A group called the National Fair Housing Alliance has taken the lead in levying sensational bias charges against mortgage lenders, claiming that neglect of REO (real-estate-owned) properties following foreclosure has followed racially discriminatory patterns. It helped negotiate the extraction of $42 million from Wells Fargo, and is pursuing tens of millions in claims against Bank of America and other lenders. NFHA’s claims have routinely been given unskeptical circulation in the press, but now an investigation by Kate Berry and Jeff Horwitz in the American Banker is bringing overdue scrutiny:
The group has disclosed addresses for only a fraction of the properties it alleges the banks have neglected, but a review of those it has released indicates that NFHA regularly misidentified the institution legally responsible for maintaining specific homes. In some cases, it conflated the banks responsible for maintaining properties with those that were simply serving as trustees for mortgage-bond investors. In others, it faulted banks for damage that occurred before they took possession of properties.
Not in dispute is the leverage the NFHA has gained in its dealings with banks from its close ties to supporters in the federal government. Unusual among Washington agencies, the Department of Housing and Urban Development both funds housing discrimination investigations by nonprofits, including by the NFHA, and provides the venue for them to negotiate their claims.
Grants from HUD and Fannie Mae helped get the NFHA and its leader, Shanna Smith, into the profitable business of investigations in the first place. Banks complain without success about Smith’s practice of demanding a deal while withholding the actual identities and addresses of the properties said to be suffering from bank neglect. Now the HUD-brokered Wells Fargo settlement has paid off richly with $30 million+ for the NFHA and its affiliates, the better with which to stir up more complaints. And watch the revolving door spin, amid few qualms arising from conflicts of interest: “Sara Pratt, the HUD official responsible for investigating and resolving the NFHA’s complaints, and who oversaw its settlement with Wells Fargo, is a former NFHA staffer and consultant.”
It looks as if someone really doesn’t want the Obama administration’s treasured but shaky “housing disparate impact” theory to come under review by the Supreme Court [Josh Blackman on reports of settlement mooting Mount Holly, N.J. case granted certiorari and pending before the Court; earlier on controversial tactics used to moot St. Paul case through settlement]
More: Piscataway v. Taxman also dropped off the Court’s docket via a mootness tactic. And shorter Doug Kendall/Constitutional Accountability Center: how dare PLF, Cato and IJ take the Court’s word on what the issue is in Mt. Holly? [Ilya Shapiro]
A video from the humor site The Chive has been making the rounds with a landlord’s narration of the ghastly extent of damage to a family home done by a single really bad tenant participating in the federal Section 8 housing-voucher program (and not responsible for most of the rent). Some landlords might react to such an experience by becoming more wary of Section 8 tenants and subjecting them to extra screening or interviewing, while others might be more convinced by assurances (from various quarters supportive of the Section 8 program) that horror stories are in no way typical and that tenants using the vouchers are no more likely to trash a property than any other tenants.
Such a difference of opinion might be of relatively limited interest — some landlords could follow one strategy, others the opposite, and experience would tell which was the more successful — except that the Obama administration and its allies are taking the position that “discrimination” against Section 8 tenants, whether in the form of extra scrutiny of their applications, turning them away as applicants, or anything else, should be illegal. That is one of the major demands of HUD’s lawsuit against Westchester County, N.Y., and it is the substance of laws passed in Cook County, Ill. and elsewhere lately, at the urging of “fair housing” groups, banning so-called source-of-income discrimination. [Chicago Reporter, Courier News, Tenants Union of Washington State] The message of these laws to hapless landlords like the one who narrates the Chive video is: sorry about your house getting trashed, but tough luck, see you in court if you try to protect yourself. (& welcome Above the Law readers).
Under the “disparate impact” theory of housing discrimination, private business decisions or local government policies not motivated by race are deemed unlawful anyway because they have a differential statistical impact on housing transactions by members of a given racial group. A mortgage lender’s policy of lending only to borrowers with high down payments or sterling credit ratings, for example, might be subject to attack on the grounds that it tended to screen out minority borrowers, even if such was not its intention, and was not justified by business necessity. The U.S. Supreme Court has never ruled on this theory; two years ago, in a case called Magner v. Gallagher, it was widely speculated that the Court would disapprove disparate-impact claims, a prospect the Obama administration (which is deeply invested in the theory) managed to dodge only by arranging to moot the case through settlement.
In the new Supreme Court case of Township of Mount Holly v. Mount Holly Gardens Citizens in Action, Inc., plaintiffs claim that it is illegal for a New Jersey township to slate a tract of development land for detached single-family housing because poorer persons are less likely to be able to afford such housing and minority persons are more likely to be poorer. The Obama administration is backing the claim. [earlier] The Cato Institute, along with the Pacific Legal Foundation and several other groups, has filed an amicus brief defending the township. Writes Ilya Shapiro at Cato at Liberty:
The Gardens’ residents can’t afford the new housing not because of their race but because of their poverty. While it’s a harsh truth that a disproportionate number of minorities live in poverty, claiming that making expensive products is racist and that these “racists” have an obligation to compensate the victims of poverty is absurd. The FHA was intended, in the words of Senator Walter Mondale, “to permit people who have the ability to do so to buy any house offered to the public if they can afford to buy it. It would not overcome the economic problem of those who could not afford to purchase the house of their choice.”
