February 26, 2009



The Baltimore City Council is now considering a bill that would radically change the foreclosure process on city mortgages. Back in the bad old days, there was an ugly word to describe situations in which the mortgage process was treated differently in one place than another - redlining.

Back then, redlining happened because of racial discrimination. Now, it is being embedded into the law. Back then, the problem was not enough mortgage money flowing to redlined areas. Nowadays, the problem seems to be too much mortgage money - flowing in a speculative financial climate where borrowers get mortgages too easily.

The City Council wants to make mortgage negotiation in the city much different than it is anywhere else, giving mortgage holders the power to retain home ownership for an entire year despite defaulting on a loan, instead of just two weeks. This will inevitably cause banks and other mortgage companies to examine the Baltimore City real estate market in quite a different way than they treat it anywhere else.

The potential year gap between default and foreclosure would then become a strong factor in the equation that banks use to determine what mortgages to issue and what not to issue. After many years in which urban advocates have steadfastly tried to get banks to increase lending in the city, this would certainly work the other way. Mortgage money would dry up. Just like in the old redlining days.

The city real estate market is already far different than it is anywhere else, which is a significant cause of city squalor. The City's property tax rate is more than double what it is anywhere else in the state, which is a strong disincentive to investment and puts a heavy strain on the home affordability equation.

In addition, the city property tax rate increase is capped at only four percent per year, which is an extremely strong incentive to "sit" on your house rather than selling to a new owner. Many city homeowners are thus strongly encouraged to stay in a house that is not well suited for them, rather than selling to new owners and moving to a more suitable house, condo or retirement community. When people sell their house, the tax rate suddenly jumps up to the current assessment, without regard to all the years of rate caps.

There are also many regulations imposed on developers, such as the so-called Inclusionary Zoning law, which attempts to mandate developers to build low income housing.

Call it what you will, but when a mortgage company treats one place differently than another, whether it is because of racism or laws or whatever, its redlining.

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