Tag Archives: Fair Housing Act

Housing in the Trump Era

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The Real Estate Transactions Section of the American Association of Law Schools has issued the following Call for Papers:

Access + Opportunity + Choice: Housing Capital, Equity, and Market Regulation in the Trump Era

Program Description:

The year 2018 marks the 10th anniversary of the 2008 housing crisis—an event described as the most significant financial and economic upheaval since the Great Depression. This year is also the 50th anniversary of the Fair Housing Act, which upended many decades of overt housing discrimination. Both events remind us of the significant role that housing has played in the American story—both for good and for bad.

Of the many aspects of financial reform that followed 2008, much of the housing finance-related work was centered around mortgage loan origination and creating incentives and rules dealing with underwriting and the risk of moral hazard. Some of these reforms include the creation of the qualified mortgage safe-harbor and the skin-in-the-game risk retention rules. But when it came to the secondary mortgage market, little significant reform was undertaken. The only government action of any serious importance related to the federal government—through the Federal Housing Finance Agency (FHFA)—taking over control of Fannie Mae and Freddie Mac. This major government intervention into the workings of the country’s two mortgage giants yielded takings lawsuits, an outcry from shareholders, and the decimation of the capital reserves of both companies. Despite Fannie and Freddie having both paid back all the bailout funds given to them, the conservatorship remains in place to this day.

In the area of fair housing, the past several years saw the Texas Department of Housing and Community Affairs v. Inclusive Communities case whereby the U.S. Supreme Court upheld (and narrowed the scope of) the disparate impact theory under the Fair Housing Act. We also saw efforts aimed at reducing geographic concentrations of affordable housing through the Obama administration’s promulgation of the affirmatively furthering fair housing rule.

Yet, meaningful housing reform remains elusive. None of the major candidates in the most recent presidential election meaningfully addressed the issue in their policy platforms, and a lack of movement in resolving the Fannie/Freddie conservatorship is viewed as a major failure of the Obama administration. Additionally, housing segregation and access to affordable mortgage credit continues to plague the American economy.

In recent months, the topics of housing finance reform and providing Americans with credit (including mortgage credit) choices have been a point of focus on Capitol Hill and in the Trump White House. Will these conservations result in meaningful legislation or changes in regulatory approaches in these areas? Will programs like the low-income-housing tax credit, the CFPB’s mandatory underwriting requirements, public housing subsidies, and the government’s role in guaranteeing and securitizing mortgage loans significantly change? Where are points of possible agreement between the country’s two major parties in this area and what kinds of compromises can be made?

Call for Papers:

The Real Estate Transactions Section looks to explore these and related issues in its 2019 AALS panel program titled: “Access and Opportunity: Housing Capital, Equity, and Market Regulation in the Trump Era.” The Section invites the submission of abstracts or full papers dealing broadly with issues related to real estate finance, the secondary mortgage market, fair housing, access to mortgage credit, mortgage lending discrimination, and the future of mortgage finance. There is no formal paper requirement associated with participation on the panel, but preference will be given to those submissions that demonstrate novel scholarly insights that have been substantially developed. Untenured scholars in particular are encouraged to submit their work. Please email your submissions to Chris Odinet at codinet@sulc.edu by Friday, August 3, 2018. The selection results will be announced in early September 2018. In additional to confirmed speakers, the Section anticipates selecting two to three papers from the call.

Confirmed Speakers:

Rigel C. Oliveri, Isabelle Wade and Paul C. Lyda Professor of Law, University of Missouri School of Law

Todd J. Zywicki, Foundation Professor of Law, George Mason University Antonin Scalia Law School

David Reiss, Professor of Law and Research Director for the Center for Urban Business Entrepreneurship, Brooklyn Law School

Eligibility:

Per AALS rules, only full-time faculty members of AALS member law schools are eligible to submit a paper/abstract to Section calls for papers. Faculty at fee-paid law schools, foreign faculty, adjunct and visiting faculty (without a full-time position at an AALS member law school), graduate students, fellows, and non-law school faculty are not eligible to submit.

All panelists, including speakers selected from this Call for Papers, are responsible for paying their own annual meeting registration fee and travel expenses.

