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Housing Advocates Score a Big One

I just got off the phone with David Berenbaum, and he is one happy housing advocate.

Berenbaum, executive vice president of the National Community Reinvestment Coalition, said Fannie Mae’s decision to drop using zip codes as a basis for loan decisions is big victory in the fair housing fight. Fannie Mae announced the changes today. Berenbaum’s group led the fight against the policy.

In an e-mail to his group’s membership, Berenbaum wrote that “This is a very positive development and it is a direct result of our intervention.”

Berenbaum said the hope among housing advocates is that Fannie Mae’s move will encourage its competitor, Freddie Mac, and other lenders and private mortgage insurers to also make similar changes and discard using zip codes to determine loan prices.

Berenbaum’s group contended that using zip codes where home values are declining as a basis for requiring higher downpayments or fees amounted to redlining. The policy changes, he said, mean Fannie will move to a “national pricing model” rather than using different underwriting standards for high foreclosure areas. This means borrowers in those areas won’t necessarily pay higher downpayments, or in some case, higher fees, based solely on where they live.

Housing advocates don’t have an issue when entire metropolitan areas, or even states, are tagged as declining markets, because then the risks and costs are shared fully among all borrowers. Redlining comes into play when lenders specify zip codes as declining and charge certain groups of borrowers more.

Fannie Mae’s move may be just the beginning of lenders coming to terms with pricing issues raised by the housing crisis. The Federal Reserve and the Federal Trade Commission are considering requiring lenders to disclose any decision to base a mortgage loan price on something other than credit scores. Berenbaum said he’s also supportive of that change.

Even with these developments, there are still battles ahead. Pricing mortgages has been a source of controversy for several years now. Berenbaum calls loan fees a less overt form of redlining, or “discrimination with a smile.” Housing advocates who want to make sure a new form of redlining doesn’t reappear as the mortgage market shakes out expect they’ll be facing many more fights ahead.

But for today, at least, score one for Berenbaum’s side.

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