Unintended Conquences: Housing Discrimination Spikes as Crisis Continues

“Fair housing advocates have been warning the federal government for a decade, to no avail, about the damage that abusive lending would bring,” said Shanna L. Smith, President and CEO of the National Fair Housing Alliance (NFHA). “For too long, HUD and the Justice Department have stood by while people and neighborhoods of color have been targeted for predatory loans and stripped of equity. As we look forward to working with the new Administration to bring in an era of change, the change must begin with HUD’s and Justice’s fair housing enforcement programs..”

On Friday, May 1, the NFHA released the 2009 Trends Report indicating that fair housing complaints handled by private groups increased 17 percent to 20,173 in 2008. This represents 66 percent of all national complaints. The 93 fair housing organizations processed almost twice as many cases last year as U.S. Department of Housing and Urban Development or HUD (2,123 cases), the U.S. Department of Justice (33 cases), and 107 state and local government agencies (8,429 cases) combined.

Private fair housing centers reported seeing more cases of discrimination in mortgage lending than ever before, as well. HUD handled only 60 fair lending complaints compared to the 1,500 reported by private fair housing organizations. The DOJ (Department of Justice) brought just one fair mortgage lending case.

Results of the 2009 Annual Survey of Consumer Financial Services Law, published in the February 2009 edition of Business Lawyer, also indicates that several new housing finance lawsuits and criminal cases have bee filed recently. These include a variety of class action suits alleging racial discrimination under both the Equal Credit Opportunity and Fair Housing Acts. In addition, two of these cases have utilized information collected under Home Mortgage Disclosure Act (HMDA) to support claims of discrimination in mortgage lending, indicating HMDA could be a useful tool for fair housing advocates. According to the report published in Business Lawyer “It is notable in light of current concerns about predatory lending practices that some of the new cases combine allegations of mortgage fraud with racial discrimination claims under several different theories of liability, a feature that was absent in the previous auto finance class action litigation and the DOJ mortgage practices cases.”

The NFHA findings reveal that housing discrimination has spiked during the mortgage crisis for two reasons:

the worsening foreclosure crisis
Internet advertising that violates fair housing laws

The mortgage crisis has put HUD and government agencies like Fannie Mae and Freddie Mac in the position of having to oversee a growing number of programs and organizations at a time when desperation is leading many home and property owners to do everything they can to hang onto property and maintain occupancy levels.

“HUD is in the awkward position of policing its own programs and partners for fair housing violations,” said Henry Cisneros, former secretary of HUD, calling for the creation of a new and independent fair housing enforcement agency published in the December 10, 2008 issue of American Banker. “It depends on various entities to carry out its policies ad at the same time is also responsible when acting as a fair housing enforcers to investigate the very same entities for their housing discrimination…There’s a built-in conflict of interest.”

The Internet has long posed a problem for fair housing, in part because of the Communications Decency Act (CDA) of 1996 shields Internet service providers (ISPs) and web sites from the laws that prohibit discriminatory advertising for housing in newspapers and magazines. Just a quick search this week by Elizabeth Razzi of the Washington Post yielded multiple examples of discriminatory advertising. The situation persists despite the recognition by at least one court, the Ninth Circuit, that “there is no reason inherent in the technological features of cyberspace why First Amendment and defamation law should apply different in cyberspace that in the brink and mortar world.” That opinion was quoted in the article Rethinking the Communications Decency Act: eliminating statutory protections of discriminatory housing advertisements on the Internet” published in the Federal Communications Law Journal back in December 2007.

“Ads that we have seen like ‘Indoor pets ok, no kids’ are a clear violation of federal law and are simply unacceptable,” said Smith, explaining that the majority of ads discriminate against families with children. “As more and more people turn to the Internet for information, we anticipate hundreds more complaints from around the country.”

It is difficult to say whether the upsurge in discrimination in housing and housing finance is the result of intentional efforts to discriminate, the inevitable outcome predatory lending practices and mortgage fraud or simply the effect of uninformed advertisers, real estate agents, mortgage brokers and consumers. In an effort to combat unintentional discrimination the National Association of Realtors (NAR) launched the FHA Toolkit to educate consumer about FHA-insured loans, as well as offering realtors a free strategic planning workshop, Leading with Diversity, and the At Home with Diversity certification. Fair housing workshops have also been offered by a variety of sponsors in increasing numbers across the country. They were especially prevalent during April which was National Fair Housing Month in the U.S.

The Fair Housing Act prohibits housing discrimination on the basis of race, color, national origin, religion, sex, family status and disability. It also covers all housing transactions and services including advertising, rentals, sales, lending and insurance as well as harassment.