Running The CFPB out of Town

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photo by Gabriel Villena Fernández

My latest column for The Hill is America’s Consumer Financial Sheriff and The Horse it Rides Are under Fire. It reads,

Notwithstanding its name, the Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs Act, or Financial Choice Act, will be terrible for consumers. It will gut the Consumer Financial Protection Bureau and return us to the Wild West days of the early 2000s where predatory lenders could prey on the elderly and the uneducated, knowing that there was no sheriff in town to stop ‘em.

The subprime boom of the early 2000s has receded in memory the past 15 years, but a recent Supreme Court decision reminds us of what that kind of predatory behavior could look like. In Bank of America Corp. v. Miami this year, the court ruled that a municipality could sue financial institutions for violations of the Fair Housing Act arising from predatory lending.

Miami alleged that the banks’ predatory lending led to a disproportionate increase in foreclosures and vacancies which decreased property tax revenues and increased the demand for municipal services. Miami alleged that those “‘predatory’ practices included, among others, excessively high interest rates, unjustified fees, teaser low-rate loans that overstated refinancing opportunities, large prepayment penalties, and — when default loomed — unjustified refusals to refinance or modify the loans.”

The Dodd-Frank Act was intended to address just those types of abusive practices. Dodd-Frank barred many of them from much of the mortgage market through its qualified mortgage and ability-to-repay rules. More importantly, Dodd-Frank created the Consumer Financial Protection Bureau. The CFPB was designed to be an independent regulator with broad authority to police financial institutions that engaged in all sorts of consumer credit transactions. The CFPB was the new sheriff in town. And like Wyatt Earp, it has been very effective at driving the bad guys out of Dodge.

The Financial Choice Act would bring the abusive practices of the subprime boom back to life. The act would gut the CFPB. Among other things, it would make the Director removable at will, unlike other financial institution regulators. It would take away the CFPB’s supervisory function of large banks, credit unions and other consumer finance institutions. It would take away the CFPB’s power to address unfair, deceptive, and abusive acts and practices. It would restrict the CFPB from monitoring the mortgage market and thereby responding to rapidly developing abusive practices.

The impacts on consumers will be immediate and harmful. The bad guys will know that the sheriff has been undercut by its masters, its guns loaded with blanks. The bad guys will re-enter the credit market with the sorts of products that brought about the subprime crisis: teaser rates that quickly morph into unaffordable payments, high costs and fees packed into credit products, and all sorts of terms that will result in exorbitant and unsustainable credit.

Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, is the chief proponent of the Financial Choice Act. Hensarling claims that Dodd-Frank and the CFPB place massive burdens on consumer credit providers. That is not the case. Interest rates remain near all-time lows. Consumer credit markets have many providers. Credit availability has eased up significantly since the financial crisis

One only needs to look at his top donors to see how the Financial Choice Act lines up with the interests of those consumer credit companies that are paying for his re-election campaign. These top donors include people affiliated to Wells Fargo, Bank of America, JPMorgan Chase, Capital One Financial, Discover Financial Services, and the American Bankers Association, among many others.

Dodd-Frank implemented regulations that work very well in the consumer credit markets. It created a regulator, the CFPB, that has been very effective at keeping the bad guys out of those markets. The Financial Choice Act will seriously weaken the CFPB. When vulnerable consumers cry out for help, Hensarling would heave the CFPB over its saddle and let its horse slowly trot it out of town.

Banks v. Cities

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The Supreme Court issued a decision in Bank of America Corp. v. Miami, 581 U.S. __ (2017). The decision was a mixed result for the parties.  On the one hand, the Court ruled that a municipality could sue financial institutions for violations of the Fair Housing Act arising from predatory lending. Miami alleged that the banks’ predatory lending led to a disproportionate increase in foreclosures and vacancies which decreased property tax revenues and increased the demand for municipal services. On the other hand, the Court held that Miami had not shown that the banks’ actions were directly related to injuries asserted by Miami. As a result, the Court remanded the case to the Eleventh Circuit to determine whether that in fact was the case. This case could have big consequences for how lenders and others and other big players in the housing industry develop their business plans.

