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Second subprime mortgage lender, NovaStar, faulted on Indian policy

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WASHINGTON - A second subprime mortgage lender has been faulted for its policies towards American Indians. But while the first one acknowledged its lending policies to Native people were part of actions that resulted in a huge settlement to borrowers for allegedly abusive lending, this one has been accused of the opposite: not lending to Indians on their reservations.

The National Community Reinvestment Coalition of Washington has sued NovaStar Financial Inc. of Baltimore and its NovaStar Mortgage unit for allegedly redlining American Indian reservations for loans. The suit was filed in the U.S. District Court for the District of Columbia.

NovaStar has responded that the suit, which also alleges discrimination against blacks, Latinos and persons with disabilities has no merit and will be contested.

According to National Mortgage News, NovaStar Mortgage, based in Richmond, Va., was the 16th largest subprime lender in the nation in 2006, with some $11 billion in volume. According to numbers it filed with the federal government for 2005, NovaStar made $43 million in mortgages to American Indians or Alaska Natives in 2005, ranking it 85th in the country.

Last year, subprime lender Ameriquest Mortgage, Orange, Calif., settled accusations of abusive lending by agreeing to pay $325 million in damages to its borrowers. In a filing with the Securities and Exchange Commission, the firm disclosed that one of the lending practices at issue was ''its policies on funding Native American reservation properties.'' It did not specify anything further.

Citigroup has since taken out an option to buy Ameriquest which, along with its affiliate Argent Mortgage, has been one of the nation's biggest mortgage lenders to Indians. Ameriquest admitted to no wrongdoing in its settlement with multiple state attorneys general.

NCRC said NovaStar's underwriting guidelines ''treat 'properties located on Indian reservations' and 'properties for adult foster care' as 'unacceptable' for its lending business.''

On its Web site, www.ncrc.org, it appends to its lawsuit what is described as NovaStar Mortgage's program manual as of Feb. 6. On page 40 of the manual, under the heading ''Unacceptable Property Types,'' is listed ''Properties located on Indian reservations.''

In the suit, NCRC alleges that NovaStar's ''no Indian reservation policy is facially discriminatory based on race, color, racial composition, and/or national origin of the area in which the property is located.''

It points out that this policy has ''a significant disproportionate adverse impact on Native Americans and Native American homeowners,'' pointing out that 41.7 percent of American Indian homeowners live on reservations, versus just 1.8 percent of white homeowners. In addition, more than half of the reservation population nationwide - 55 percent - is Indian.

The policy also ''has the purpose and effect of limiting access to capital for Native Americans and Native American homeowners, and also limits the availability of housing to Native Americans.'' NCRC pointed out that NovaStar lends in 33 of the 35 states that have Indian reservations, all except Utah and Louisiana.

''There is no business justification for NovaStar's no Indian reservation policy,'' NCRC alleges. ''Under this policy, NovaStar excludes loans without regard to traditional lending criteria.''

And it alleges ''NovaStar's discriminatory lending policies and practices have caused, and continue to cause, direct injury to Native Americans and homeowners living on Indian reservations.''