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BankThink

HUD’s assault on fair lending

Every family needs a home and deserves the opportunity to live in thriving communities, free of discrimination. Unfortunately, as evidenced by proposed changes to fair-lending policy, the Trump administration believes otherwise. The administration recently made public its intent to undermine the Department of Housing and Urban Development’s 2013 disparate-impact rule. The proposal is as expected: an attempt to roll back more than 50 years of progress under the Fair Housing Act.

Americans must now ask: Why would HUD want to gut its own fair-lending rule?

Today’s black homeownership rate stands at just 41.1% and is lower than when the Fair Housing Act first passed in 1968. Latino homeownership lags at 47.4%. However, the white homeownership rate is steady at 73%. Strengthening our nation’s fair-lending laws is a necessary step to address these persistent disparities and close the racial wealth gap.

Each year, an estimated 4 million instances of housing discrimination occur, with the vast majority unreported, according to the National Fair Housing Alliance.

Hence, despite decades of legal assurances, discrimination continues, encouraged by a one-two punch of regulatory rollbacks and dwindling enforcement. Particularly when it comes to fair housing, “regressive assaults” are attempting to diminish, if not eliminate, many hard-won rights. This comes at a time when more, not less, investment is needed in affordable housing and homeownership for people of color — if we want to invest in the economic future of our country.

The new proposal stems from a concern that preexisting fair-lending policy creates a low legal bar to accuse lenders of violations. But the 2103 HUD rule already has a robust standard in place. It includes a framework that first requires the plaintiff to prove a discriminatory effect before shifting burden to the defendant, therefore shielding legitimate, nondiscriminatory activities. The final step shifts the burden of proof back to the plaintiff to show that an alternative practice could achieve the same business goal with a less discriminatory effect. The existing rule includes safeguards to make sure it is applied fairly against businesses and protects against claims without merit.

As disparate impact has contributed to fairer lending, it has also coincided with growth in lenders’ bottom lines. With the support of taxpayers’ dollars, the banking industry has rebounded since the housing crash of 2008 and reports billions of dollars in record profits every quarter. FDIC-insured institutions reported aggregate net income of $60.7 billion in the first quarter of 2019, up $4.9 billion (8.7%) from a year earlier. Community banks—which represent 92% of insured institutions—reported net income of $6.5 billion in the first quarter, up $595 million (10.1%) from a year earlier.

However, with its proposed rule restricting disparate-impact claims, the Trump administration seems determined to solve a problem that does not exist.

The 21st century’s racism is often obscured by laws and practices that on the surface are devoid of yesteryear’s blatant vitriol and aggression. Even so, this approach subtly reproduces the same bigoted and ugly results. Unfortunately, in this moment in history, we have no shortage of both overt and subtle racism, including algorithmic bias in lending that costs families of color millions of dollars annually in extra fees. An investigation into auto lending conducted by the National Fair Housing Alliance showed white borrowers with weaker credit profiles received less expensive financing and more favorable treatment than their nonwhite counterparts who were more financially qualified.

Redlining, exclusionary zoning and predatory lending in past and recent decades denied families of color basic fairness and equal opportunity. Equity in our nation’s housing finance system cannot be achieved until families of color are afforded equal opportunities to build wealth through homeownership.

A new report by the Haas Institute at the University of California, Berkeley shows that Latino and African-American borrowers pay an additional 6 to 9 basis points on their mortgages due to bias in both human and algorithmic lending. This discrimination costs these families between $250 million to $500 million annually. Artificial intelligence is touted as a solution to discrimination, yet it has manifested the same disparate outcomes. Families continue to need protection from disguised discrimination.

Racism disguised with a smile does not change the startling fact of America’s racial wealth gap. White families have 10 times the wealth of families of color. Further, as wealth continues to accrue to the nation’s highest income levels, the middle class that endured as the pride and backbone of America’s postwar economic expansion is at risk.

By requiring lenders, landlords, insurance companies and towns to apply their policies equitably to all, disparate impact is a critical tool to counteract our legacy of inequality. HUD’s new maneuver shifts the burden of proof in cases of discrimination from the powerful to the vulnerable, undoing decades of legal precedent and diminishing opportunities for hardworking families to build and hold wealth.

America must be better than this.

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