Lawmaker Vows to Fight Mortgage “Red-Lining”
A Massachusetts Representative to the U.S. Congress vowed Thursday to stop discrimination in home loan lending as he crafts legislation to curb predatory practices against minorities obtaining mortgage financing.
“We cannot return to red-lining,” Barney Frank, chairman of the House Financial Services Committee, said in a letter to members of the panel seeking input on ways to address subprime lending.
Subprime loans, also known more simply as bad credit mortgages, are given to people with suspect credit histories or no credit history at all.
Red-lining is a discriminatory practice through which mortgage brokers, lenders and other financial institutions may refuse or limit mortgages, insurance and other services to minorities in inner-cities.
In the letter to committee members, Frank said there was evidence that some borrowers, such as African-Americans and Hispanics, were designated as subprime solely because of their race.
“Real damage has been done to families and communities as many adjustable-rate mortgage loans ‘reset’ to higher interest rates and monthly payments,” Frank said.
He said the committee was working toward a balanced solution that stops abuses, preserves access to credit, and aids stable homeownership.
Lenders lowered their underwriting standards to attract a greater number of borrowers as the U.S. housing market caught fire earlier in this decade.
But the same new-style loans and adjustable-rate mortgages that allowed people to buy homes they really couldn’t afford have contributed to the recent surge of delinquencies and defaults.
Frank said earlier this month that he was working on a new bill that would help restrict risky home mortgages. Earlier this week, a subcommittee held the second of two hearings this month on the matter.
He told members the bill should focus on providing credit to troubled markets while taking a “measured approach” to cracking down on home loan fraud and predatory lending.
Legislation will seek to align the interests of mortgage lender groups and consumers, provide simple and clear disclosures to all borrowers, and wipe out incentives for mortgage originators to steer consumers into bad loans.
SOURCE: Reuters