MortgageReal Estate

HUD proposes changes to fair housing rules

Rule changes would make it more difficult to prove housing discrimination

The Department of Housing and Urban Development on Friday proposed making changes to the nation’s fair housing rules, a move that fair housing advocates claim is part of a Trump administration effort to “gut” federal protections against housing discrimination.

HUD announced Friday that it is proposing changes to its interpretation of the Fair Housing Act’s disparate impact standard, a rule enacted by HUD during the Obama administration and used as a way to enforce the Fair Housing Act.

At its most basic, the updated guidelines revise the current loose, three-step threshold for Fair Housing violations and impose a specific, five-step approach that would require regulators to prove intentional discrimination on the lender’s behalf.

On a call with reporters, HUD General Counsel Paul Compton said the pending rule changes shift the burden of proof in Fair Housing cases from the defendant, who previously had to show that there was no other way to avoid disparate impact on protected classes, to the plaintiff being required to prove that the defendant’s actions had an “arbitrary, artificial and unnecessary impact” on a protected class.

According to HUD, the changes bring the agency’s interpretation of the rule in line with the 2015 Supreme Court ruling, and HUD Secretary Ben Carson said that the rule changes will increase access to affordable housing.

“There is a lack of affordable housing in America today,” Carson said in a statement.

“This proposed rule is intended to increase legal clarity and promote the production and availability of housing in all areas while making sure every person is treated fairly under the law,” Carson continued. “As we have shown time and again, we will challenge any practice that discriminates against people that the law protects. At the end of the day, this rule not only increases Americans’ access to fair and affordable housing, but also permits businesses and local governments to make valid policy choices.”

Fair housing advocates, like the National Low Income Housing Coalition, argue that the rule changes “dismantle an important enforcement tool for combatting discrimination, further restricting access to housing for people of color, seniors, people with disabilities, families with children, LGBTQ people, victims of domestic violence and others.”

The issue of disparate impact and its application in the housing industry has been an issue for years. Disparate impact is legal term defined by the use of statistics to hold businesses accountable for unintentional discrimination.

Under HUD’s previous rule, lenders, landlords and other housing providers could be held liable for discrimination against protected classes even if it was not their intent to discriminate.

The use of disparate impact was challenged all the way up to the Supreme Court, which ruled in 2015 in favor of disparate impact.

The 2015 ruling by the Supreme Court upheld that the Fair Housing Act allows lawsuits based on disparate impact, establishing that a lender’s practices can be deemed as discriminatory in the eyes of the law (specifically the Fair Housing Act) even if the lender didn’t purposefully discriminate.

But over the last few years, HUD began signaling that changes could be coming to the disparate impact rule. In 2017, the Trump administration, via the Department of the Treasurycalled on HUD to reconsider how it used the disparate impact rule.

In a well-publicized op-ed published in The Washington Times in 2015, HUD Secretary Carson said that the Supreme Court ruling on disparate impact and the Obama administration’s Affirmatively Furthering Fair Housing rule are “government-engineered attempts to legislate racial equality create consequences that often make matters worse.”

HUD already moved to delay the AFFH rule, which requires cities and towns that receive federal funding to examine local housing patterns for racial bias and design a plan to address any measurable bias.

Last year, HUD began soliciting comment on changing the disparate impact rule, and earlier this month, a copy of the proposed rule began making the rounds in Washington, D.C. and beyond.

Now, HUD has announced the proposed rule, which will be officially entered into the Federal Register on Monday, triggering a 60-day period for interested parties to comment on the proposed changes.

“The HUD proposed disparate impact rule provides a framework for establishing legal liability for facially neutral practices that have unintended discriminatory effects on classes of persons protected under the Fair Housing Act,” HUD said in a statement. “The rule has no impact on determinations of intentional discrimination.”

Compton noted the delineation on the Friday call with reporters, stating that pursuing intentional housing discrimination is the agency’s “bread and butter” and these changes will have no impact on that.

