Lenders Support, Advocates Slam Trump Housing Plan

A Trump administration plan to shift the full burden of proof onto plaintiffs suing over housing discrimination drew tens of thousands of responses from individuals, housing advocates, mayors, public housing authorities, state officials, builders and bankers.

In general, mortgage lenders and banks support the proposal; housing organizations do not.

“We believe the proposal may reduce frivolous and arbitrary claims,” wrote Craig Pizer, vice president of DHI Mortgage, a subsidiary of the Austin, Texas-based homebuilder, D.R. Morton, Inc.

“This [rule] is overly burdensome on lenders … without adding value or protections,” Pizer wrote. “The mere assertion of an unfounded claim can be detrimental … and takes attention away from true perpetrators of discriminatory actions.”

On the other hand, Boston Mayor Martin Walsh argued the proposed rule change would “tip the scale in favor of defendants that are accused of discrimination.”

“Victims of discrimination would be asked to try to guess what justifications a defendant might pose,” Walsh wrote, “and then have to counter those justifications in advance.”

The proposed rule change comes at a time when the racial homeownership gap is widening and the affordable housing crunch is at crisis levels in many parts of the country. It would raise the standard for plaintiffs bringing housing discrimination suits against bankers, landlords, lenders and government. The rule change also provides a road map for defendants to fight back against charges they’ve violated the Fair Housing Act.

The proposed changes would require plaintiffs to demonstrate the defendant’s intent behind a housing policy in order to proceed with the case, said Thomas Silverstein, counsel for Fair Housing & Community Development Project with the Lawyers’ Committee on Civil Rights.

“The plaintiff may not have any idea what the defendant’s interest is,” Silverstein said. Defendants “aren’t broadcasting why they have this policy.”

The practical effect of the rule change, Silverstein said, for plaintiffs attempting to make a housing discrimination case “would amount to a game of whack-a-mole.”

Many states did not weigh in on the proposed rule change. Those that did, among them Massachusetts, Michigan, Minnesota, New York and New Jersey, opposed the change.

The U.S. Department of Housing and Urban Development this summer proposed the change in a Fair Housing Act regulation known as the disparate impact rule. Now that the comment period is closed, HUD will review the more than 45,000 comments and issue a final rule.

The existing rule, which dates to the Obama administration, codifies the ways in which the federal government has enforced the Fair Housing Act for decades: It operates on the idea that discrimination isn’t always blatant, and that seemingly neutral practices can lead to prejudicial treatment — both intended and unintended. (In 2015, the U.S. Supreme Court upheld the rule by a 5-4 margin.)

One example of a seemingly neutral practice with a discriminatory impact: Landlords who enforce a “one person per bedroom” policy when renting to prospective tenants. Morgan Williams, general counsel for the National Fair Housing Alliance, which opposes the rule change told Stateline that policy poses an undue burden on one of his clients, a single mother with a baby.

It’s hard to say definitively how often the disparate impact standard is used in court, legal experts say. In an early fair housing disparate impact case, the Nixon Department of Justice in 1974 sued the city of Black Jack, Missouri, for blocking a housing project. The case marked the first time a federal appeals court found the Fair Housing Act of 1968 applied to disparate impact as well.

But as Justice Anthony Kennedy noted in his 2015 majority opinion upholding the disparate impact rule, the cases are difficult to try in court. That’s because they require statistical analysis and complicated parsing of policy, legal analysts say. About 20% of disparate impact cases are overturned on appeal, according to a 2013 study in the American University Law Review.

Protected Groups

The proposed rule changes, which HUD Secretary Ben Carson announced in August, would require plaintiffs to demonstrate a much higher set of standards to prove their case.

That would include showing the challenged policy is “arbitrary, artificial and unnecessary,” that it has an “adverse effect on members of a protected class,” and the practice is a “direct cause of the discriminatory effect.”

In announcing the proposed rule, Carson said it’s meant to increase affordable housing by improving legal clarity and promoting the “production and availability of housing in all areas while making sure every person is treated fairly under the law.”

Opponents argue the rule changes will have the opposite effect.

“The Proposed Rule will undermine … efforts to develop affordable housing in all parts of New York State and increase access to housing for all New Yorkers,” wrote RuthAnne Visnauskas, the commissioner for New York State Homes and Community Renewal.

“The Proposed Rule will further entrench racial and economic segregation in housing and weaken efforts to combat existing socioeconomic inequities,” Visnauskas wrote. “This will directly harm some of New York State’s most vulnerable people.”

