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Fannie Mae's new down payment policies create barriers to credit based upon geography rather than borrower characteristics. This is the definition of redlining.

Fannie Mae, a government-sponsored entity with a mission to expand affordable housing and bring global capital into local communities, has enacted a policy that increases the cost of mortgages in select zip codes.

Fair loan underwriting policies are based on the income and qualifications of the applicant and the valuation of the property by a professional appraiser.

The term "redlining" came into being in the 1960’s in Chicago to describe the then common practice of marking a red line on a map to delineate the area where banks would not invest. During the heyday of redlining, these areas were almost exclusively neighborhoods with large and/or increasing African-American populations.

In a notice to lenders on December 5, Fannie Mae said all loans delivered after January 15 of this year on properties in "declining" areas would be subject to higher down payment requirements. Fannie Mae also strongly encouraged other lenders to come up with their own risk-ratings by market area, which groups such as GMAC and Countrywide, have done.

Fannie Mae’s policy punishes borrowers because of where they choose to live. It requires an extra 5% of the loan amount as a down payment if a borrower seeks to buy a home in a designated zip code. In the case of a $200,000 home, the borrower would be required to pay $20,000 instead of $10,000 to qualify for the loan. This is a heavy burden on many middle and low-income families.

Moreover, this policy will exacerbate the housing crisis. It will reduce demand for housing, since fewer people will be able to afford a down payment. The reduction in home values in many communities will be further accelerated, as prices adjust to the new down payment requirements. Selling a home will also more difficult for those facing foreclosure.

Fannie Mae’s new policy to make access to mortgages harder in select zip codes is unfair. Congress should hold hearings on Fannie Mae’s policy and insist on a fair and consistent underwriting policy that does not punish people because of where they choose to live.

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