Do you think the banks want to make "redlining" an 'acceptable' practice again?

[ck4829]

Because that's what it sounds like to me.

"The NAACP is accusing Wells Fargo and HSBC of forcing blacks into subprime mortgages while whites with identical qualifications got lower rates.

Class-action lawsuits will be filed against the banks Friday in federal court in Los Angeles, Austin Tighe, co-lead counsel for the National Association for the Advancement of Colored People, told The Associated Press.

Black homebuyers have been 3 1/2 times more likely to receive a subprime loan than white borrowers, and six times more likely to get a subprime rate when refinancing, Tighe said. Blacks still were disproportionately steered into subprime loans when their credit scores, income and down payment were equal to those of white homebuyers, he said.

Both Wells Fargo & Co. and HSBC are receiving federal bailout funds. Messages left after hours with the banks were not immediately returned."

http://news.yahoo.com/s/ap/20090313/ap_on_re_us/naacp_mortgage_discrimination

What is Redlining?

[NOW tense]

1. again? I thought redlining was always in place. n/t

[Waiting For Everyman]

2. Yes and no.

Yes - they do want to go on redlining minorities without getting any more flack for it from the government.

And no -
1) they want to drive all of our credit scores down, so they can charge everyone double the justified interest, if they lend at all, or blackball us, just as they do to minorities;
2) they DON'T really want to lend at all because speculating for outrageous unmerited profits is really their preferred game.

[imdjh]

3. yes and no - I'll answer like a bank employee

<B>In 2004, she wanted to buy the house next door for her son to live in. </B>

SO this is an investor loan, not an owner occupied loan. So that would traditionally raise the interest rate, but not more than double it.



<B>She said the bank promised her a low fixed rate for a $40,000 loan, but at the closing, when reading the fine print, she noticed that the rate was actually 11 percent.</B>

If the loan amount weren't so low, then this increase in rate would have disqualified most people who are buying close to their maximum loan qualification. The fact that the loan amount is so low, and assuming that her down payment is no more than the 20% usually required for a low doc or investor loan, this means that the bank is lending on a house that is either not in good shape, or is in an economically depressed area. Either way, you're looking at a higher interest rate. But, if the customer was locked in at 4% I don't know how the "bank" would be able to complete the loan on completely new terms without notifying the customer. Looking at what we have here, I'm guessing that she was actually borrowing from a correspondent lender, who was marking up the bank rate and pocketing the difference. As for her lawsuit, I'm guessing that this will kill it, since the correspondent lender is probably selling cars now.

<B>"I was blown away," said Weaver, an NAACP member. "I didn't have any choice (but to sign) ... it made me feel violated."</B>

Of course she had a choice. She could have walked away- though she might not have known that.

<B>Similar NAACP lawsuits are pending against a dozen other subprime lenders.
"This is systematic, institutionalized racism," Tighe said. "Once you take out factors relative to income and credit risk, the only difference between the borrowers is the color of their skin."</B>

It's probably not that simple. If we're talking about a real bank here, then you are talking about a lower level workforce that is heavily minority and presumably aware of both the reality and practice of racial discrimination, ie it's not going to happen. As I noted before, it sounds like she was dealing with a mortgage broker (as most people do) who was marking up the product. It's also possible that a good deal of the issue is governed by the price of the property which might have the effect of racism, but not the intent.

Another problem might be the changes in how real estate purchase agreements were executed in the last heyday of the market. Before that time, all real estate contracts were written contingent on obtaining financing on terms described in the contract in a given period of time, or the contract was void. Joe agrees to buy 123 Elm Street for $100K with 2% down at a rate not to exceed (usually the VA rate) for 30 years with payments of $600/mo, approval within 30 days of contract or contract is void. The real estate got bitchy as sellers got full of themselves and agents got lazy and pushy- noncontingent contracts only, which put the earnest money deposit at risk even if you didn't get the loan.

First fix would be to standardize the contract- but that will be met with huge resistance. Agents and investors will claim that contingent terms increase risk and time, and that they have a right to make contracts that are favorable to themselves.