Fair Lending Fade-out

open-book-fade

Bloomberg BNA quoted me in In 2017, Look for Pullback on Fair Lending Enforcement (behind a paywall). It opens,

Expect a pullback in fair lending enforcement in 2017, and especially less focus on disparate impact discrimination as the Trump administration takes office.

That’s the assessment of banking attorneys and others weighing the role of the Consumer Financial Protection Bureau, the Department of Housing and Urban Development, and the Justice Department in the uncertain year ahead.

Although a recent court ruling raises questions about CFPB Director Richard Cordray’s tenure, several said they expect the CFPB to be less assertive no matter who heads the agency.

Meanwhile, new leadership at the Justice Department and HUD means that disparate impact claims—allegations of discriminatory effect, without regard to subjective intent—will get less attention than in recent years.

David Reiss, professor of law at Brooklyn Law School in Brooklyn, N.Y., summed up the assessment of several interviewed by Bloomberg BNA on the picture ahead for 2017.

“I would guess that disparate impact won’t be a priority for the Trump administration,” Reiss said.

New Leadership Ahead

In November, Trump said he’ll nominate Sen. Jeff Sessions (R-Ala.) as attorney general. The president-elect also Dec. 5 named Ben Carson, the former director of pediatric neurosurgery at Johns Hopkins, as his candidate to lead HUD.

Alan S. Kaplinsky, a partner in Philadelphia who leads the consumer financial services practice at Ballard Spahr, said he doesn’t expect Sessions “to be a strong advocate for pushing the legal envelope on fair lending issues.”

And Carson might not use what some have called an “enforcement by litigation” approach to housing policy, according to Joseph Pigg, the American Bankers Association’s senior vice president for mortgage finance.

“Returning to a more normal enforcement regime should be a positive for borrowers and lenders alike,” Pigg told Bloomberg BNA. HUD spokesman Brian Sullivan declined to comment on the fair-lending outlook at HUD.

A Well-Known Unknown

Carson, a well-known physician and education reform advocate, took on an even higher profile by entering the 2016 White House race. But on lending, housing and other matters likely to come before him should he take the helm at HUD, Carson’s record is sparse.

One exception is a July 23, 2015, opinion piece in the Washington Times, where Carson criticized HUD’s Affirmatively Furthering Fair Housing rule. Although HUD has a distinct regulation that governs disparate impact claims under the Fair Housing Act, the AFFH rule has a different focus. The regulation, drawn from language in the Fair Housing Act itself, lays out a new process that HUD says “promotes housing choice and fosters inclusive communities free from housing discrimination.”

Carson criticized the AFFH rule, saying it would inject too much government decision-making into local housing policy. The rule, issued in the wake of the U.S. Supreme Court’s ruling in a major 2015 case on disparate impact claims under the Fair Housing Act, might actually frustrate efforts to develop new housing, he said.

Reiss predicted that Carson will either try to get rid of the AFFH rule, or decide not to enforce it. But he also said Carson’s stance on the regulation probably is somewhat nuanced.

“He’s acknowledged the history of redlining, restrictive covenants, and other problems,” Reiss told Bloomberg BNA. “He doesn’t seem to be denying a history of structural racism in the housing market. He seems to be saying the Affirmatively Furthering Fair Housing rule goes too far.”

Affirmatively Furthering Neighborhood Choice

Professor Kelly

Professor Kelly

Jim Kelly has posted Affirmatively Furthering Neighborhood Choice: Vacant Property Strategies and Fair Housing to SSRN (forthcoming in the University of Memphis Law Review). He writes,

With the Supreme Court’s Inclusive Cmtys. Project decision in June 2015 and the Obama Administration’s adoption, the following month, of the Final Rule for Affirmatively Furthering Fair Housing, local government accountability for ending segregation and resolving the spatial mismatch between affordable housing and economic opportunity has been placed on a more solid footing. Instead of being responsible only for overt, conscious attempts to harm protected groups, jurisdictions that receive money from HUD will need to take a hard look at their policies that perpetuate the barriers to housing opportunity for economically marginalized protected groups. The duty to Affirmatively Further Fair Housing, although somewhat aspirational in its formulation, requires HUD grant recipients to engage with fair housing issues in a way that the threat of litigation, even disparate impact litigation, never has.

For cities struggling with soft residential real estate markets, HUD’s concerns about land use barriers to affordable housing may seem tone deaf. Advocates challenging exclusionary policies have often focused on cities with high housing costs. Even a city with large vacant problems, such as Baltimore, was sued primarily because of its location with a strong regional housing market. But, concerns about social equity in revitalizing communities make the Final Rule’s universal approach to AFFH very relevant to cities confronting housing abandonment in its older, disinvested neighborhoods. This Articles has shown that attention to the Final Rule’s new Assessment of Fair Housing (AFH) reporting system is warranted both as a protective measure and as an opportunity to advance core goals of creating and sustaining an attractive and inclusive network of residential urban communities. (30-31)

For those of us who have trouble parsing the contemporary state of fair housing law in general and the AFFH rule in particular, the article provides a nice overview. And it offers insight into how fair housing law can help increase “the supply of decent, affordable housing options to members of protected groups . . .” (2) Not a bad twofer for one article.

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Affirmatively Furthering Fair Housing

Julian_Castro_by_Gage_Skidmore

Fast on the heels of the recent Supreme Court decision upholding disparate impact Fair Housing claims, the Department of Housing and Urban Development has issued a final rule, Affirmatively Furthering Fair Housing:

Through this final rule, HUD provides HUD program participants with an approach to more effectively and efficiently incorporate into their planning processes the duty to affirmatively further the purposes and policies of the Fair Housing Act, which is title VIII of the Civil Rights Act of 1968. The Fair Housing Act not only prohibits discrimination but, in conjunction with other statutes, directs HUD’s program participants to take significant actions to overcome historic patterns of segregation, achieve truly balanced and integrated living patterns, promote fair housing choice, and foster inclusive communities that are free from discrimination. The approach to affirmatively furthering fair housing carried out by HUD program participants prior to this rule, which involved an analysis of impediments to fair housing choice and a certification that the program participant will affirmatively further fair housing, has not been as effective as originally envisioned. This rule refines the prior approach by replacing the analysis of impediments with a fair housing assessment that should better inform program participants’ planning processes with a view toward better aiding HUD program participants to fulfill this statutory obligation.

Through this rule, HUD commits to provide states, local governments, public housing agencies (PHAs), the communities they serve, and the general public, to the fullest extent possible,with local and regional data on integrated and segregated living patterns, racially or ethnically concentrated areas of poverty, the location of certain publicly supported housing, access to opportunity afforded by key community assets, and disproportionate housing needs based on classes protected by the Fair Housing Act. Through the availability of such data and available local data and knowledge, the approach provided by this rule is intended to make program participants better able to evaluate their present environment to assess fair housing issues such as segregation, conditions that restrict fair housing choice, and disparities in access to housing and opportunity, identify the factors that primarily contribute to the creation or perpetuation of fair housing issues, and establish fair housing priorities and goals. (1-2)

The tenacious hold that segregation has had over so many communities has been so difficult to address and HUD’s past attempts to do so have come up short so often. One can hope that this change in strategy from an “analysis of impediments” to “a fair housing assessment” can make incremental improvements throughout the nation.

It will be up to the next administration to really implement this rule because at first the rule just requires more planning about fair housing on the part of local communities. It is only later, when HUD evaluates their success and decides whether there will be any consequences for failure, that the rule’s effectiveness can be identified.

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