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Discriminating Lenders, or Just Discrimination? May 20, 2007

Posted by C.A.R.D in African Americans, African-American, American Indians, Black, Blacks, Card, civil rights law, ethnic group discrimination, Fair Housing Act, fair-housing complaints, housing discrimination, housing racism, Indian reservations, Lawsuit, lender discrimination, mortgage discrimination, mortgage loans, National Community Reinvestment Coalition, Native Americans, NovaStar Financial, NovaStar Financial discrimination, people with disabilities, racism discrimination, Richard Johnson, The National Community Reinvestment Coalition.

When mortgage lenders refuse to write loans on central-city rowhouses, does that violate federal fair-housing rules?

What about refusing to write mortgages on houses in a community dominated by an ethnic group? Or not offering mortgage loans for houses that may be used in part to accommodate disabled adults?

Just how much protection do fair-lending and other civil rights laws provide to mortgage applicants who are rejected not because of their credit scores or financial capacities but possibly because of the location, type or potential use of their homes?

A major consumer group is mounting a campaign aimed at nailing down the answers. The National Community Reinvestment Coalition filed lawsuit May 9 against NovaStar Mortgage, a subsidiary of publicly traded NovaStar Financial, based in Kansas City, Mo. The suit, filed in U.S. District Court in the District, charges that NovaStar has repeatedly violated the Fair Housing Act by refusing to offer mortgages on rowhouses in downtown Baltimore, on homes on Indian reservations anywhere in the country, and 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 illegally discriminate against African Americans, Latinos, Native Americans and people with disabilities.

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 restricts mortgage lending in the categories identified by the National Community Reinvestment Coalition but said there are valid business reasons for each policy.

For example, in the case of rowhouses in Baltimore, Johnson said widespread appraisal fraud involving rowhouses in the past made the company leery about extending new loans. But officials at the reinvestment coalition said those problems are at least eight years old and have long been corrected.

John Taylor, the coalition’s chief executive, said, “NovaStar intentionally structured its underwriting to exclude . . . persons with disabilities and rowhouse neighborhoods where African Americans and Latinos reside,” as well as avoiding mortgages to Native Americans who live in “tribal communities” across the country.

The firm “discriminated against people with the least amount of ability to fight back,” Taylor said. “They did it because they thought they could get away with it.”

The coalition expects to file a series of lawsuits and fair-housing complaints against other mortgage lenders, accusing them of avoiding types of houses closely associated with minorities. Urban rowhouses are shunned by a large number of lenders, the coalition said, and the effect is to deny mortgages to African Americans and other minorities who live in neighborhoods where rowhouses predominate.

The NovaStar suit says that “nearly two-thirds of all row houses in Baltimore City are occupied by African Americans, and the majority of row houses are located in African-American neighborhoods.”

Property type is “strongly correlated to the racial composition of neighborhoods,” and by denying loans on all rowhouses, NovaStar thereby “intentionally treats African-American homeowners and predominantly African-American neighborhoods . . . differently from non-African-American homeowners and neighborhoods,” the coalition says.

NovaStar’s policy against extending 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.” Applicants on reservations with substantial assets, strong credit scores, large down payments and other financial strengths are denied loans “solely on the fact that their property is located on an Indian reservation.”

NovaStar’s Johnson said the company does not offer mortgages on homes in reservations because “they are governed by different sets of laws” and sometimes entail deed restrictions that can raise risks for lenders.

A National Community Reinvestment Coalition official argued in response, however, that mortgage giants Fannie Mae and Freddie Mac have loan programs designed to handle such legal issues and that the programs are readily available to national lenders, including NovaStar.

Johnson said NovaStar’s ban against mortgages on homes that offer adult foster care is not intended to discriminate against people with handicaps, but rather reflects the fact that “there is an active business” on the property, rendering it a commercial use, not purely residential. The reinvestment coalition challenged that contention, however, noting that “huge numbers of homes have small businesses or home offices, and mortgages [on them] are written every day.”

NovaStar’s policy is “discriminatory based on disability,” the suit claimed, “and explicitly treats loan applicants differently based on their association with, or residing with, persons with disabilities.”

Kenneth R. Harney’s e-mail address is KenHarney@earthlink.net.

CARD {Citizens Against Racism and Discrimination} Source: washingtonpost.com

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