Mortgage

MBA submits brief as Supreme Court takes up disparate impact

Banks push for bright lines in lending discrimination cases

The fate of lending discrimination claims brought under the Fair Housing Act is now in the U.S. Supreme Court's hands.

In response, the Mortgage Bankers Association filed a friend of the court brief in the New Jersey v. Mt. Holly Gardens Citizens Action appeal to ensure the lending industry is heard.

The reason for the MBA's direct response is simple: the Supreme Court finally has an actionable case and the appellate jurisdiction to end debate over the legal theory of disparate impact.

For a long time, mortgage lenders have pushed back against the idea that a housing discrimination case can be brought under the Fair Housing Act simply because the plaintiffs believe the lending process, itself, had a disparate impact on a particular group.

The industry always contended that an "actual intent to discriminate" is needed since safe and sound underwriting can disparately impact one group more than another even when discrimination is not intended. But before the court makes its decision on whether disparate impact alone can survive as part of these claims, legal briefs from interested parties are likely to flood into the court, supporting one side or the other.

The Mortgage Bankers Association publicly revealed its brief in the Mount Holly case Wednesday.

The Mount Holly case ties back to a lawsuit filed by a group of New Jersey residents who challenged a redevelopment plan for a state township, alleging the redevelopment would have a disparate impact on minorities by removing affordable housing opportunities from the community. The case is the first to be reviewed by the U.S. Supreme Court, creating hope that a standard will be in place.

For consumer-advocate types, disparate impact is a way to ensure one particular group is not targeted.

But for lenders, disparate impact claims are legal time bombs, with no clear set of distinguishable standards in determining when a discrimination claim is valid. For instance, if they want to underwrite loans to satisfy safety concerns, they may feel there's a risk of litigation if those objective standards end up hurting one particular group more than another.

"The recent financial crisis has confirmed the importance of using sensible, risk-based lending standards that are applied fairly even though they may not result in outcomes by groups that are proportional to the group’s share of the population," the MBA claims in its brief.

The MBA highlighted conflicting interpretations of the Fair Housing Act over the past several decades and describes the harm imposed on the industry due to disparate impact cases.

The biggest concern for lenders is that in a disparate impact world, the nondiscriminatory application of lending standards subjects residential lenders to a double bind, resulting in costly, non-meritorious claims, according to the brief.

The challenge is whether the Fair Housing Act goes beyond prohibiting disparate impact and creates liability for actions performed without any intent to discriminate, explained Ballard Spahr partner and attorney Richard Andreano.

"It appears the government senses some risk that if the Supreme Court does rule on the issue, there is a likelihood that disparate impact claims cannot be in line with the Fair Housing Act," Andreano said.

He continued, "As a result, they’ll have to go after other conduct on theories that would be intentional discrimination. If disparate impact is thrown out, I believe the government would have trouble creating discriminatory intent out of unintentional results."

Overall, the MBA believes the focus of the Fair Housing Act should be on the elimination of intended discrimination against borrowers, not on whether a slice of the borrowing population is unable to obtain financing after objective lending standards are applied.

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