city lending.

But Congress, in its rush to stabilize the banking industry, now threatens to stop such loans, Fed Governor Lawrence B. Lindsey said yesterday.


"It would be unfortunate if we . . . unload an ever-bigger paper-work burden on the banking industry," Mr. Lindsey said at a meeting of bankers organized by the Kansas City Neighborhood Alliance.

Mr. Lindsey cited, among others, the example of Boatmen's First National Bank of Kansas City.


Two years into a special lending program, the bank found that inner-city borrowers were less likely to default on their loans than the average borrower.

As a result, Boatmen's doubled the size of its loan program from $5 million to $10 million.

The bank now has 190 borrowers in its "Target Mortgage" program, and a success rate that has impressed other local banks.

"Where myths about the economic vitality of the minority community are destroyed, markets will come in and do the work" of inner-city development, Mr. Lindsey said.

Mr. Lindsey is one of seven governors of the Federal Reserve Board, the group that sets policy on U.S. banks and interest rates.

Colleen Hernandez, executive director of the Kansas City Neighborhood Alliance and chairman of the Consumers Advisory Council to the Fed, said she invited Mr. Lindsey for a glimpse of Kansas City's struggles in inner-city development.

"We're showing him the Boatmen's program," Ms. Hernandez said. "We want to give him the ammunition he needs" to fight congressional proposals that could make inner-city lending more difficult.

Mr. Lindsey and Ms. Hernandez both complained about the Federal Deposit Insurance Corporation Improvement Act of 1991, which instructs banks to demand dramatically higher down payments on home loans.


Mr. Lindsey said the measure, meant to strengthen bank finances, hurts low- and middle-income families -- many of whom already have trouble scraping together enough money to meet closing costs on their homes.