Redlining Becoming a Topic of Concern in the Industry Once More
David Reinholtz asked:
The Community Reinvestment Act of 1977 forbade the practice of basing the cost or availability of banking services, including home mortgages or refinancing on ethnicity. However, a community group in California recently claimed that minorities in their state are now twice as likely to be denied a home loan application as their white counterparts. An interesting dilemma during this current housing and economic crisis and one that will certainly stretch far and wide throughout the country in the months and years to come.
While this community group is basing its findings on Home Mortgage Disclosure Act results for the calendar year 2008, there is some cause for concern in the housing market. The HMDA figures indicate a significant drop in prime lending during the fiscal years 2006 to 2008 and the California Reinvestment Coalition claims that redlining, the practice of basing decisions on race, is a prime factor in this drop.
First of all, to be fair, there is certainly a point to be made with regard to home loans being made strictly or even somewhat based upon ethnicity being both unethical and illegal and is a practice that the industry as a whole has worked hard over the past several decades to eliminate. The problem with this study, however, is its focus on HDMA figures, rather than on a broader range of economic principles and conditions that apply to any home loan application.
Maintaining integrity in the industry is one of the most crucial elements to long-term success and, on the heels of the current housing market crash, discipline and sound financial decisions are tantamount to longevity and overall health of the market. So how does this one report affect the mortgage industry as a whole?
It doesn’t, yet, but the markers have been lit and the light is being turned ever brighter on a mortgage industry that has been both ridiculed and maligned with the worst of the past few years’ of the nations economic and housing crises. Currently, loans are considered much more difficult to come by for millions of people, regardless of whether they are home loans, car loans, or simple credit cards. The basis for qualification stems now from a tighter consideration of credit score and history, work history, and an overall ability in the future for an applicant to keep up with the loan terms.
With the microscope potentially being turned up a few notches, or degrees, depending on the point of view, the question is how will this affect the mortgage industry in the near future? At this time it is difficult to predict but if past indicators are taken into account, mortgage lenders will find themselves pressed between the proverbial rock and a hard place. At present, the task of the mortgage industry is to free up credit and home loans for qualified individuals to purchase homes while at the same time attempting to refrain from approving loans to individuals who would not otherwise qualify.
If a minority population has lower income than a majority population and other factors in place categorize the minorities as higher risk and therefore their loan application is denied, will the mortgage lender be held accountable? More importantly, will he or she be forced into a situation to find a home loan, regardless of points, interest rate, or cost to classify that home loan as approved?
These are certainly questions that will be addressed in the coming months and years, but the precedent that this report sets is a dangerous one in an already trouble housing market. Claims of home loan applications being denied based on ethnicity require a foundation in facts that stretch beyond the numbers of approvals and into the factors for denial. Mortgage lenders must take heed and caution to review applications based solely on the numbers provided and not on ethnicity, lest the floodgates of legal action and ethics investigations open.
Cory
The Community Reinvestment Act of 1977 forbade the practice of basing the cost or availability of banking services, including home mortgages or refinancing on ethnicity. However, a community group in California recently claimed that minorities in their state are now twice as likely to be denied a home loan application as their white counterparts. An interesting dilemma during this current housing and economic crisis and one that will certainly stretch far and wide throughout the country in the months and years to come.
While this community group is basing its findings on Home Mortgage Disclosure Act results for the calendar year 2008, there is some cause for concern in the housing market. The HMDA figures indicate a significant drop in prime lending during the fiscal years 2006 to 2008 and the California Reinvestment Coalition claims that redlining, the practice of basing decisions on race, is a prime factor in this drop.
First of all, to be fair, there is certainly a point to be made with regard to home loans being made strictly or even somewhat based upon ethnicity being both unethical and illegal and is a practice that the industry as a whole has worked hard over the past several decades to eliminate. The problem with this study, however, is its focus on HDMA figures, rather than on a broader range of economic principles and conditions that apply to any home loan application.
Maintaining integrity in the industry is one of the most crucial elements to long-term success and, on the heels of the current housing market crash, discipline and sound financial decisions are tantamount to longevity and overall health of the market. So how does this one report affect the mortgage industry as a whole?
It doesn’t, yet, but the markers have been lit and the light is being turned ever brighter on a mortgage industry that has been both ridiculed and maligned with the worst of the past few years’ of the nations economic and housing crises. Currently, loans are considered much more difficult to come by for millions of people, regardless of whether they are home loans, car loans, or simple credit cards. The basis for qualification stems now from a tighter consideration of credit score and history, work history, and an overall ability in the future for an applicant to keep up with the loan terms.
With the microscope potentially being turned up a few notches, or degrees, depending on the point of view, the question is how will this affect the mortgage industry in the near future? At this time it is difficult to predict but if past indicators are taken into account, mortgage lenders will find themselves pressed between the proverbial rock and a hard place. At present, the task of the mortgage industry is to free up credit and home loans for qualified individuals to purchase homes while at the same time attempting to refrain from approving loans to individuals who would not otherwise qualify.
If a minority population has lower income than a majority population and other factors in place categorize the minorities as higher risk and therefore their loan application is denied, will the mortgage lender be held accountable? More importantly, will he or she be forced into a situation to find a home loan, regardless of points, interest rate, or cost to classify that home loan as approved?
These are certainly questions that will be addressed in the coming months and years, but the precedent that this report sets is a dangerous one in an already trouble housing market. Claims of home loan applications being denied based on ethnicity require a foundation in facts that stretch beyond the numbers of approvals and into the factors for denial. Mortgage lenders must take heed and caution to review applications based solely on the numbers provided and not on ethnicity, lest the floodgates of legal action and ethics investigations open.
Cory
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