Thank you Scott Gromley, for beating me to the punch by asking in your excellent post if our California lenders are redlining via their new policy of placing every county in the state in one of these three categories:

1. Distressed
2. Declining                                              
3. Stable 

Honestly, I used that very same word, "redlining", to my colleagues when that same e-mail crossed my desk last week.  I had to read it twice to believe it.  Although redlining is normally associated with making lending decisions based on RACE, Scott makes a good point: lenders will now decide how much money a borrower will be loaned based on the location of the property, and its lender given designation. 

I don't care if you call this redlining or not. Frankly, it is DISTURBING and yes, they are DISCRIMINATING.

Some points to ponder about this new development:

• This Policy Could Impact Property Values.Who wants to buy a property that is in an area labeled DISTRESSED or DECLINING? Isn't the bank causing these counties to fall in value even further when the public catches wind of the list? And won't this cause the stable counties to increase in value as borrowers discover by stepping over the county line they can get the same house for a LOWER cash down payment?

• This Policy Could Cause Unfairness to Borrowers. Many California counties have huge differences in areas within the county lines. My county has upscale completely built out areas where there is competition to buy (close in to San Francisco). It also has outlying areas (close to Stockton....a high foreclosure area) where too much building has caused prices to plummet. So our entire county is on the "Declining" list. Unfair?

• This Policy Could Force Our Industry to Redline. Is this policy forcing those of us in the industry to "redline"? After all, shouldn't I tell my borrower that buying in a different county will allow him a better loan? What if real estate agents advertise their latest listing as being in one of the "stable" areas? Is that crossing the line?

• This Policy Could Cause the Market to Decline Further. The REALLY DISTURBING message here is that the lenders are telling us this:  We absolutely believe that prices will fall even further. (Causing even more buyers to wait to buy). This also renders more buyers unable to buy via another layer of qualification beyond the borrower himself.   

We've always said it was about location, location, location.  Watch out when lenders are the ones deciding which locations warrant the best loan. Delicate balance. Potentially disastrous results. Definitely disturbing.

All Content Copyright Protected © 2007 - www.LendingSynergy.com