Mortgage Lender Accused of Discrimination
When mortgage lenders refuse to write home loans on central city row houses, does that violate federal fair housing rules?
What about refusing to write mortgages on houses in entire communities dominated by specific ethnic groups, such as Native Americans?
Or not offering mortgage loans for houses that may be used in part to accommodate disabled adults in a “foster care” setting?
Syndicated columnist Kenneth Harney asks, in his most recent writing, just how much protection do fair lending and other civil rights laws provide to mortgage application seekers who are rejected not because of credit scores or financial capacities, but because of the location, type or possible use of their homes?
A consumer group is mounting a campaign aimed at nailing down the answers.
The National Community Reinvestment Coalition (NCRC) filed suit May 9 against NovaStar Mortgage, a subsidiary of publicly traded NovaStar Financial, based in Kansas City, Mo.
The suit, filed in federal district court in Washington, D.C., charges that NovaStar repeatedly has violated the Fair Housing Act by refusing to make mortgages on row houses in the Baltimore housing market, and on homes located on Indian reservations anywhere in the country, or on houses that may be used in part to shelter and care for disabled adults.
Such bans have “no business justification,” according to the suit, and discriminate against African-Americans, Latinos, Native Americans and disabled individuals.
A spokesman for NovaStar, Richard Johnson, called the charges “baseless” and said the suit “makes deliberate misrepresentations” about NovaStar’s policies.
Johnson confirmed that the company does restrict its home loan lending in the categories identified by NCRC but said there are valid business-related reasons for each policy.
For example, in the case of row houses in Baltimore, said Johnson, there had been widespread appraisal fraud involving row houses before, making the mortgage company leery about extending new loans. But officials at NCRC said those problems dated back eight years or more, and have long been corrected.
John Taylor, NCRC president and CEO, said, “NovaStar intentionally structured its underwriting to exclude … persons with disabilities and row house neighborhoods where African-Americans and Latinos reside,” as well as mortgages to Native Americans who live in “tribal communities” across the country.
The NCRC is expected to soon file a series of lawsuits and fair housing complaints against other mortgage lender organizations who allegedly avoid specific types of houses that are closely associated with minority groups.
Urban row houses - identical houses joined by common walls - are shunned by a large number of lenders, according to NCRC, and the net effect is to deny home equity loan or mortgage money to African-Americans and other minority group members who live in neighborhoods where row houses predominate.
The NovaStar suit charges that “nearly two-thirds of all row houses in Baltimore are occupied by African-Americans, and the majority of row houses are located in African-American neighborhoods.”
Property type is “correlated to the racial composition of neighborhoods,” and by denying loans on row houses, NovaStar thereby “intentionally treats homeowners in predominantly African-American neighborhoods … differently from non-African-American homeowners and neighborhoods.”
NovaStar’s policy against extending home mortgage credit to anyone living on a reservation “has the purpose and effect of limiting access to capital for Native Americans” in 35 states, the suit charges. “NovaStar excludes loans without regard to traditional lending criteria.”
NovaStar said the company does not offer mortgage loan funds on homes located inside reservations because “they are governed by different sets of laws,” and sometimes entail deed restrictions that can raise risks for lenders.
An NCRC official argued in response, however, that mortgage giants Fannie Mae and Freddie Mac both have loan programs designed to handle such legal issues, and the programs are readily available to national lenders.
Johnson said NovaStar’s ban against mortgages on homes that offer adult foster care is not intended to discriminate against handicapped people, but rather reflects the fact that “there is an active business” under way on the property, rendering it a commercial, not purely residential, use.
NCRC challenged that contention, however, noting that “huge numbers of homes have small businesses or home offices, and mortgages (on them) are written every day.”
SOURCE: San Jose Mercury News