Prospective home buyers may need to pony up more cash up front to secure a mortgage if they are looking to buy in one of hundreds of zip codes that lenders now consider “soft markets.” Countrywide and GMAC recently ranked over 1,000 zip codes on a risk scale of 1-5. Lenders to moderate risk zip codes, ranked 1-3, may require borrowers to pay an additional 5% down payment. Unlucky buyers in high risk zip codes, ranked 4 or 5, are now automatically required to put down the extra 5%.
Ted Grose, president of Los Angeles-based 1st Mortgage Advisors, said labeling entire counties as “declining” is “ridiculous — it totally fails to distinguish between areas where prices are rising or relatively stable, and other neighborhoods or communities where they are not.”
David Berenbaum, executive vice president of the National Community Reinvestment Coalition, a consumer advocacy group active in litigation against subprime mortgage companies, said that “sound underwriting has nothing to do with geography. It is based on the income and qualifications of the applicant, and the valuation of the property by a professional appraiser.”
“Anything else,” Berenbaum said, “runs afoul” of federal fair lending and Civil Rights statutes. “It is redlining.”
Paul Skeens, head broker for Carteret Mortgage in Waldorf, said he had observed that lenders’ county and Zip code designations “have their heaviest impacts on areas with high proportions of minority groups and people with moderate incomes who bought houses” with low and no-down payment programs during the first half of the decade.
Labeling these areas as “declining” and then imposing higher down payment requirements “becomes a self-fulfilling prophecy,” Skeens said. “People can’t buy there because they need more cash upfront, the houses don’t sell and prices go down.”
By definition, redlining is refusing to provide a loan to someone because they live in a high-risk area. We don’t know how this isn’t a form of redlining, but that’s because our closet isn’t full of high-priced lawyers willing to help us circumvent the law for $600 an hour.
Prospective homeowners should check with their realtor to see if their desired zip code comes with a financial penalty that could affect their purchasing plans.
Zip Code ‘Redlining’: A Sweeping View of Risk [Washington Post]
(Photo: zenera)
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I don’t know that this observation has any thing to do with this topic…BUT I’ve started noticing on the “Flip That House” has a disclaimer about people doing this with “real” money and not to do it without Planning or research (for a better term) is not advised, i.e., “Don’t do this at home, kids”. Also I noted on a show an new homeowners since the meltdown (not mentioned that way on the show) that pre-approved mortgages were being reevaluated and most of these in new builder subdivisions were being given lower prices if they went with the builder’s loan company. This in itself probably isn’t new…but it’s the first I’m noticing being mentioned on these TV shows.
@humphrmi: Yeah, you say “live with parents” is a solution, but I bet you’d compalin about 30-somethings “mooching” off mom and dad in the same breath.
@therewillbefood: That’s exactly the area I was thinking of….
@Me: I beg to differ… are you forgetting my beloved Ladera Heights in that “richest black neighborhood” category?
It’s all the baby boomers’ fault. They punched that big hole in the ozone layer, they drove up property values with their junk bonds and whatever else, and they now that they’re rich they’re depressing wages so people in the next generation (my generation-the generation of people graduating from college about now) can’t afford a home till they’re 40. Stagflation all over again. Real wages down, inflation up.
They created this whole mess, so its their time to clean it up. And then they chastise us for being “financially irresponsible”. Do you have any idea how much the average college grad makes? $35k. After taxes, that’s $28k. Which comes down to $2400 a month. Not to mention $40k of crushing student loan debt. They made $35k in the 80′s. If real wages had remotely kept up with inflation, or even tried, maybe people can actually AFFORD to put down 20% for a house and be able to buy one before they retire, in a neighborhood where they’re not likely to get shot.
Honestly, I don’t feel bad for people in their 50′s whose home values are going down because people can’t afford to buy them anymore. Oh, and they expect us to pay for THEIR retirement, too.
Something’s seriously fucked up when college grads have to join the military to pay off their student loans. Or drop out of college and join the military because they can’t afford it anymore.
@humphrmi:
I build and sell houses for a living I’m well aware of the “conventional” or “conforming” requirements.
My point is that lenders can vary the LTV ration based on FICO score as well as Income to Debt. They can’t do it based on location. As I said in a later post. It can all comes down to the appraisal. Since lenders generally select their own appraisers they can use ones that might tend to “devalue” the property as they so choose.
@JustAGuy2:
See above paragraph
@Sudonum: And as other posters have pointed out, they can charge a higher interest rate based on FICO, LTV, and Income to Debt, not based on the zip code.
@brokeincollege: Please stop. If you compare apples to apples (same profession salaries) they are up plenty. And student loans aren’t “crushing”, they are the best investment you ever made. Low interest rates, liberal repayment terms and the priceless education. The boomers are guilty of a lot of things, but none of us will ever have to come up with a 20% downpayment for a 17% mortgage while there is 10%+ inflation per year, like the boomers did in the early 80s.
And these numbers say you’re wrong:
[nyjobsource.com]
Same professions? The IT industry in America doesn’t exist anymore, remember? The whole industry went to Bangalore.
What about the skyrocketing cost of higher education? Have wages kept up with them? In the 80′s, college costed $7k for the more expensive private schools. Now they cost $55k all in. You’re telling me that real wages went up 800% in the past two decades? Please.
@brokeincollege: Maybe the value of a college degree went up by 800% in the past two decades?
You evidenlty do not understand the current useage of the word “ghetto” and have reverted to the useage popular in earlier centuries. Get with the times.
@swalve:
If you read the article, “upscale” or “ghetto” doesn’t really figure into the distribution of high/low risk designations. An expensive house can decline in value just as easily as an inexpensive one, and those loans are deemed high risk, according to the article.
It’s inaccurate to assume, without additional information (size of loan being a key bit), that a high-risk borrower is the same as a low-income borrower.