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He and his wife were told
by his realtor to make sure that they removed all the family
pictures from the home during the process. They did not
follow the advice of the realtor and when the appraisal came
back it was below market value. As a matter of fact, it was
so far below market value that the bank questioned the
accuracy of the appraisal.
When the appraiser was
questioned as to why the appraisal was so low he said that
it was because the family who owned it was black. The story
ended, of course, with a second appraisal of the home being
completed, the Hughley’s receiving a fair evaluation of
their property, and the family being able to sell it at a
price comparable to others in that housing market.
D.L., being a comedian,
told the story in a way to get his audience to laugh.
However, there is nothing funny about the discrimination
that surrounds and corrupts traditional mortgage lending
discouraging some and hindering others from pursuing the
dream of home ownership. Discriminatory practices like the
historical and institutionalized practice of redlining and
the use of predatory lending practices with disregard for
federal regulations in modern day mortgage loans.
The discriminatory practice in which banks, insurance
companies and other other financial services companies
refuse or limit services, within specific geographic areas,
especially inner-city neighborhoods is called Redlining.
The Home Owners Loan
Corporation (HOLC) was created by the FDR administration in
1933 to help reduce the number of home foreclosures during
the Great Depression. Redlining is a direct result of the
policies developed by the HOLC.
In 1937 these policies
became common practice by the implementation of the U.S.
Housing Act which created the Federal Housing Association
(FHA). Federal agencies like HOLC and the FHA were
responsible for the classification of metropolitan areas as
it related to the area’s worthiness of investment by banks,
insurance companies, and other companies that provided
financial services.
Often the area “redlined”
was where minorities and people of color lived, having
nothing to do with the actual income level of the people who
resided in those neighborhoods.
There is a direct
correlation in the decline of inner cities and neighborhoods
of color and the implementation of redlining practices. With
financial institutions hindering the opportunities of those
living in redlined areas, these areas began to see a decline
in upkeep and development. Entrepreneurs in these areas,
especially those of color, could not secure the loans needed
to jump start their businesses.
These “risky” investment
areas would have limited access to amenities like
entertainment, banking, shopping, grocery stores and
hospitals. With redlining practices in place a cycle of
deterioration in these areas continued almost making it
impossible for these communities to rejuvenate.
Although the Civil Rights
Act of 1968 made redlining illegal, the practice was a
critical aspect of the way lending institutions operated
nationwide between 1933 and 1968. That is 35 years of
discriminatory practices as public policy in the United
States, laying a foundation for the modern day
discriminatory and predatory lending practices we have seen
inflicted on low to moderate income communities. Communities
that are predominately of color.
On the cover – and on page
8 – is a 1938 map of Toledo. As you can see the areas on the
map were literally shaded red to show the unfavorable zones.
The maps were shaded in 4 colors; “Type A” were in green and
considered suburbs and affluent area. “Type B” had blue
shading and were considered “Still Desirable.” “Type C” were
shaded yellow. They were older homes that were considered
“Declining.” “Type D,” shaded red, was considered the
riskiest areas to in which to loan mortgages – “detrimental
influences in a pronounced degree, undesirable population or
an infiltration of it” according to the HOLC report of 1938.
On this map, most of Toledo’s present day central city is
shaded red or yellow. The exception are the neighborhoods of
the Old West End, parts of Englewood, and West Moreland.
The results of these practices in the city of Toledo led to
the abandonment and decline of central city properties and
the subsequent loss of viable housing stock in the inner
city – in effect, a self-fulfilling prophecy.
In addition, a feeling of distrust was developed among inner
city residents as financial resources disappeared due to
local banks discontinuing the service of providing mortgages
and home improvement loans to inner city customers.
Residents were then at the mercy of loan companies who
provided high interest loans that had a high rate of
default. These predatory loans proliferated and resulted in
further contribution to the demise of home ownership and the
deterioration of residential and commercial property in the
aforementioned areas.
In the 1990s, Toledo also saw cases of insurance redlining.
In 1993 Nationwide Insurance agreed to a settlement of 3.5
million in a civil right, class-action suit that was filed
in state court by the Toledo Fair Housing Center and some
Toledo Homeowners. This insurance complaint was one of five
filed in the city Toledo in the mid-90s. Others companies
that received similar complaints were State Farm, Allstate,
Aetna and Prudential. State Farm settled the complaint filed
against them three years after Nationwide in 1996.
With the attention drawn to lending practices after the
housing bubble burst, there has been a shift in
consciousness as more stringent regulations have been placed
on mortgage lenders. But these regulations are in recent
years.
How does one identify if they were taken advantage of by
predatory mortgage lending?
Ed. Note: Part 2 of our mortgage lending practices will
continue next week
Predatory Lenders:
The Truth Examines Despicable Lending Practices – Part 1
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