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Mortgages Harder to Get

November 5, 2015
Plain English Version
A map of redlining.

A map of redlining.

Banks were famous for “redlining.” Redlining meant that whole neighborhoods were off-limits for loans. The reason? The people living in the area were poor. They were assumed to be bad risks for loans. The people usually shared another characteristic. They were members of a minority group, usually black and Latino.

Things changed in the years leading up to the bursting of the housing bubble. Banks started making loans to people who were called sub-prime borrowers. Their credit ratings were not so good. They paid higher rates of interest. But they were able to get mortgages.

As is famously known, things fell apart in 2008 when the U.S. housing crisis began. It was mostly because of the lending policies of the financial industry. They needed government money to bail them out. They stayed in business because the country needs banks.

Low-income people held mortgages. As they lost their jobs, they could not repay the loans. Their homes lost value. Their credit ratings dropped.

When banks returned to the loan business, they decided to make fewer loans. Fewer loans meant less mortgage money for minorities.

Mortgage companies are not banks. They are emerging as a new way to get loans. In the first half of 2015, mortgage companies made about 25 percent of all the new mortgage loans. These mortgage brokers are not pushovers. They were part of the housing crash as lenders. They have learned how to be careful.

The same actors in the housing bust, such as the Federal Housing Administration and Fannie Mae, are still around. They all played a part in making loans to high-risk borrowers.

Mortgage companies or nonbank lenders act faster than banks. They do not redline. Minorities and people with lower credit ratings might find it easier to get loans from them.

An example of a nonbank lender is Quicken Loans,

Source: The Wall Street Journal November 4, 2015

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