For following the law as it was written and attempting to improve a blighted neighborhood without resorting to eminent domain abuse, Mount Holly was rewarded with a decade’s worth of vexatious litigation — which the Supreme Court should now end once and for all.
More: Hans Bader, Examiner.
An Ohio jury found in 2011 that an apartment owner “had not violated federal law in running the Craigslist ad that read: ‘Our one-bedroom apartments are a great bachelor pad for any single man looking to hook up.’” Now an appeals court has ruled that the judge gave improper jury instructions and that the nonprofit Miami Valley Fair Housing Center, which claimed the ad violated the rights of families and women, can get another trial. [Associated Press]
When local governments lack a properly compliant attitude:
The federal monitor overseeing Westchester’s much-debated court settlement with the U.S. Department of Housing and Urban Development over affordable housing asked County Executive Rob Astorino on Wednesday to remove a news release from the county’s website, saying it contains falsehoods….
[Manhattan-based attorney James] Johnson cast doubt on whether Astorino can say whatever he wants about the controversial 2009 settlement.
During a conference call with journalists shortly before Astorino’s news conference, Johnson said the settlement calls for the county to educate the public about the benefits of integration. Astorino, on the contrary, has been antagonistic toward much of the agreement, Johnson said.
Johnson says Astorino wrongly suggests that HUD is pressing for construction of more than the 750 units of “affordable” housing specified in the settlement; Astorino responds that HUD officials keep citing a study under which a much larger number of units would be required to bring the towns into compliance. Westchester voters elected Astorino in part because of his criticism of the much-disliked deal. [Newsday, paywall; earlier here, here, here, etc.]
By a 12-4 vote, the board of legislators of the suburban New York county has approved going to court against the federal Department of Housing and Urban Development in the long-running dispute. HUD is still insisting that the county enact a “source of income discrimination” law barring private landlords from turning away Section 8 federally aided tenants, as well as critically reexamine zoning rules in its various towns. [Peter Applebome, NYT, Journal-News, Newsday] Earlier here, etc.
I’ve got a new piece at Reason on the long-running dispute between the federal Department of Housing and Urban Development and the government of Westchester County in suburban NYC. Claiming that Westchester has failed to follow through on promises of attracting more minority homeowners, HUD is suing the county and wielding funding cutoffs to get it to step up a large commitment to subsidized housing, override town zoning rules, and enact an ordinance forbidding private landlords from turning away Section 8 tenants. The WSJ editorialized yesterday on the subject. Further background: ironic that county is being penalized after seeking to cooperate [Gerald McKinstry, Newsday; Joanne Wallenstein, Scarsdale 10583]; former Democratic county legislator backs county executive Rob Astorino on so-called “source of income” legislation [Journal-News]; similar law already in effect in Washington, D.C. [Examiner]; earlier coverage here, here, etc., and my 2009 City Journal account.
P.S. Shortly after our piece, a Second Circuit panel ruled the county out of compliance. ProPublica, the foundation-supported reporting-and-opinion outfit, has been doing a series of reporting-and-opinion pieces taking the plaintiffs’ side, including this latest.
Between 2006 and 2011 the Iowa Civil Rights Commission engaged in a practice of filing housing discrimination charges against landlords, which it would then settle through “donations” that went directly to the commission rather than the state’s general fund, reports Jason Clayworth at the Des Moines Register. “The requests came after sting operations in which representatives of the commission would, for example, pose as prospective tenants and tell landlords over the phone that they needed a service dog for anxiety reasons and quiz them as to whether a pet deposit would apply to them.”
If you’ll drop Magner v. Gallagher, your case against us before the Supreme Court, we’ll drop this other big case we’ve filed against you, the Department of Justice told the city of St. Paul, Minnesota. And thus the government averted an embarrassing high court opinion reining in some of its most avant-garde lending-discrimination theories [American Banker, Kevin Funnell/Bank Lawyer's Blog, WSJ, Hans Bader, Ted Frank]
Kevin Funnell at Bank Lawyers Blog is a bit cynical about the Department of Justice’s headline-ready threats of enforcement action:
[The DOJ claims] appear to be based upon consumer advocates’ claims that the bank takes better care of foreclosed-upon real estate it owns in neighborhoods where white people live than it does in areas where minorities live. I suspect that the bank will assert that (a) any rational real estate owner is only going to invest money in a piece of real estate where the owner has a realistic chance of recouping that investment through a higher sales price, (b) that such recoupment decisions are made on a property-by-property basis based upon objective data like recent comparable sales prices and fair market valuations, (c) that the economic reality-driven facts of life are that many more such properties are located in majority-white neighborhoods than in minority neighborhoods, and (d) there has been no intent to discriminate, merely to minimize losses…. As we’ve previously noted, the DOJ is on a jihad against lenders based upon “disparate impact” theories that the DOJ knows, in its heart-of-hearts, are highly fragile when exposed to the light of logic, the kind of logic applied by the US Supreme Court. Justice will likely pursue Wells Fargo and try to squeeze some dough out of it before the highest court eventually shuts down this racket.