Mark Winston Griffith

Fannie and Freddie Make it More Expensive to Live in Struggling Neighborhoods

The nation's largest mortgage finance companies, the Federal National Morgage Association, also know as Fannie Mae, and the Federal Home Mortgage Corporation, a.k.a. Freddie Mac, are planning to adopt a policy which identifies certain areas in the country as "declining markets" and requires borrowers to pay higher interest rates as a result. The exact rate will be determined by a borrower's credit score.

Designed to mitigate the risk of borrowers and lenders investing in property that diminishes in value because of plummeting housing values, the fear among many advocates is that this policy punishes people for living in certain neighborhoods, thus institutionalizing another form of bank redlining. Using what is called risked-based lending to establish the rate that the homeowner will pay applies a highly flawed metric in the form of credit scores, one that many feel is by design discriminatory.

Freddie Mac and Fannie Mae together control about 90% of the secondary mortgage market. The policy goes into effect June 1st of this year and will again mean that if you live in a "declining market", which of course is more likely to be a low-income area of color, you will find it that much more expensive to acquire the increasingly elusive American dream.

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Posted at 8:45 AM, Apr 18, 2008 in Economic Opportunity
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