Reverse Redlining ?

Redlining Map

Philadelphia Redlining Map

“The ugly truth is this: The redlining that led to the passage of CRA [Community Reinvestment Act] has been replaced by reverse-redlining. Lenders didn’t have to be dragged into low-income neighborhoods. They rushed in. It was there that they could push their complicated mortgages onto the elderly, blacks and Hispanics, and then sell the loans to somebody else. At least 40 percent of the holders of subprime mortgages could have qualified for cheaper prime mortgages, according to one study.” Froma Harrop

It would be interesting to take some old redlining maps and overlay with mortgage defaults to see if Harrop’s claim holds water. It has been my impression that a majority of defaults (in terms of dollars) are not in poor neighborhoods.

More About the Geograhy of Debt
It seems to me that the current economic crisis stems from a lack of regulation of Credit Default Swaps (CDS). The Commodity Futures Modernization Act of 2000, sponsored by Phil Gramm and signed by Bill Clinton, specifically prevented regulation of CDS’s. It all starts with a real estate sale, where location, location and location are what matters. But as the mortgages are repackaged and insured, the relevance of location is somehow lost. It seems to me that location should be a factor in determining risk of default on a bank’s real estate portfolio. After all, if auto insurance premiums can vary depending on what zip code you live in, why not loan default insurance? If reformers to the banking industry recognize that geography matters for loan default risks, perhaps we’ll see more GIS in financial workflows.

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1 comment so far

  1. Mike Dolbow on

    Slate’s Daniel Gross says the facts don’t support laying the blame of the credit crisis on CRA, so I think you’re on the right track:
    http://www.slate.com/id/2201641


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