Redlining case in city is settled

Sub-prime lender will lift ban on rowhouse loans, pay $500,000

September 26, 2006|By Lorraine Mirabella | Lorraine Mirabella,SUN REPORTER

Mortgage lender SouthStar Funding LLC has agreed to discontinue a policy of refusing loans to buyers of rowhouses in Baltimore and pay $500,000 under a settlement with a fair lending group, the Department of Housing and Urban Development said yesterday.

In a lending discrimination complaint filed with HUD in March, the National Community Reinvestment Coalition alleged that SouthStar excluded loans for rowhouses valued at less than $100,000 in all markets nationally and excluded loans for rowhouses of any value in Baltimore.

That practice discriminated against low- and moderate-income minority neighborhoods, where two thirds of the city's rowhouses are located, said the nonprofit coalition.

"In Baltimore, they were redlining the African American community ... and to some extent Latinos," said David Berenbaum, executive vice president of the NCRC, a 600-group coalition in the District of Columbia that promotes equal access to credit.

"It was commonly known among their brokers, they did not underwrite this product," Berenbaum said.

HUD negotiated the settlement before determining whether SouthStar's loan eligibility requirements violated the Fair Housing Act, said Bryan Greene, a deputy assistant secretary for enforcement and programs at HUD.

"As we began to look at the matter, the parties decided they wanted to resolve it," Greene said. "As a matter of agreement, [SouthStar] would not retain this policy anywhere."

Officials at SouthStar, a wholesale residential lender that operates in all 50 states, could not be reached yesterday. The Atlanta lender specializes in loans to sub-prime borrowers, typically borrowers who have had credit problems, are self-employed or are first-time buyers.

Besides discontinuing using a property type or minimum property value to exclude borrowers, SouthStar agreed to pay NCRC $500,000 over four years so the coalition can offer seminars for housing counselors.

SouthStar also agreed to offer a second review of all denied loans to look for discrimination and to advertise its loans to African-American and Hispanic communities.

About 6 percent of HUD complaints each year allege lending discrimination of some form, Greene said.

"SouthStar's decision to eliminate these practices will now make eligible a large number of people who prior to this complaint would not have been eligible for a home loan," he said.

Berenbaum said the complaint against SouthStar was one of a series filed late last year and this year against six lenders alleging redlining. The other complaints are either under investigation, in mediation or under discussion, he said. He called the resolution with SouthStar a model settlement.

"The company has definitely done the right thing here in working with us to craft a solution that will be good for the community and expand access to credit in all its jurisdictions," he said.

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