Brief Fact Summary. Defendant Foy, a minority, due to her military service defaulted on her loan. This loan was 30 year note with a 9 and ½ interest rate and this home is located in a minority neighborhood
Synopsis of Rule of Law. A mortgage granted to a minority buyer for the purchase of a home in a minority area, with an interest rate that exceeds 9 percent creates a rebuttable presumption of discriminatory practice.
In order to show a claim based on reverse redlining, the plaintiffs must show that the defendants lending practices and loan terms were unfair and predatory, and that the defendants either intentionally targeted on the basis of race, or that there is a disparate impact on the basis of race.View Full Point of Law
Issue. Whether a mortgage with a rate that exceeds 9 percent will be considered a higher priced loan or discriminatory loan which requires investigation into its possible discriminatory nature.
Held. Yes. From The Home Mortgage Disclosure Act, the Federal Reserve System began publishing studies discussing issues of predatory and discriminatory lending. That reports states that loans given in certain areas that exceed 9 percent will be considered discriminatory or a high-priced loan and require further investigation. Some mortgage companies were known to engage in what is called redlining. This is the practice of denying extension of credit for homes in specific geographically areas based on the income, race, or ethnicity of the residents in that area. These areas where said to have a red line circled around them. Alternatively, when the mortgage company extends credit but on unfair terms to those communities, it is considered reverse redlining which the court feels occurred here. When this occurs it raises the presumption that the mortgage loan was extended upon a discriminatory manner. In order to foreclosure upon a mortgage that is presumably discriminatory the burden is now on the mortgagee to show by a fair preponderance of that evidence that the mortgage is not a product of unlawful discrimination. The mortgage interest rate must be based on economic reasons only.
Discussion. Courts are allowed to hold hearings when a person enters default. The court proceeding to enter judgment to allow a foreclosure is not just a process of paperwork required to complete the transaction. Also the burden shifting to the mortgagee to prove the loan is not discriminatory is for the purpose of equity and to prevent unjust results.