Just about everybody active in real estate knows that mortgage lenders are required to treat loan applicants equally and fairly, approving applications on the basis of creditworthiness, not race, gender, age, disability or religion.
But what about lenders who discriminate against certain types of properties or real estate locations-properties that have direct connections to one of those protected categories of home buyers? For example, can lenders redline Native American tribal lands, and refuse to extend mortgages to anyone whose property happens to be located inside a reservation? What about urban row house neighborhoods whose residents are predominantly minorities? Or homes to be used in part to shelter disabled adults who need constant care?
One major lender, Aegis Mortgage Corp of Houston, agreed last week to change its policies banning loans on properties inside reservations, urban row houses, and group homes anywhere in the country. The company, which specializes in subprime lending and says it has funded 228,000 mortgages since 2003, announced its changes in a joint settlement with the National Community Reinvestment Coalition, a Washington DC-based consumer group.
NCRC also filed suit in federal district court against another large mortgage lender, NovaStar Financial of Kansas City, Mo., when the lender refused to drop similar bans against Indian reservations, row houses in Baltimore, Maryland, and group homes for disabled adults.
In the Aegis settlement, the company admitted no wrongdoing or violations of the fair housing statute, but agreed to pay NCRC $475,000 to support its ongoing fair lending efforts. Aegis also promised to revise its underwriting criteria to remove any previous blanket prohibitions against row houses, properties located inside Indian reservations, or any form of home to be used to care for elderly or disabled adults.
The NovaStar suit charged that the company regularly discriminates against qualified home buyers solely because of the location, type or proposed use of the house. A NovaStar spokesman, Dick Johnson, called the suit "baseless," and said "we look forward to a full and fair opportunity to rebut" its allegations.
Johnson argued that NovaStar declines to lend inside Indian territories because of legal uncertainties regarding deed restrictions and other issues. He said the ban against properties to be used as group homes is based on the presence of "an active business" on the premises-giving the loan a commercial purpose, not residential. Row houses in Baltimore have been off limits for NovaStar, according to Johnson, because of appraisal irregularities in years past.
David Berenbaum, NCRC executive vice president, challenged Johnson's explanations, noting that mortgage loan programs for properties inside reservations are available through Fannie Mae and Freddie Mac. Millions of American residences contain home-based businesses that routinely receive mortgage financing; and that row house appraisal issues in Baltimore occurred "eight years ago," and no longer are prevalent.
John Taylor, NCRC CEO and president, charged that NovaStar "intentionally structured its underwriting to exclude Native American tribal communities, people with disabilities, and row house neighborhoods where African-Americans and Latinos reside. NovaStar discriminated against people with the least amount of ability to fight back. They did it because they thought they could get away with it."
NCRC says it plans to file a series of fair housing and fair lending complaints and lawsuits in the weeks ahead, targeting lenders who allegedly discriminate against applicants at the margins of the fair housing statute.
"The impact on home buyers in these situations" -- where they are rejected out of hand not because of credit histories or their ability to repay a loan, but because of location, housing type or intended use-"is just as great as if they were discriminated because of their skin color or racial background," said an NCRC official.
