In a blow to the housing and mortgage finance industry but a victory for fair housing advocates, the Supreme Court ruled in a contentious and qualified opinion that the legal doctrine of “disparate impact” is cognizable under the Fair Housing Act.

The 5-4 decision holds that there is a disparate impact claim under the FHA as a matter of statutory interpretation.

The majority opinion, which can be read here and which was written by Justice Anthony Kennedy, strongly cautions that remedial orders in disparate impact cases that impose racial targets or quotas could be unconstitutional.

The question in the case of Texas Department of Housing and Community Affairs v. Inclusive Communities Projectsis whether the Fair Housing Act allows lawsuits based on disparate impact – that is, an allegation that a law or practice has a discriminatory effect, even if it wasn’t based on a discriminatory purpose. The Court had granted review to consider this question in two earlier cases, but both of those cases settled before the Court could rule on them.

Texas had argued that the lawsuit by Inclusive Communities was invalid, and the question before the high court was whether the Fair Housing Act allows people to sue over practices that might not be explicitly discriminatory, but end up hurting minorities disproportionately.

Notably, the court held that “disparate impact doesn't mandate that affordable housing be located in neighborhoods with any particular characteristic” meaning, apparently that it does not necessarily support Obama Administration efforts to place more affordable housing in suburban and upscale developments.

A good look at an informed cross-section of opinions is hosted here by the Urban Institute.

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, said this will actually undermine housing opportunities as those who file housing discrimination lawsuits don’t have to show they were victims of intentional discrimination.

“America is based on equal opportunity, not equal results. The dubious legal theory of disparate impact and the Supreme Court’s ruling pervert this founding principle. Discrimination in housing and lending on the basis of race, sex or other prohibited factors is morally repugnant and against the law. Our government must continue to combat discrimination in housing and lending and punish those responsible,” Hensarling said. “Inventing discrimination through a disparate impact theory, however, is not a helpful tool in fighting actual discrimination.

“The Supreme Court’s extension of disparate impact theory to the Fair Housing Act will hurt precisely those minority groups that our federal civil rights statutes set out to protect. In fact, disparate impact will have predictable, negative consequences for all Americans who will experience a less competitive and more expensive market for housing and credit—all without providing any meaningful support for the fight against actual discrimination,” Hensarling said.

Organizations in the industry including the Mortgage Bankers Association and American Bankers Association opposed the use of the doctrine of "disparate impact" saying it hamstrings lenders and financial companies that have race-neutral policies, but which have results that don't fit demographic distributions.

“There is no place in this industry for those who intentionally discriminate against borrowers,” Rob Van Raaphorst, Associate Vice President Public Affairs at the MBA. “It is incumbent on all lenders to ensure that they are compliant with the interpretation of the law communicated by the court today.” 

Fair housing advocates praised the surprise ruling.

“For many years, the application of disparate impact doctrine has helped to expose housing practices that may appear neutral on their face but have discriminatory effects on protected classes,” John Taylor, president and CEO of the National Community Reinvestment Coalition, an affordable housing advocacy group. “Housing discrimination today often isn’t as blatant as it was in the past, so this is a vital tool for enforcing fair housing law. We applaud the Supreme Court for making the right decision today. 

“At the same time, we remain vigilant in the cause of fair housing for all Americans. NCRC and our members will continue to work hard every day to create economic fairness and fair access to housing, credit, capital and banking services,” Taylor said.

Dennis Parker, director of the ACLU's Racial Justice Program, said the ruling was needed.

“This ruling recognizes the stark reality that housing discrimination, regardless of intent, persists for many Americans,” Parker said. “This decision retains the essential protections of the Fair Housing Act, meaning the law will continue to serve as an important tool in rooting out pernicious forms of racial segregation and discrimination.”

“We applaud the Supreme Court for its decision today in ensuring that disparate impact will remain a safeguard against covert and unintended discrimination,” said Sheila Crowley, President and CEO of the National Low Income Housing Coalition. “Everyone deserves an opportunity to have adequate housing. If discriminatorypractices are allowed it decreases the opportunities for everyone—but especially for those most vulnerable in society—to live the American dream.”

Housing & Urban Development Secretary Julian Castro likewise welcomed the ruling on Twitter.

“The Supreme Court today held that disparate impact claims frequently used by civil legal aid organizations to fight housing discrimination are recognized under the Fair Housing Act. The importance of the holding to all citizens cannot be overstated.  The Court lays to rest the issue of whether the Fair Housing Act permits such claims,” said Fred Fuchs, a veteran civil legal aid housing lawyer at Texas RioGrande Legal Aid. “Had the Court ruled otherwise, it would have made it harder for civil legal aid programs to fight housing discrimination and robbed the Fair Housing Act of its enforcement teeth. This is a day to celebrate for all persons who support open, equal housing opportunity in the United States.”