For the purposes of this post, I want to focus on the banks’ activities of the banks that Miami alleged they engaged in during the early 2000s. It is important to remember the kinds of problems that communities faced before the financial crisis and before the Dodd-Frank Act authorized the creation of the Consumer Financial Protection Bureau. As President Trump and Chairman Hensarling (R-TX) of the House Financial Services Committee continue their assault on consumer protection regulation, we should understand the Wild West environment that preceded our current regulatory environment. Miami’s complaints charge that

the Banks discriminatorily imposed more onerous, and indeed “predatory,” conditions on loans made to minority borrowers than to similarly situated nonminority borrowers. Those “predatory” practices included, among others, excessively high interest rates, unjustified fees, teaser low-rate loans that overstated refinancing opportunities, large prepayment penalties, and—when default loomed—unjustified refusals to refinance or modify the loans. Due to the discriminatory nature of the Banks’ practices, default and foreclosure rates among minority borrowers were higher than among otherwise similar white borrowers and were concentrated in minority neighborhoods. Higher foreclosure rates lowered property values and diminished property-tax revenue. Higher foreclosure rates—especially when accompanied by vacancies—also increased demand for municipal services, such as police, fire, and building and code enforcement services, all needed “to remedy blight and unsafe and dangerous conditions” that the foreclosures and vacancies generate. The complaints describe statistical analyses that trace the City’s financial losses to the Banks’ discriminatory practices. (3-4, citations omitted)

Excessively high interest rates, unjustified fees, teaser interest rates and large prepayment penalties were all hallmarks of the subprime mortgage market in the early 2000s. The Supreme Court has ruled that such activities may arise to violations of the Fair Housing Act when they are targeted at minority communities.

Dodd-Frank has barred many such loan terms from a large swath of the mortgage market through its Qualified Mortgage and Ability-to-Repay rules. Trump and Hensarling want to bring those loan terms back to the mortgage market in the name of lifting regulatory burdens from financial institutions.

What’s worse, the  burden of regulation on the banks or the burden of predatory lending on the borrowers? I’d go with the latter.

HUD, Exit Stage Left

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photo by Gage Skidmore

Obama HUD Secretary Julián Castro

President Obama had members of his Cabinet write Exit Memos that set forth their vision for their agencies. Julián Castro, his Secretary of HUD, titled his Housing as a Platform for Opportunity. It is worth a read as a roadmap of a progressive housing agenda. While it clearly will carry little weight over the next few years, it will become relevant once the political winds shift back, as they always do. Castro writes,

Every year, the U.S. Department of Housing and Urban Development (HUD) creates opportunity for more than 30 million Americans, including more than 11.6 million children. That support ranges from assisting someone in critical need with emergency shelter for a night to helping more than 7.8 million homeowners build intergenerational wealth. Simply put, HUD provides a passport to the middle class.

HUD is many things but, most of all, it is the Department of Opportunity. Everything we did in the last eight years was oriented to bring greater opportunity to the people we serve every day. That includes the thousands of public housing residents who now have access to high-speed Internet through ConnectHome. It includes the more than 1.2 million borrowers in 2016 – more than 720,000 of them first-time homebuyers – who reached their own American Dream because of the access to credit the Federal Housing Administration provides. And it includes the hundreds of thousands of veterans since 2010 who are no longer experiencing homelessness and are now better positioned to achieve their full potential in the coming years.

Our nation’s economy benefits from HUD’s work. As our nation recovered from the Great Recession, HUD was a driving force in stabilizing the housing market. When natural disasters struck, as with Superstorm Sandy in the Northeast, the historic flooding in Louisiana, and many other major disasters – HUD helped the hardest-hit communities to rebuild, cumulatively investing more than $18 billion in those areas, and making it possible for folks to get back in their homes and back to work. And when we invested those dollars, we encouraged communities not just to rebuild, but to rebuild in more resilient ways. The $1 billion National Disaster Resilience Competition demonstrated our commitment to encourage communities to build infrastructure that can better withstand the next storm and reduce the costs to the American taxpayer.

Housing is a platform for greater opportunity because it is so interconnected with health, safety, education, jobs and equality. We responded to the threat posed by lead-contaminated homes by launching a forthcoming expansion of critical protections for children and families in federally assisted housing. And we finally fulfilled the full obligation of the 1968 Fair Housing Act by putting into practice the Affirmatively Furthering Fair Housing rule to ensure that one day a child’s zip code won’t determine his or her future.

