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Lenders’ Apparent Discriminatory Practices Hinder Minority Home Ownership

The American Dream of owning a home still escapes some members of various minority communities, unfortunately, because mortgage lenders will not finance their purchase. Here’s a snippet from the St. Petersburg Times article telling us all about it:

While the hot housing market and bargain basement interest rates have allowed more people than ever to become homeowners, a new study makes the case that many African-American and Latino families continue to be locked out of the American Dream.

Discrimination is wrong and I applaud ACORN for its efforts. Minority members of communities all across Florida, and America, should be able to attain financing to buy their dream home, especially with 100 percent and 103 percent financing available that can finance the entire purchase with $0 down. Bad credit shouldn’t be a problem, either, since there are mortgage lender services that allow someone to clear their credit history to make sure it’s good enough so they’ll qualify for a loan.

Minority home ownership needs to be increased and mortgage lenders should be working to make that happen, not slow it down or prevent it.

-John Mudd

About Mr. Real Estate

  • http://www.walloworld.com/triggerman Bill Wallo

    I agree that actual discrimination based upon racial profiling is wrong (and illegal to boot). However, no one is entitled to their “dream home” without the income to afford it, 100% mortgages or not.

    As I work for the federal bankruptcy court and spend time helping in the Miami bankruptcy courts, I can tell you that in many instances people – minorities or otherwise – often obtain financing for their “dream home” but then can’t make the payments. There is a peculiarly American notion that home ownership is a critical component of self-worth (part of the American dream, as it were). Those types of loans you speak of (100% financing, etc) typically carry additional fees and higher interest rates, and there is very little evidence that they would be a particularly good economic investment (in fact, most financial consultants suggest that it is economically more beneficial in the long run to rent and invest the difference, but that’s another story).

    If lenders are indeed turning down qualified minority borrowers, there are a number of legal remedies available (equal credit opportunity laws, etc). If, however, there are problems with income verification, credit history, or the like, then the financial institution is entitled to decline to make the loan, regardless of the person’s race. Let’s not forget that the study here focused only on the “decline” ratio, and apparently did only a cursory review of the rejected applicants and didn’t ascertain whether these problems – bad credit history and the like – likewise broke down over racial lines, or whether other individualized circumstances resulted in the rejection. I’m not saying that they do; I’m just saying that all the facts are necessary to make a valid determination.

  • http://www.filteringcraig.com Craig Lyndall

    I am not going to sit here and pretend that the world is colorblind and that racism doesn’t occur, but in this case it is pure economics. It would be nice if we, as a society could do something, but getting mortgage brokers to hand over loans to people who have barely any income and in many cases live from month to month to the point that they don’t have bank accounts? That is not the answer. Why steal months of payments from a person who is ultimately going to have to forfeit the property back over to the bank?

    A program that provides cheap rent, and financial planning advice to those who don’t know how to save money would be much more worthwhile. Show them how to save a down payment and help them along with the process of fixing their credit and eventually buying a house, but lending money to the unqualified just continues the vicious cycle.

  • http://www.homeintampabay.com John Mudd

    The article did say that income verification was a problem, but lenders can verify the income if they do desire to.

    100 percent and 103 percent loans are typically requested by low income individuals, or individuals who do not wish to pay closing costs or a downpayment, or both. These loans are harder for a lender to do, and their profit from it is much lower than a loan requiring 10-20 percent downpayment and paying the closing costs. That is why some lenders try to stay away from them, and as was pointed out in the article, some feel that this is a form of descrimination.

    I think everyone should be given the opportunity to make the American Dream of owning their own home a reality, if they desire to do so, if they can afford to do so. Lenders need to find out if they can afford to do so, rather than not paying attention to them just because the loan may be harder to do.

    Cheers.

  • http://www.homeintampabay.com John Mudd

    Did anyone read my post about Congress passing a bill providing grants to help low income Americans buy a home?

    If it were about economics, Fannie Mae would not have a loan product that is specifically for the unemployed. However, not all lenders are going to provide it.

    I would agree, though, that it is likely more socio-economic discrimination than racial, but I still think the opportunity to own a home should be available to everyone, and since payments on a home or condo often are less or equal to what someone would pay for a month’s rent, it only makes sense to provide them with that opportunity.

    Renting does not provide equity, either, and equity provides a homeowner with more purchasing power than a renter could ever have, because they do not own. Plus it allows them to build their credit. However, I wouldn’t object to a program like that, since I do have investor clients who like to buy properties to rent out for investment purposes, but there is an option for someone renting who wants to build their credit up. It’s called leasing with the option to buy. The renter and potential owner rents for a year and a portion of their monthly rent is put toward purchasing the home.

    There are all kinds of options available to allow anyone the opportunity of owning their own home or condo. Some of them are harder to work out than others, but if you are committed to providing your client, whether a lender or Realtor, willing to provide with their very own piece of the American Dream, then you can do so.

    Unfortunately, not everyone provides their clients with sound service and expertise when taking care of their real estate and lending needs.

    Cheers.

  • becky bugg

    ok , to whom this may concern…
    my grandmother works for this company that handels things for mentally handicap people in out town, i was wondering if there are any descrimination laws on people who wont allow handicap people to rent their house simply because their handi cap??
    please e-mail me if you have information on this ASAP!

  • http://www.homeintampabay.com John Mudd

    Becky,

    If your aunt feels she was discriminated against then she should contact an attorney for further counsel. I know the laws well enough to follow them, but I am not a lawyer, so I am not qualified to interpret the law or provide advice based on the law. If you have questions regarding a legal matter, consulting an attorney is the first thing you should do. Good luck.