WORLD PROPERTY CHANNEL ®

I don't know about you, but I am disturbed to learn that nearly a third of all borrowers who applied for a home loan in 2008 were turned down, according to the Federal Reserve.

The rejection rate for all home loans was about 32 percent in 2008, about the same as in 2007.  The rejection numbers for 2009 aren't out yet.

The borrowers included new homebuyers and existing homeowners looking to refinance. The statistics come from the Fed's recently released annual report on home-lending activity.

I didn't see much of a play on this subject in the daily or online media.  All I keep reading is how sales and prices are improving in many markets.

I'm even more concerned over other fed stats--especially one that shows loan denials were even higher for minority homebuyers and homeowners. 

Looking at just black and Hispanic borrowers, the denial rate was more than twice as high as the rate for white borrowers.

In a wishy-washy explanation, the Fed says lenders were turning down financially strapped  minority and even white loan applicants in 2007 and 2008 in large numbers  because their distressed column of real estate loans was escalating to record highs.  

Overall, reported loan application and origination volumes fell by a third from 2007 to 2008 after another steep decline from 2006 to 2007.

And yet conmen have been able to use the loan application system to garner millions from lenders, according to an August 2009 report from the Internal Revenue Service.

IRS numbers show at least 100,000 suspicious claims are being investigated among the 1.4 million applications for the $8,000 homebuyer credit.

The IRS report didn't mention claims made by minority homebuyers.

The Federal Housing Administration  backed more than half of the loans made to black borrowers in 2008 and 45 percent of the loans made to Hispanics.

That's a disgracefully low performance, I say.

The mortgage industry maintains that lenders are not discriminating by race but are "making adjustments" based on a borrower's risk profile. 

The profile includes the borrower's credit score and the size of their down payments.

How can you expect low-income minority homebuyers to come up with high scores on either criteria?

The lending industry also argues many of the rejections to minority homebuyers were triggered by high-interest subprime loans they had previously taken out and were unable to repay.

I say that's the exact time a lender should approve a new loan app. The new loan should be modified to enable the borrower to repay at a realistic rate and within a realistic period.

Of course, I'm not a lender and can't see it their way.

But that's the way I see it - for now.  

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