Smart business or redlining? What say you?

Lenn Harley wrote a post yesterday titled "HIGH RISK RATING BY FANNIE MAE?? HOW ACCURATE IS IT?" If you haven't read it yet please take a minute to do so as it is very good "Hard Core Real Estate", as usual.

Lenn's post is talking about Fannie Mae rating one of her market areas in Virginia as "high risk" and therefore requiring Buyers to have a larger down payment and higher rate than what they would normally qualify for.

The problem with this, as Lenn points out, is that Buyers with very good credit are being penalized because the area they want to purchase in has been categorized as "high risk".

Now folks, my market, Poinciana Fl. Has also been categorized as "high risk". This is due to our high rate of mortgage defaults and our rapidly declining property values. The Lenders, in order to protect their interest, are looking at loans real hard and are requiring larger down payments.

Contrary to popular belief, this is not redlining! Every time I write about this folks tell me it's an illegal practice and they can't do that. Well they're wrong! Lenders have every right to not lend money or require stricter guidelines in areas where there is a history of bad loans.

What the Lender can't do is base this decision on……..well here, read this:

"In the United States, the Fair Housing Act of 1968 was passed to fight the practice. It prohibited redlining when the criteria for redlining are based on race, religion, gender, familial status, disability, or ethnic origin."(wikipedia)

Fannie Mae and individual lenders ARE rating areas "high risk" and ARE hesitant to write loans in these areas. And they can legally do it.

Here's an email I received yesterday from a Buyer purchasing one of my listings.

"Hi Bryant, it's xxxxx and I wanted to give you a quick update, unfortunately because of the lack of any comparable sales within the past 6 months and quickly falling sales and home prices the appraisal came back lower than expected however to compensate for the "declining property value" I have to put down a larger down payment, that is not what I hoped for but I really think the house will eventually bounce back up so that is a risk I am willing to take." END

I want to add that the appraisal came back at the purchase price. The appraisal was not low it was right on the money. But in a "high risk" area, right on the money is not good enough. They are requesting the Buyer place an additional 5% down. Her credit score is over 700 and she makes far more income than needed, to qualify for the loan. She's the perfect Buyer. It doesn't matter. Poinciana has been stigmatized and the Buyer now has to pay for others who couldn't or wouldn't.

And that's the way it is in Poinciana Fl. Believe it or not!!

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