Lenders who offer mortgage loans on a discriminatory basis may face liability under the Equal Credit Opportunity Act, which prohibits discrimination in lending. The Equal Credit Opportunity Act (ECOA) prohibits a variety of discriminatory actions on the basis of several factors. These include race, color, religion, national origin, sex, and marital status. Violations of the ECOA may also be violations of the Fair Housing Act.
Redlining and reverse redlining are practices that are prohibited by the ECOA. These include offering different credit terms (or restricting lending products) to certain areas based on racial criteria. Red lining is when a mortgage lender sections off certain neighborhoods or communities for restricted lending or higher cost loans on the basis of religition or other discriminatory standards. In effect, the bank draws a "red line" around such communities and potential borrowers from these areas are denied credit.
Reverse redlining works in the opposite manner. A mortgage company or bank would establish lending practices that encouraged many more types of loans to flow into a certain area or demographic. This may be part of a classic pump and dump scam, where lenders work to inflate the value of homes and provide funds to borrowers who can not pay the loans back. The lender then forecloses and is able to take the properties. Both redlining and reverse redlining are financially destructive to both borrowers and lenders, which is why the practice is somewhat uncommon.
Borrowers may have a very difficult time proving they have been the victim of discrimination in a foreclosure case. If they suspect this, however, it may be worth their while to speak with an attorney who specializes in such cases. This is because liability under the ECOA may result in lenders being responsible for actual damages suffered by borrowers, punitive damages up to $10,000, and attorney fees. Some attorneys may take a case on contingency if a special instance of discrimination is presented. It may be best at least to consult with an attorney before raising this defense in an answer to a foreclosure complaint.
The statute of limitations for violations of the Equal Credit Opportunity Act is two years. If homeowners obtained their mortgage more than two years ago, this law may not apply to them. Again, the best option in the case of suspected discriminatory lending would be for homeowners to consult with an attorney who specializes in this area of lending law.
The Home Mortgage Disclosure Act (HMDA) requires financial institutions to publicly release information related to ECOA lending. These reports are provided to the public online and offer information on the percentage of loans extended to minorities by different lenders in various markets throughout the country. The general public is able to look up zip codes, how many applications each lender took in the area, the racial characteristics of various groups, and the interest rate offered to each group. This can be a starting point for homeowners researching potential discriminatory or predatory lending practices.
Although violations of the Equal Credit Opportunity Act may be somewhat uncommon in the mortgage lending industry, homeowners may want to make themselves aware of the law. However, the real estate boom of the past decade had been more a result of all markets being artificially inflated and anyone who could operate a pen was given a loan. This makes actual discrimination more unlikely, as the Federal Reserve set up the markets for bad investment and banks simply took advantage of any borrower coming through the door.
Author Resource:-
Nick publishes articles on the ForeclosureFish website, which aims to teach homeowners how they can avoid on their properties while they still have time. The site describes various methods to hold onto a home, including foreclosure refinancing, deed in lieu, mortgage modification, filing bankruptcy, and others. Visit the site today to read more and discover what solutions you can use to avoid losing your home: http://www.foreclosurefish.com/
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