Are Lenders Redlining Entire Cities?
April 19th, 2008 Categories: San Diego News, San Marcos Real Estate
Redlining is a term that describes the unethical if not illegal practice where lenders red line a neighborhood or community, making it very difficult for buyers to purchase in these afflicted areas.
I have recently heard from a couple of direct lenders, Countrywide Home Loans and Bank of America, that most if not all of San Diego County real estate is in the red zone.
Qualifying for current red zone status simply means that the subject property is located in a declining market area. The impact of this colorization is significant to both the San Diego real estate market as a whole and to first time home buyers in particular.
How this version of redlining works creates a no-win situation for buyers putting down less than 5 percent.
Even if a buyer has negotiated a bargain purchase price, say 10 percent under market value, the appraiser will automatically deduct another 5 percent from the contract price to determine a value. In other words, a borrower cannot get away with putting less than 5 percent down.
I spoke with Brian Brady a couple of weeks ago about this matter. I had been told by a representative from a large direct lender that San Marcos, CA was in a red zone, and would be subject to different lending standards. Brian bristled at the thought of redlining, declaring it an illegal practice unless an entire region were painted red.
Well, it seems that most, if not all of San Diego County real estate, is swimming in blood.
One of our agents is struggling with a couple seeking to buy their first home in the Shadowridge area of Vista, CA. The buyer is an automobile service manager in nearby Carlsbad and his wife is an attorney. They are conservative in lifestyle, and can afford payments on a $417,000 home. However, they are short on down payment. And with current lending guidelines and the unavoidable prospect of buying in a red zone, they can no longer qualify for the 100 percent loan Countrywide Home Loans had promised.
And what makes this particular case so interesting is that the home is a foreclosure held by Countrywide as an REO (real estate owned). Any reasonable person would think that Countrywide Home Loans would jump through hoops to get this liability off their books especially with buyers like these.
Wouldnt reasonable minds agree?
[...] Original post by Roberta [...]
If you were in business of lending money……Would you lend money at prevailing rates to buyers today with less than 20% down?
Yes, lenders are in the business of lending money but at what point do they insist on having some legitimate cushion against people walking away from their homes when times get a little tough.
It may not be legal to “redline” but if I’m in business and want to stay in business, I’d find ways to do just that.
Your clients are successful dual income consumers that sound like they may have to learn the lesson of their parents….save, live within their means , sacrifice, and the big lesson for us all….no one owes us anything.
Your client may be different, each has a different story, but many need the lesson that we all are learning the hard way.
Billy:
We and our San Diego real estate buyers are negotiating terrific deals on very desirable real estate. Lenders should take this into account instead of subtracting an arbitrary 5 percent off the appraised value.
The San Diego real estate market has enough problems without lenders adding unnecessary fuel to the fire.
I’d like to see the map and see where ALL the lenders are really drawing those red lines throughout the country!
Susan: We were told by two direct lenders that the red lines have been drawn all around San Diego County and its real estate.
Great Information! Is there a map outlining the “redzone”?
Paul,
I don’t think there is a particular red zone map for San Diego real estate; rather, the lenders painted the entire county a bright shade of red.
To do otherwise would be a federal violation.
Hope it’s removed soon.
Wow…After reading the article as well as some of the comments…that is amazing to hear. I have heard about this before and also read some articles myself. Luckily we have never had any of this pop up in the Santa Barbara areas.
Hopefully this is not the real case.
Kevin:
Redlining is a reality with San Diego real estate lending. Santa Barbara, because of prior limitations on building, may not be suffering the same fate.
it cant be into worst if you learned loans modifications is.
well maybe there are many strategies for a negotiator to earn money.
nice blog
Nice blog.. a very informative post..this blog will inform the people who are suffering this to be aware of what kind of loan do they have..
Well what more can we expect Because of continuous economic downturn, many realtors and business establishment were engaged in financial issues, they tend to get big loans in order for their business to survive in this time of depression.
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