Lenders Now Designating Risk According to ZIP Codes

Daily Herald (02/01/08); Harney, Ken
Mortgage lenders have begun to rate entire counties or zip codes based on lending risk and require larger down payments for borrowers who will live in areas ranked as risky or declining, in response to new down-payment restrictions imposed by Fannie Mae in late 2007. For example, Countrywide lists hundreds of counties across the country as "soft markets" with rankings from one to five, in ascending order of perceived risk, and will now require 5 percent larger down payments from most applicants in the approximately 100 areas nationwide in categories four and five. David Berenbaum, executive vice president of the consumer advocacy group National Community Reinvestment Coalition, calls the approach redlining and says it would violate federal fair lending and civil rights statutes; while Paul Skeens, head broker for Carteret Mortgage, in Waldorf, Md., says labeling areas as "declining" and then requiring larger down payments would be a self-fulfilling prophecy. "People can't buy there because they need more cash upfront, the houses don't sell, and prices go down," he reasons.