Is There a Two-tiered Mortgage Market Based on Race?

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Red-lining has long been a topic of concern in the housing industry.  I have known people who actually saw the maps in bank offices, with the big red line surrounding minority neighborhoods on it, or the predominantly minority Census Tracts colored red.

Red-lining was a very real and pervasive problem until Congress stepped in with the Home Mortgage Disclosure Act (HMDA) and the Community Reinvestment Act (CRA), and bank regulators began to impose sanctions on mortgage lenders who demonstrated bias in their lending practices.

No doubt, there are still banks and mortgage brokers who have not gotten the message, and there is still bias in out society, in home mortgages as well as other areas.  But I was surprised to see the news articles about a recent study that seemed to show that not only was racial bias still practiced, but that Black and Latino borrowers were being broadly discriminated against in major American cities.  This study, produced by the California Reinvestment Coalition (CRC), Empire Justice Center, Massachusetts Affordable Housing Alliance (MAHA), Neighborhood Economic Development Advocacy Project (NEDAP), Ohio Fair Lending Coalition, Reinvestment Partners, and Woodstock Institute, reviewed HMDA data for 2010 and compared conventional and government-backed prime mortgage lending in seven cities, based on borrowers’ race and ethnicity, and the racial and ethnic composition of neighborhoods.

Then I read the report itself.   Read more

Is now the time to buy? Redux.

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A recent article in the Wall Street Journal,  reports that a study by Andrew Davidson & Co. shows that  “Home prices and mortgage rates have made monthly mortgage payments lower than at any time in the past decade. But housing isn’t any more affordable than it was five years ago, during the go-go lending days, after factoring in down payment requirements and other financing terms…”

The article goes on to quote the author’s explanation for why the current record-low interest rates and reduced prices are not leading to a home sales bonanza:  “At the peak of the housing bubble, loan payments were the only cost that borrowers had to consider given the ability to take out no-money-down loans. But today, loan payments constitute roughly 50% of the total cost of ownership ‘and are rather modest by historical standards,’ the paper says. ‘This explains why the record-low interest rates do not impress borrowers and do not propel home prices up.’”

On the other hand, on the AirTalk radio show carried by KPCC-FM, a public radio affiliate, two “experts” reach the opposite conclusion.  Stuart Gabriel, a noted LA area economist and director of the Richard S. Ziman Center for Real Estate at UCLA, and Andrew LePage, an analyst with Dataquick Information Systems, believe that the market has bottomed out and is now trending upward.

I am not convinced.

And now, for something completely different to address to the foreclosure problem.

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As prior posts here, and innumerable articles in the media, blogs and other sources, remind us, there is still a serious mortgage default and foreclosure problem, particularly in California.

Enter Mortgage Resolution Partners, who have apparently been shopping a new idea on how to dig out from under this problem.  A story from Reuters says this mortgage firm is proposing that governments use their eminent domain power to condemn, not the homes, but the mortgages.

A big part of the problem with the real estate market is that many borrowers are “upside-down,” or “underwater.”  That is, the home owners have negative equity–they owe more on their mortgage than their home is worth in today’s market.  A recent report estimates that nearly one in three home buyers owe more than their home is worth, and altogether, the difference between the real value of the homes and the mortgages is $1.2 trillion. Read more