Much has been accomplished during the Obama Administration, but new challenges are on the horizon, including a severely aging public housing stock and an affordable housing crisis in many areas of the country. Just as HUD provided necessary reinforcement to the housing market during the latest economic crisis, this vital Department will be crucial to the continued improvement of the American economy and the security of millions of Americans in the years to come. (2)

There is a fair amount of puffery in this Exit Memo, but that is to be expected in a document of this sort. it does, however, set forth a comprehensive of policies that the next Democratic administration is sure to consider. If you want an overview of HUD’s reach, give it a read.

Dr. Carson’s Slim Housing Credentials

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Law360 quoted me in Carson’s Slim Housing Credentials To Be Confirmation Focus (behind paywall). It opens,

Dr. Ben Carson will face a barrage of questions Thursday on topics ranging from his views on anti-discrimination enforcement to the basics of running a government agency with a multibillion-dollar budget at his confirmation hearing to lead the U.S. Department of Housing and Urban Development.

Carson, a famed neurosurgeon and former Republican presidential candidate, was President-elect Donald Trump’s surprise choice for HUD secretary, given the nominee’s lack of experience or statements on housing issues. That lack of a track record means that senators and housing policy advocates will have no shortage of areas to probe when Carson appears before the Senate Banking Committee.

“I want to know whether he has any firm ideas at all about housing and urban policy. Is he a quick study?” said David Reiss, a professor at Brooklyn Law School.

Trump tapped Carson in early December to lead HUD, saying that his former rival for the Republican presidential nomination shared in his vision of “revitalizing” inner cities and the families that live in them.

“Ben shares my optimism about the future of our country and is part of ensuring that this is a presidency representing all Americans. He is a tough competitor and never gives up,” Trump said in a statement released through his transition team.

Carson said he was honored to get the nod from the president-elect.

“I feel that I can make a significant contribution particularly by strengthening communities that are most in need. We have much work to do in enhancing every aspect of our nation and ensuring that our nation’s housing needs are met,” he said in the transition team’s statement.

The nomination came as a bit of a surprise given that Carson, who has decades of experience in medicine, has none in housing policy. It also came soon after a spokesman for Carson said that he had no interest in a Cabinet position because of a lack of qualifications.

Now lawmakers, particularly Democrats, will likely spend much of Thursday’s confirmation hearing attempting to suss out just what the HUD nominee thinks about the management of the Federal Housing Administration, which provides insurance on mortgages to low-income and first-time home buyers; the management and funding for public housing in the U.S.; and even the basics of how he will manage an agency that had an approximately $49 billion budget and employs some 8,300 people.

“You will have to overcome your lack of experience managing an organization this large to ensure that you do not waste taxpayer dollars and reduce assistance for families who desperately need it,” Sen. Elizabeth Warren, D-Mass., said in a letter to Carson earlier in the week.

To that end, Carson could help allay fears about management and experience by revealing who will be working under him, said Rick Lazio, a partner at Jones Walker LLP and a former four-term Republican congressman from New York.

“The question is will the senior staff have a diverse experience that includes management and housing policy,” Lazio said.

One area where Carson is likely to face tough questioning from Democrats is anti-discrimination and fair housing.

Carson’s only major public pronouncement on housing policy was a 2015 denunciation of the Affirmatively Furthering Fair Housing rule that the Obama administration finalized after it languished for years.

The rule, which was part of the 1968 Fair Housing Act but had been languishing for decades, requires each municipality that receives federal funding to assess their housing policies to determine whether they sufficiently encourage diversity in their communities.

In a Washington Times, op-ed, Carson compared the rule to failed efforts to integrate schools through busing and at other times called the rule akin to communism.

“These government-engineered attempts to legislate racial equality create consequences that often make matters worse. There are reasonable ways to use housing policy to enhance the opportunities available to lower-income citizens, but based on the history of failed socialist experiments in this country, entrusting the government to get it right can prove downright dangerous,” Carson wrote.

Warren has already indicated that she wants more answers about Carson’s view of the rule and has asked whether Carson plans to pursue disparate impact claims against lenders and other housing market participants, as is the current policy at HUD and the U.S. Department of Justice.

