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Tuesday Talk: Redlining is Alive and Well

April 15, 2014 By John Van Hecke, Publisher

Redlining is the practice of racial and cultural discrimination in the real estate, financial services and mortgage lending industries. A recent report from the Institute on Metropolitan Opportunity finds that illegal housing and lending policies continue to plague Minnesota’s communities of color.

What’s the solution? We face several choices without a single best answer. Join the conversation below and tell us what you think Minnesota’s leaders can do to reduce and eliminate redlining.

From 8-9:30, Kevin Whelan of Home Defenders League and  SEIU research analyst Jordan Ash, will answer questions, helping to jumpstart this important conversation.

 

Post your comments or questions in the box below, scroll down to see the ongoing conversation, and use "refresh" to see new comments.

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24 Comments:

  • Rachel says:

    April 15, 2014 at 8:01 am

    Good morning all! Jordan and Kevin will be joining us soon. What questions do you have for either of them?

  • Jordan Ash says:

    April 15, 2014 at 8:04 am

    Hi, this is Jordan.  These days almost all lending is based on credit scores.  Banks say that this ensures that there is no discrimination, and that if certain communities are turned down more often than others, it’s because they have lower credit scores, and there’s nothing the bank can do.  I’m curious what people’s thoughts are on this.

    • Joe says:

      April 15, 2014 at 8:34 am

      Jordan, tell us about predatory lending practices that usually drive down credit scores. Is that what you’re trying to get at with this question?

      • Jordan Ash says:

        April 15, 2014 at 8:48 am

        Credit scores are portrayed as a “color blind” method but there are a number of problems with credit scores.  For instance, just the fact of having gotten a loan from a finance company, even if you paid it on time, lowered your score.

        • Joe says:

          April 15, 2014 at 8:50 am

          what are some examples of finance companies?

          • Jordan Ash says:

            April 15, 2014 at 8:55 am

            Finance companies have much higher rates than banks—Citifinancial, Wells Fargo Financial, Household Finance, Benefitical, Associates were some of the biggest.

            • Joe says:

              April 15, 2014 at 9:08 am

              How are these different than just going to a regular branch and filling out a loan application? How can people avoid using these products? It sounds like using a credit card might even be a better option in some cases.

              • Jordan Ash says:

                April 15, 2014 at 9:18 am

                Usually people end up at these places because of aggressive advertising that pulled them in. People very rarely seek out these lenders on their own.  Their marketing is very targeted and then they do a supreme sales job.  The best advice is to ask some other lenders what their terms would be and if possible have someone else review any loan docs before you sign them.

  • Mike C says:

    April 15, 2014 at 8:10 am

    Leave it to you all to get it wrong. I’ve been selling real estate for 24 years and this isn’t happening.

    My guess is if you could prove it you would be filing a lawsuit in federal court so right away your argument is flawed. In 2005-2008 we had the highest homeownership rates in a long time, maybe in history but so many of the loans were given to those who had no business getting a mortgage and it was of every race, color or creed.

    Next point is red lining is blocking out whole neighborhoods and not giving any loans in those areas. It has nothing to do with the race of the people. It would be lenders saying we are doing no loans in north Minneapolis north of Broadway to the Brooklyn Center boarder.

    Home ownership is a privilege, not a right and lenders are in the business of lending money but the loan has to be good. No more loans based on what might be down the road instead loans given on good credit, assets in the bank and job history.

    If you don’t have those you might have to rent for a while.

    • Jordan Ash says:

      April 15, 2014 at 8:14 am

      Thanks Mike for weighing in.  Minnesota has the highest homeownership rate in the country at 77% and one of the lowest for African-Americans at 26%.  The Latino homeownership rate in Minnesota is 44%.  What would you attribute this disparity to?

      • Mike C says:

        April 15, 2014 at 8:26 am

        Credit, assets and job history.

        If you have those three items, anyone can buy a home.

        • Jordan Ash says:

          April 15, 2014 at 8:30 am

          Thanks again Mike for replying. What kind of credit do you think should be required for a mortgage?

    • Steve Fletcher says:

      April 15, 2014 at 8:31 am

      Actually, the study from the Institute on Metropolitan Opportunity found a very strong bank bias against lending in predominantly nonwhite neighorhoods:

      “if the home purchase and refinance loan portfolios of the region’s banks simply reflected the regional distribution of homeowners and the actual mix of household incomes in each neighborhood, more than 13,300 additional loans would have been made in diverse and majority non-white neighborhoods over the four years from 2009 to 2012.”

      And with this data in hand, several groups did call for the city to file a lawsuit in federal court last week.  What do people think about the idea of Minneapolis filing a lawsuit to recover damages done to communities of color?

      • Kevin Whelan says:

        April 15, 2014 at 9:03 am

        I think the city should sue Wells Fargo and perhaps other large lenders. Baltimore and Memphis won big settlements and the evidence in this IMO study seems very strong.

        There are other policy solutions to fix some of the damage of “reverse redlining” - peddling back loans that crashed the housing market. Learn more about “local principal reduction” sometimes aslo called “reverse eminent domain” here: http://www.fightingforeclosures.org/ This is another policy that Minneapolis and other metro cities should look at.

  • Kevin Whelan says:

    April 15, 2014 at 8:10 am

    Kevin here: Here is the news article that prompted this discussion: “U of M study sees signs of mortgage redlining in Twin Cities.” And the report that provoked it: http://bit.ly/1iBmJtJ. Assuming these numbers are credible, Wells Fargo and other big banks are stripping millions in wealth from communities of color. I wonder what policy solutions folks think are useful, especially at the city level, where there may be more political will to act?

