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Monday
6 February 2012

Minorities Targeted In Mortgage Crisis

NobelPrize

SOURCE: ReutersPredatory lending aimed at racially segregated minority neighborhoods is now being blamed for the high rise in foreclosures that led to mass foreclosures that sparked the  U.S. housing crisis, according to a new study published in the American Sociological Review.

Predatory lending typically refers to loans that carry unreasonable fees, interest rates and payment requirements.

Poorer minority areas became a focus of these practices in the 1990s with the growth of mortgage-backed securities, which enabled lenders to pool low- and high-risk loans to sell on the secondary market, Professor Douglas Massey of the Woodrow Wilson School of Public and International Affairs at Princeton University and PhD candidate Jacob Rugh, said in their study.

The financial institutions likely to be found in minority areas tended to be predatory — pawn shops, payday lenders and check cashing services that “charge high fees and usurious rates of interest,” they said in the study.

“By definition, segregation creates minority dominant neighborhoods, which, given the legacy of redlining and institutional discrimination, continue to be underserved by mainstream financial institutions,” the study says.

Redlining is the practice of denying or increasing the cost of services, such as banking and insurance, to residents in specific areas, often based on race.

The U.S. economy is still struggling with the effects of its longest recession since the 1930s, which was triggered in large part by the housing crisis, which was in part triggered by the crash of the subprime loan market.

Subprime lending refers to loans made to consumers with poor credit and others considered higher risk. They tend to have a higher interest rate than traditional loans.

The study, which used data from the 100 largest U.S. metropolitan areas, found that living in a predominantly African-American area, and to a lesser extent Hispanic area, were “powerful predictors of foreclosures” in the nation.

Even African-Americans with similar credit profiles and down-payment ratios to white borrowers were more likely to receive subprime loans, according to the study.

“As a result, from 1993 to 2000, the share of subprime mortgages going to households in minority neighborhoods rose from 2 to 18 percent,” Massey and Rugh said.

They said the U.S. Civil Rights Act should be amended to create mechanisms that would uncover discrimination and penalize those who discriminated against minority borrowers.

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MY TAKE: Are there lawyers for people who specifically fell victim to prey by these mortgage monsters?  I know if I get injured by a doctor, there’s always a Brooklyn medical malpractice lawyer, or if I need Monmouth County municipal court attorney to assist me with family law matters, that’s available.  I can even get a New Jersey child support lawyer to help me with my case in California.  But what about people of color who may have been victims of scams on mortgage loans?  Who do they turn to?  I know the Bronx construction accidents lawyer is there to help the guy who falls off the ladder who’s building the home for which the loan was secured, but not sure where to go if I’m the mortgage holder.

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OTHER RESOURCES

Alternatives to Credit Spending

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Banks and IRS May Give Short Sale Sellers Problems

Cited: Realty Times

paperworkThe tons of paperwork that may be needed by short-sale sellers and their agents give them plenty to think about besides being annoying.  Even so, they need to make sure that they keep it for possible future use as well as pay attention to what is in the paperwork.  That paperwork may be needed if circumstances cause the seller develops problems after the sale has taken place.

Bad enough that a short sale involves the loss of one’s home with no equity to show for it, and a credit negative that may last for years; it also has the potential to produce two very bad after-effects. One is that the lender, or the lender’s assignee, may continue to pursue the beleaguered seller for the remainder of the debt. The other is that the I.R.S. may come knocking on the seller’s door, seeking tax on the amount of debt that was unpaid.

The first possibility is often contained in the paperwork that goes along with the seller’s ok of the short sale. The borrower may be required to sign a promissory note for the difference between the debt owed and the short sale proceeds received by the lender. Or, a lender may require the borrower to sign a paper acknowledging that the lender reserves its right to pursue the borrower for this amount.

The second possibility resides in the fact that, if a debt is forgiven, the borrower may be taxed on the amount he didn’t have to pay back. (see I.R.S. publication 4681). To be sure, there may be short sales where the debt that is unpaid is not taxable. For those exemptions, see a tax accountant.  The point here is that the short-sale seller may suffer one of those unpleasant consequences; but he ought not to suffer both.

For those who are more worried about the security of their homes or businesses . . . A fully licensed and insured security company can provide California security guards with a wide array of protection services to ensure personal safety as well as the safety of your assets.  Thieves and burglars would think twice if they saw Sacramento CA armed security guard around your home or business.

The point is raised because here is what can happen: In allowing the short sale, the bank requires the borrower to sign a note for the difference, or to acknowledge that the bank has the right to take action to collect that amount. Also, probably sometime later, the bank sends out a 1099-C, informing the I.R.S. that a certain amount of debt had been cancelled.

No one who has dealt with a short sale would raise the question: “How could this happen? The two actions contradict each other!” That is because anyone who has been through the process knows that it is common for the right hand of the bank not to know what the left hand is doing. Indeed, it is not uncommon for the right hand not to know what the right hand is doing.

This is why it is important for the seller to be sure to keep his paperwork. If he signed a document to the effect that the bank was going to pursue its unpaid interest, he should hang on to that. Then, if he receives a 1099-C saying that the debt was forgiven (and, therefore, taxable), he will have support for the claim that the 1099-C is incorrect.

Conversely, suppose that there was no specific release of the debt and that the paperwork contained no reference to it. Then, if the seller receives a 1099-C, saying the debt was cancelled, he should keep that, just in case the bank, or its assignee, comes calling a year or so later, trying to collect the debt.

This is not tax or legal advice I know means.  It is hoped that this will encourage short-sale sellers to consult with someone on the matters at hand to make sure that no problems do arise four, during or after a sale.

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My Take: The IRS is out to get everybody!  :-)   I guess this means that if you have a short sale AZ, you better be careful.  Because I live in Arizona, I have heard that there is a lot of mortgage refinancing now because people just cannot afford their mortgages.

Of course, Arizona is not the only one with real estate problems.  I understand there are several Houston homes for sale as well due to foreclosures.  However, Houston properties seem to be selling better than those in Arizona.

On the other hand, I really do not want to think about how much debt there are because of mortgages.  I would rather worry about finding the best movie downloads on the Internet.  Watching a movie as the movie downloads is a lot more enjoyable than worrying about debt anytime.  In fact, I think I will download comedy movies online today.

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