Warren’s concerns are echoed by current HUD Secretary Julian Castro, who said in an interview with National Public Radio Monday that he feared Carson could pull back on the efforts the Obama administration has undertaken to enforce fair housing laws.

“I’d be lying if I said that I’m not concerned about the possibility of going backward, over the next four years,” Castro said in the interview.

HUD, as the agency overseeing the Federal Housing Administration, has also been involved in significant litigation against the likes of Deutsche Bank, HSBC, Bank of America and JPMorgan Chase & Co., among others, seeking to recover money the FHA lost on bad loans they sold to the agency.

“Will you commit to continuing to strictly enforce these underwriting standards in order to protect taxpayers from fraud?” Warren asked.

Carson has also drawn criticism from fair housing advocates for his views on the assistance the government provides to the poor, saying in his memoir that such programs can breed dependency when they do not have time limits.

To that end, housing policy experts will want to hear what Carson wants to do to ease the affordability crisis, boost multifamily building and improve conditions inside public housing units. HUD also plays a major role in disaster relief operations, another area where people will be curious about Carson’s thinking.

“I’d be looking at hints of his positive agenda, not just critiques of past programs,” Reiss said.

Carson’s Call of Duty

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Dr. Ben Carson

The Hill published my most recent column, Ben Carson’s Call of Duty as America’s Housing Chief:

Ben Carson, the nominee for secretary of the U.S. Department of Housing and Urban Development (HUD), has made almost no public pronouncements about housing policy. The one exception is a Washington Times opinion piece from 2015 in which he addresses an Obama administration rule on fair housing.

While Carson appears to agree with the Obama administration’s diagnosis of the problem of segregation, he attacks its solution. If he refuses to vigorously enforce the rule at HUD, it is still incumbent on him to address the underlying problem it was meant to address.

Carson acknowledges the history of structural racism in American housing markets. He notes that segregation was caused in part by the federal government’s reliance on “redlining,” which refers to the Federal Housing Administration’s mid-20th century practice of drawing a red line around minority communities on underwriting maps and then refusing to insure mortgages within those borders.

He also acknowledges that racially restrictive covenants played a significant role in maintaining segregation. Racially restrictive covenants were legally enforceable agreements among property owners to keep homes from being sold to members of various minority groups. African Americans were the group most often targeted by them.

These covenants were very common in the mid-20th century, until the Supreme Court ruled that they were not legally enforceable. Shockingly, the Federal Housing Administration continued to encourage their use, even after the Supreme Court’s ruling.

Carson also acknowledged that “the Fair Housing Act and other laws have greatly reduced explicit discrimination in housing” but that “significant disparities in housing availability and quality persist.”

All in all, Carson’s take on the history of American housing policy is consistent with the consensus view across the left and the right: the federal government promoted segregationist housing policies for a large part of the 20th century.

Where he veers sharply from the Obama administration is in crafting a solution. The Obama administration promulgated a rule pursuant to the Fair Housing Act that would require localities to affirmatively promote fair housing if they chose to take funds from HUD.

While Carson states that the Obama rule is based on a “tortured reading of Fair Housing law,” the statutory authority for it is pretty clear. The Fair Housing Act states that HUD is to administer housing programs “in a manner affirmatively to further the policies” of the law.

Carson has characterized the Obama administration rule as a “socialist experiment.” I think his characterization is just plain wrong, particularly because the federal government often ties the provision of federal funds to various policy goals.

Think, for instance, of how federal highway dollars were tied to lowering state speed limits to 55 miles an hour. Such linkages are hardly socialist experiments. They merely demonstrate the power of the purse, a long-time tool of the federal government. Even if Carson cannot be convinced of this, the debate over how to address this legacy of discrimination does not end there.

After all, Carson’s opinion identified a serious problem: segregation resulting from longstanding policies of the federal government. He then stated that he does not agree with the Obama administration’s approach to solving the problem. He concluded by stating, “There are reasonable ways to use housing policy to enhance the opportunities available to lower-income citizens.”  But he failed to identify a single policy to address the problems caused by those longstanding and discriminatory federal policies.

If confirmed, Carson must outline how the U.S. Department of Housing and Urban Development can address the legacy of structural racism in American housing markets. The text of the Fair Housing Act makes it clear that HUD must administer its housing programs in a manner that would affirmatively further the policies of the law.

