Paying up
Countrywide Home Loans is requiring an additional 5 percent downpayment in swathes of the country where it thinks the real estate market is weakest. In Massachusetts, only Barnstable County made the list.
Fannie Mae, which provides funding for many mortgage loans, also is requiring larger downpayments in many areas, although it won't say which ones.
The rankings have prompted some critics to charge that companies are returning to the red-lining days, when lenders refused to make loans in certain areas, generally wherever minorities lived.
Countrywide ranked counties from riskiest (5) to low-risk (1); borrowers in counties ranked (5) or (4) generally will have to make an additional 5 percent downpayment. In lower-ranked counties, an additional downpayment could be required on a case-by-case basis.
Massachusetts fared relatively well. Barnstable County received a (4), the highest ranking in the state. Most other counties received a (3). The Connecticut River valley counties-- Franklin, Hampden and Hampshire -- all got a (2). Dukes and Nantucket counties were not ranked. (The highest-risk counties mostly are in the Sun Belt and the Rust Belt. Be thankful therefore that New England is not shaped like a belt.)
As many of you have noted, the strength of the market varies widely by town, maybe even by street. The 2007 sales data, for example, shows wide gaps between Dover and Sherborn. Imposing surcharges on entire counties seems just a bit imprecise.
Critics also are concerned that the changes could reduce investment in areas that need it, limiting the pool of homebuyers by making ownership more expensive. Companies respond that they are simply tightening standards -- and basically in response to the same critics.
And the selective tightening may raise legal issues. It's OK to surcharge buyers with financial problems, or to make judgments about a particular home, even judgments based on the surrounding neighborhood. But categorical surcharges are a murkier area.
If the practice gathers steam, the rumblings from various consumer and civil rights groups suggest we may well have a chance to hear what judges think, too.
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Danged if you do and danged if you don't.
Lenders don't make loans to high risk borrowers, they get accused of "redlining" minorities because a disproportionate number of minorities are high-risk borrowers. The government steps in and tells them to cut it out.
So they come up with a way to get loans to high-risk borrowers. Sub-prime loans. They pitch those loans to make the numbers so it doesn't look like they're being racist just because they won't make loans to people who probably can't pay.
Then the terms of the sub-prime loans bit the borrowers in the backside. The lenders get accused of "targeting" minorities with sub-prime loans.
So the lenders go back to having a set of standards about who gets a loan, and how. They charge high-risk borrowers extra to cover the risk, and they get accused of "red-lining" again.
So I'll ask the consumer and civil rights groups: How, exactly, do the lenders do the right thing here? If they make loans to high-risk borrowers and the borrowers end up defaulting, they're victimizing poor people and are probably racist. If they don't make loans to high-risk borrowers or require extra collateral from said high-risk borrowers, they're denying poor people the American Dream and are probably racist.
So what should lenders do, because it's looking like they anger the exact same people no matter what.
I'm absolutely not saying that lenders are completely blameless here, but it sure seems like they're getting railroaded just a little bit.
A couple of mortgage brokers I do business with have said that several cities, not just Barnstable County, are considered higher risk and require larger downpayments by lenders. My understanding is that MassHousing also requires an additional 5 percent downpayment in certain areas.
This blogger might want to review your comment before posting it.