3.28.2008

REDLINING ALL OVER AGAIN

People seem to be tripping over themselves to do something - anything! - about the subprime meltdown. Locally, City Council has called for the suspension of sheriff sales of foreclosed properties. Housing advocates are cheering.

Let's be careful here, though. Anything that makes it hard for lenders to extricate themselves out of risky loans gone bad will make them think twice about making those loans in the first place. It's quite likely risky neighborhoods could be avoided altogether, undoing decades of progress in the fight against redlining.

Lost in the vilification of subprime lending is the fact that a lot of decent lenders made decent loans to decent people who otherwise wouldn't have gotten access to them. Of course, it's the shady lenders and the irresponsible borrowers that get all the press, so we throw out the baby with the bathwater.

Even worse, this sort of action is going to hurt the poor worst of all. The subprime meltdown has largely affected two kinds of regions: hot places where people speculated (Florida, Arizona/Vegas, California), and stagnant places where people are now underwater in terms of property values (the entire Midwest, it seems). Tightening the credit markets by encouraging banks to avoid high-risk places will mean richer people won't be able to extend themselves (probably not a bad thing), but it will also mean poorer people won't be able to get access to the capital they need to buy a home and build some equity (definitely not a good thing).

Well has John McCain drawn a clear distinction between himself and his Democratic challengers, who are swinging for the fences in search of a salvation message that will resonate with the most voters. I fear that if a Democrat wins the White House and keeps on swinging, poor people and poor regions will suffer greatly from illiquidity. And I fear that no matter what happens nationally in November, that's what's already in motion here in Philadelphia.
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