The problem Carson faces is clear. The duty imposed upon him by the law is clear.  What remains unclear is how he will fulfill that duty. He has both a legal and moral obligation to set forth his vision, if he is bent on rejecting that of President Obama.

Expectations for Carson at HUD

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Dr. Ben Carson

The Christian Science Monitor quoted me in What Could US Cities Expect From Ben Carson as HUD Secretary?

Ben Carson, a former neurosurgeon and erstwhile rival of Donald Trump, was nominated Monday by the president-elect to lead the Department of Housing and Urban Development (HUD).

If confirmed by the Senate to be secretary of HUD, Carson would oversee a department dedicated to developing and enacting policies on housing, focusing on building community in lower-income neighborhoods, providing financial assistance for homeowners, and preventing racial discrimination in local housing policies.

Reactions to the nomination have fallen largely along party lines, with many Democrats criticizing Carson’s lack of experience, having never held public office before – inexperience that also makes it hard to predict his potential priorities in a Trump administration. But he has been a frequent critic of social welfare programs, saying that church- and community-based initiatives are a better vehicle than government programs for assisting Americans in poverty.

“I am thrilled to nominate Dr. Ben Carson as our next secretary of the US Department of Housing and Urban Development,” Trump said in a statement released by his transition team. “Ben Carson has a brilliant mind and is passionate about strengthening communities and families within those communities. We have talked at length about my urban renewal agenda and our message of economic revival, very much including our inner cities.”

Trump and Carson had discussed the job before Thanksgiving, but Carson initially expressed reluctance to take a position on the cabinet, despite his campaign for the US presidency, because of his lack of experience in a political office. Since then, Carson has evidently overcome those reservations.

“I feel that I can make a significant contribution particularly by strengthening communities that are most in need,” Carson said in the statement.

Carson is the first African-American pick for Trump’s cabinet, and would likely be confirmed by the Republican-controlled Senate.

Carson’s communication skills give him “the ability to bring the message of poverty alleviation to people nationwide and I hope he would quickly learn the importance of HUD and would try to make it better, stronger, more efficient” Robert C. Moss, the national director of government affairs at CohnReznick, a public accounting firm, tells The Christian Science Monitor in an email.

“Carson is a very skilled speaker, maybe one of the best we’ll see in this role,” writes Mr. Moss, who specializes in affordable housing, “and if he hits on the right direction and takes the message around the country, he could help make the case for affordable housing.”

Trump’s campaign did not focus much on housing or urban development, other than to describe the state of poor “inner city” African-Americans and Hispanics as “disastrous” on multiple occasions. Many critics of Carson say that the former Republican presidential candidate ran on a platform of shrinking the role of government agencies like HUD, putting him at philosophical odds with the very department he will be in charge of.

HUD was created in 1965 in order to build stronger communities and create affordable housing for Americans with low incomes. The department was given the responsibility of enforcing the Fair Housing Act of 1968, which outlawed most forms of housing discrimination, including racial, religious, or based on family status.

African-Americans, in particular, have experienced decades of housing discrimination, says Professor Reiss.

“Redlining, the practice of refusing to provide credit in minority communities, was implemented on a national scale since the beginning of the New Deal, by government agencies like the Federal Housing Administration,” he says. “Such policies continued on for decades. These policies led, in part, to the disinvestment in cities through the 1960s that impacted African-American communities most of all.”

But some of the HUD’s recent rules have come under criticism for “social engineering.” One particular policy Carson has publicly opposed is the Affirmatively Furthering Fair Housing (AFFH) rule adopted by the Obama administration, which requires cities to monitor and report on any housing patterns of racial bias, in an effort to promote less segregated neighborhoods.

“The purpose of the AFFH rule is to reduce segregation which had been caused in part by the federal government’s own actions,” David Reiss, the academic program director for the Center for Urban Business Entrepreneurship
 at Brooklyn Law School, tells the Monitor in an email. The secretary of HUD “can signal that fair housing allegations and violations will be taken seriously or not. If Carson is confirmed, it will send a strong signal that local governments do not need to worry about the Affirmatively Furthering Fair Housing rule for the foreseeable future.”