Redlining has long been outlawed, but in New York City, the federal government is again disproportionately hurting black homeowners, according to a federal lawsuit filed by a nonprofit that represents low-income New Yorkers, the New York Times reported today. This time, the suit says, the government is fueling racial disparities not through its lending policies but in how it handles foreclosures. Since the financial crisis pushed thousands of homeowners in New York and across the country into foreclosure, the federal Department of Housing and Urban Development has been selling insured delinquent mortgages to private investors, typically hedge funds and private equity funds, which then collect monthly payments. The investors, according to the lawsuit filed against the housing agency and a large private equity firm, Lone Star Funds, provide fewer protections to homeowners who fall behind on their mortgage payments than the federal government does, leading to higher rates of foreclosure. Most of the mortgages being sold to these investors are in predominantly black neighborhoods like in southeast Queens and the Canarsie section of Brooklyn. From 2012 to 2014, more than 61 percent of the government-backed mortgages sold to investors were in predominantly black neighborhoods, according to the lawsuit.