Rather, Compton said the changes bring HUD’s policies in line with what the Supreme Court laid out in its ruling on the matter.

The proposed rule, which can be read in full here, lays out how fair housing cases may be different going forward if the rule is adopted as proposed.

From the rule:

The proposed new burden-shifting framework provides, in paragraph (b), that a plaintiff’s allegations that a specific, identifiable, policy or practice has a discriminatory effect must plead facts supporting five elements. HUD notes that since Inclusive Communities many parties have failed to identify a “specific, identifiable practice.” It is insufficient to identify a program as a whole without explaining how the program itself causes the disparate impact as opposed to a particular element of the program. Plaintiffs must identify the particular policy or practice that causes the disparate impact. Plaintiffs will likely not meet the standard, and HUD will not bring a disparate impact claim, alleging that a single event—such as a local government’s zoning decision or a developer’s decision to construct a new building in one location instead of another—is the cause of a disparate impact, unless the plaintiff can show that the single decision is the equivalent of a policy or practice. In unusual cases, a plaintiff may still be able to succeed at identifying a one-time decision, if the plaintiff can establish that the one-time decision is in fact a policy or practice.

The rule also establishes the five factors that would need to be proved by the plaintiffs to establish disparate impact. Those are, again from HUD:

The first proposed element would require a plaintiff to plead that the challenged policy or practice is arbitrary, artificial, and unnecessary to achieve a valid interest or legitimate objective.

The second proposed element would require a plaintiff to allege a robust causal link between the challenged policy or practice and a disparate impact on members of a protected class.

The third proposed element would require a plaintiff to allege that the challenged policy or practice has an adverse effect on members of a protected class.

The fourth proposed element would require a plaintiff to allege that the disparity caused by the policy or practice is significant.

The fifth proposed element would require a plaintiff to allege that the complaining party’s alleged injury is directly caused by the challenge policy or practice.

As stated above, fair housing advocates are strongly questioning the impact of the rule changes.

“HUD’s proposal makes it far more difficult for those injured by stealth discriminatory policies to prove discrimination. The bar was already set high and HUD‘s proposal would put it in the stratosphere – it really strains credulity. More housing and credit decisions are also moving into black boxes and outside of any real oversight or the ability of consumers to effectively challenge the underlying information. Proprietary algorithms are proliferating, in loan underwriting for example, and HUD’s proposal will make it even harder to challenge outcomes from those systems even when the impact on consumers and borrowers is clearly discriminatory,” said Jesse Van Tol, CEO of the National Community Reinvestment Coalition.

 “The Trump administration’s efforts to weaken the Fair Housing Act will undermine equal opportunity in housing. If this proposed rule change goes through, it will severely weaken an important enforcement tool that is critical to combating modern forms of discrimination,” Van Tol added.

“The Fair Housing Act has enjoyed bipartisan support for over 45 years. Both Republican and Democratic administrations have relied on it to address widespread discrimination in housing,” Van Tol concluded. “We implore HUD to drop this reckless and dangerous rule change before it causes unnecessary harm to hardworking American families.”

Most Popular Articles

Is the coronavirus about to wipe out FHA lending?

It looks like borrowers who don’t fit neatly into Fannie Mae and Freddie Mac’s lending criteria could soon be running out of options if they want to buy a house. Over the last week, many (if not all) of the biggest lenders specializing in lending to borrowers outside the QM lending box paused their activities due to uncertainty in the market. And now it appears that FHA lending as we know it is disappearing from the market too.

Mar 27, 2020 By

Latest Articles

Ginnie Mae prepares to offer relief in servicing liquidity nightmare

The challenge with mortgage forbearance is that someone has to pay the bill. In an effort to address the growing concerns and liquidity challenges faced by issuers, Ginnie Mae issued a statement on Friday on how it plans to help

Mar 29, 2020 By
3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please