Baltimore sues to bring back redlining

That headline was suggested by the friend who emailed me this little gem from the New York Times:

The recent surge in homeowner defaults nationwide, generated by lax lending practices during the real estate boom, has officials bracing for a range of problems that often accompany foreclosures. Some municipalities, including Cleveland and Buffalo, are trying to make lenders responsible for abandoned properties to ward off crimes like arson, drug use and prostitution.

But the civil suit that officials in Baltimore are filing in United States District Court may presage another type of litigation against lenders by municipalities facing shortfalls in their budgets.

In the suit, Mayor Sheila Dixon joined with the City Council to ask that the court bar Wells Fargo from charging higher fees to black borrowers. Many of these borrowers paid more under the bank’s subprime lending program, designed for less creditworthy consumers, and are more likely to default on their loans.

I hear a lot of complaints that borrowers were shifted into rates "higher than their credit profiles" merited. But the articles never actually tell me what I want to know, which is: were these borrowers charged higher rates than their loan packages merited? Your FICO score is just one part of the package; others include things like assets and income, and the size of the loan relative to the house value. The sad fact is that, even in a (previously) decaying urban core like Baltimore, blacks are likely to have lower assets and income than whites. So far I've seen little evidence that, taking these things into account, banks are discriminating against minority borrowers.

I have no doubt, mind you, that some unscrupulous mortgage brokers have put clients into inappropriate mortgage packages. Mortgage brokers work for the lender, not for you, and you forget this at your peril; unfortunately, financially unsophisticated first time buyers may never have learned this in the first place, and their social networks may not have that information to impart.

But if I were an evil conspirator who wanted to ensure that poor borrowers have a hard time accessing conventional credit, this sort of lawsuit is exactly the strategy I'd take.