    • Kevin Whelan says:

      April 15, 2014 at 8:27 am

      Here is the Star Tribune article about the report: http://m.startribune.com/?id=254464331

      Key quote: “The study, using data from 2009 to 2012, focused more on general patterns than on particular bank activity. But it notes that Wells Fargo & Co. and U.S. Bank, the two largest banks in Minnesota, would have made an additional 4,200 and 1,200 mortgage loans, respectively, in racially diverse and mostly nonwhite Twin Cities neighborhoods during that period if they had distributed their loans proportionally to the distribution of homeowners with various incomes across the region.”

  • Mike Downing says:

    April 15, 2014 at 8:23 am

    The elimination of “Red Lining” by Janet Reno contributed to the subprime fiasco, the takeover of the GSEs (Fannie & Freddie)  and the breakdown of our economy and our retirement savings. Dodd-Frank was passed to reinstitute financial Red Lining to avoid another financial collapse. Financial Red Lining was logical, rational and should never have been eliminated by Clinton and Reno.

    • Steve Fletcher says:

      April 15, 2014 at 9:04 am

      That’s a bizarre, and I think factually unsupportable reading of history.  Dodd-Frank was about financial industry oversight - it certainly was not intended to reinstitute redlining.  The only way you could imagine Dodd-Frank would have the effect of reinstituting redlining is if you accept the premise that banks should only provide predatory loans that set people up for failure in predominantly nonwhite neighborhoods.  There’s no basis for believing that banks should (or should even be allowed to) behave that way.  Certainly, they did behave that way in the last decade, and the reason they did was that a) they could get away with it and b) the financial industry cooked up financial schemes to make failing loans profitable.  Dodd-Frank was intended to correct the market distortions that were creating perverse incentives to give loans that were designed to fail and strip families of their savings in the process.  I’d discourage anyone from using the recent history of financial industry fraud and discrimination to justify disinvestment in communities of color.

  • Mike C says:

    April 15, 2014 at 8:24 am

    I would ask the same students to do the same study in rural Minnesota, farm country. Everything is in house over 10-20 acres. I have 80 and I’ve never had a normal mortgage on my property. Most tracts of land have to go contract for deed.

    Does this mean they are redlining rural Minnesota also, of course not. It means that banks are held to a set of rules so that we don’t destroy the housing market and collapse the values again. There are mortgages in rural Minnesota just like in Minneapolis but they have to fit the guidelines established by Congress and the president to protect homeowners and to protect the trillions in value that we list almost over night in 2008 and 2009.

    • Kevin Whelan says:

      April 15, 2014 at 8:44 am

      A similar study for rural areas would be interesting, my guess is that there are similar issues with lack of access to good loans. I am skeptical that Mike, Mike and I are ever going to see the world the same way but here are a few points that i think are important:
      - Predatory and reckless lending and, much more so, wildly reckless speculative behavior on the secondary market by banks crashed the economy, now the working class people who generally did nothing wrong, simply bought houses for what they cost.
      - The kinds of good loans on fair terms in communities of color performed fine—and programs to help make homeownership accessible with things like housing counseling, down-payment assistance helped many white families as well as people of color.

      • Mike C says:

        April 15, 2014 at 9:53 am

        To me predatory lending is the biggest problem in minority communities which is why credit scores get driven down. Payday loans, title loans and other loans create problems for those who are the most at risk. When working with clients I have always counseled them to be careful about shopping for loans as everyone pulls reports which continues to drive down their scores.

        To many bad decisions by to many people are creating the problems in the marketplace.

        • Kevin Whelan says:

          April 15, 2014 at 9:59 am

          thanks Mike. We agree on the danger of predatory loans of various types. Some players in that marketplace have more power than others though—huge financial institutions that hire many of the best and brightest in our society to hard sell predatory products are making a different kind of “bad choice” than a mom who accepts the only car loan offered to her in order to keep getting to work. Governments role is in part to level the playing field.

  • Lawrence Lyke says:

    April 15, 2014 at 10:14 am

    You’re just using race and some sort of political ideology to base your argument on.  Ginning up the base:

    The banks don’t make any money (fees) and the loan officers don’t earn any money (commissions) unless a mortgage loan is made (completed).

    AFTERALL, it isn’t their money and they don’t care.  If the borrower can be fitted into a loan, the bank/loan officers want to and will make the loan.  REMEMBER, the money isn’t their money.  The money likely comes from WALL STREET and the loan will be handled/serviced in Omaha, Nebraska or Portland, Oregon or Lahore [Pakistan] somewhere.

    THINK, the most recent recession and housing collapse:  THE BANKS didn’t eat the losses in failed housing loans because they didn’t have those loans in THEIR bank vaults.  They had sold them to WALL STREET.  We’re still doing the very same thing with only very slightly more stringent regulations.

    • Mike Downing says:

      April 15, 2014 at 1:32 pm

      Yes indeed, THINK!

      GSEs (Fannie & Freddie) were in fact the cause of the recent recession & housing collapse. The GSEs not only accepted bad loans, they encouraged bad loans by looking the other way on income, credit score and assets. Mike C. is 100% right. We simply should not encourage home ownership to individuals who do not have the income, credit score or assets to support the mortgage. Individuals without income, credit score or assets to support a mortgage are called renters.

      Canada did not have the subprime crisis because individuals were required to put 20% down AND have the income, credit score & assets to support the mortgage.

      Carter’s “Community Reinvestment Act” had great intentions. But our country’s problems can be traced to “unintended consequences of good intentions”.