For years, the federal government avoided insuring mortgages in black neighborhoods, a practice known as redlining that exacerbated racial divides throughout America’s cities.There's more:
Redlining has long been outlawed, but in New York City, the federal government is again disproportionately hurting black homeowners, according to a federal lawsuit filed by a nonprofit that represents low-income New Yorkers. This time, the suit says, the government is fueling racial disparities not through its lending policies but in how it handles foreclosures.
Since the financial crisis pushed thousands of homeowners in New York and across the country into foreclosure, the federal Department of Housing and Urban Development has been selling insured delinquent mortgages to private investors, typically hedge funds and private equity funds, which then collect monthly payments.
The investors, according to the lawsuit filed against the housing agency and a large private equity firm, Lone Star Funds, provide fewer protections to homeowners who fall behind on their mortgage payments than the federal government does, leading to higher rates of foreclosure.
The battle over the mortgage sales has exposed a conundrum that the housing agency faces over its Federal Housing Administration mortgage program, which started in the 1930s. By selling the mortgages to the highest bidder — in this case private equity firms — the agency can bolster its insurance fund that had been eroded by the flood of foreclosures in the immediate aftermath of the housing crisis. The more flush the insurance fund, the more mortgages to lower-income borrowers the department can backstop.Isn't it time we got back to a free market in housing?