The 1978 community reinvestment act (CRA), which set up a grading system to monitor the performance of banks in city neighborhoods, has played a pivotal role in stabilizing some of Dorchester's most vulnerable sections. But, neighborhood housing advocates now say that a giant loophole in the CRA continues to leave low-income homeowners exposed to predatory lenders that could lead to foreclosures and other problems.

Mortgage companies- which are not covered under CRA regulations- currently write up about 70 percent of the housing loans in the Commonwealth, according to the neighborhood-based Massachusetts Affordable Housing Alliance (MAHA). And, that new reality requires new legislation to regulate some mortgage companies that may take advantage of unwary residents.

A bill to extend CRA coverage to mortgage companies won unanimouys approval from the State Senate on July 28, but didn't make it to the House floor before the summer recess kicked in on July 31st. Sonia Alleyne, community reinvestment director for MAHA, says the group hopes the House will take action in informal session sometime this year.

Alleyne says that the state law would give oversight to an industry that is largely unregulated right now.

"It will look at the top companies that do over 500 loans a year in targeted neighborhoods," says Alleyne. "Regulators from the state's division of banks will be rating them and a commission will be put together to review findings in a given year."

If qualified mortgage companies fail to comply with the law, their business licenses could be suspended, Alleyne said. However, she says, the bill will not require companies to meet quotas for loans made to low income or minority groups.

The bill, first introduced in December 2000 by Cambridge representative Jarrett Barrios, was initially slow moving, but was given a boost earlier this year by new findings about mortgage writing in the city. Harvard University researchers released a report showing that even though mortgage companies have come to dominate the housing market over the last decade, most companies have a poor record of writing mortgages in city neighborhoods like Dorchester- and an even worse record when it comes to serving minority customers.

One problem identified by groups like MAHA is that the unregulated mortgage companies generally do not participate in products like the Soft-Second Mortgage program, which orginiated in Boston in the early 1990s thanks to MAHA's advocacy. Thanks largely to the leverage afforded them by CRA mandates, MAHA and other housing groups have been successful in convincing banks to make sweeping loan commitments for low-income buyers over the last decade. That has translated directly into real progress and stability on many Dorchester sidestreets, according to MAHA's Sonya Alleyne.

"Codman Square is the epitome of what kind of success we've seen through the Soft-Second," says Alleyne. "That's what the CRA does. It's a way for us to engage in dialogue with these companies."