Charles Richman, executive director of the New Jersey Housing and Mortgage Agency, wrote, “We have concerns that the proposed rule flies in the face of our agency’s efforts to promote socioeconomic integration … and to incentivize affordable housing developments in high opportunity areas.”

And Lesli Gooch, executive vice president for government affairs and chief lobbyist for the Manufactured Housing Institute, wrote that the national trade organization is “concerned that, as drafted, the rule could undermine HUD’s stated goal … of combatting regulatory barriers to affordable housing.”

Other opponents charge the proposal tilts the scale in favor of landlords and lenders and removes the pressure on them to ensure they have the least-harmful policies in place.

“The Proposed Rule upends well-established disparate impact law to invite housing providers and lenders, under the guise of algorithmic models, to discriminate against historically marginalized populations without consequence,” wrote Kimberly Foxx, the Cook County, Illinois, state’s attorney.

The proposed rule also would make it harder for local governments to identify and remedy their own discriminatory practices, said Michael Wallace, program director of federal advocacy for the National League of Cities, which posted a comment opposing the rule change.

“Cities are seeing that now is the wrong time to make it harder to bring discrimination claims,” he said.

Steve Schultz, president and designated broker at Blue Fox Properties in Tucson, Arizona, wrote, “As proposed, this revised rule would provide housing professionals like me with the clarity and certainty we have sought for some time and allow us to have some assurance that the screening policies we develop are both fair to all involved and compliant with applicable law.”

Frivolous Litigation?

Banks argue the current rule leaves smaller financial institutions vulnerable to frivolous litigation.

“We are concerned that the Department of Housing and Urban Developments (HUD) current rule permits a large number of frivolous claims to move forward based solely on statistical disparity,” wrote Ryan Sharkey, assistant vice president and legal counsel at NBH Bank, a subsidiary of National Bank Holdings Corporation, a Denver-based bank holding company.

“If left unchanged, the current rule could have the undesired effect of causing many small and mid-size banks to exit the mortgage and home lending business completely,” Sharkey wrote.  

Williams, at the National Fair Housing Coalition, said that if this were the case, banks would have gone out of business en masse decades ago because disparate impact has been the law of the land for years.

The proposed rule change also would make it easier for landlords and banks accused of housing discrimination to defend themselves in court, according to Williams.

That’s because the rule would provide protections for lenders and landlords who use automatic decision-making software to make credit decisions, or to decide who can rent an apartment, Williams said.

Some states, such as Minnesota, expressed concerns about the algorithms.

“The new rule provides a complete defense for housing providers who use an algorithmic risk assessment tool to screen housing applicants, even if the tool unnecessarily targets or eliminates protected class members,” wrote Rebecca Lucero, commissioner of the Minnesota Department of Human Rights.

“HUD is proposing to undermine its imperative mission to ‘ensure strong, sustainable, inclusive communities and quality affordable homes for all.’”

But those who support the rule change see it differently.

“Should a lender’s portfolio … show no statistically significant difference in the default outcomes between a protected class and a non-protected class, said lender cannot be found to be discriminating,” wrote Edward Pinto and Tobias Peter of the AEI Housing Center, a division of the right-leaning American Enterprise Institute, along with Alex Pollock of the R Street Institute, a nonpartisan think tank. 

“The lender ought to be able to provide the results of such screening approach as a valid defense,” they wrote. 

Opponents of the proposed rule changes may be reacting more to the fact that the changes are coming from the Trump administration, rather than the actual changes themselves, said Michael Hendrix, director of state and local policy for the right-leaning Manhattan Institute, which does not take a stance on laws or specific rules.

“People may not just trust the Trump administration or President Trump himself,” Hendrix said. “They’re not sure they’re doing it for the right reasons, and it’ll be implemented fairly.”

The Trump administration also changed a fair housing rule last year, when HUD suspended an Obama administration requirement that cities come up with a detailed plan for how they would use federal funds to meaningfully address segregation in their communities.

Housing advocates argued the suspended rule was a crucial tool needed to desegregate communities. A federal judge last year dismissed a lawsuit challenging the suspension.

Clarence Stone, director of legal affairs of the Michigan State Housing Development Authority, said in an interview with Stateline that even though he opposed the proposed changes to the disparate impact rule, he sympathized with what HUD officials were trying to accomplish.

“We realize HUD is in a tough position,” Stone said.

He said he believed HUD officials were trying to interpret the disparate impact standard to better reflect the Supreme Court’s 2015 ruling.

But, he said, the proposed rule change will mean “a higher burden for plaintiffs.” And proving their case, he said, “is going to be much more expensive.”