Friday, May 2, 2008

Declining Market Just A New Name For Redlining?

Banks used to "redline". Red lines were drawn around certain neighborhoods where the bank did not want to make loans. It was, quite simply, discrimination and it is now, thankfully, illegal. However, Fannie Mae and Freddie Mac are being accused of re-instituting this old practice under a new name, the "declining markets" lending policy. Under this policy, they charge borrowers higher fees and demand larger down payments when properties are located in areas where the lenders believe prices have dropped. Some industry estimates put the total number of Zip codes affected across the country at between 8,000 and 12,000.

Realtors groups are strongly protesting this policy. Timothy Sandos, president and CEO of the National Association of Hispanic Real Estate Professionals, says this makes buying homes disproportionately more costly for minorities and moderate-income families who can't afford the higher down payments and fees. Labeling an area as "declining" becomes a "circular, self-fulfilling prophecy," says Sandos. By making it more difficult to buy in these neighborhoods, the prices of homes drop. Richard Gaylord, the president of the National Association of Realtors, asked Freddie Mac and Fannie Mae to "discontinue the policy of stigmatizing entire Zip codes or metropolitan areas" as declining since they "typically include widely differing" local neighborhood conditions.

A Fannie spokesman said the company has heard the critiques on declining markets designations, "and we take (them) seriously." Freddie Mac said through a spokesman that it is "re-evaluating" its policy. But is it really appropriate to allow Freddie Mac and Fannie Mae to self regulate? What do you think?

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