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Affirmative Action in Housing and the Obama Administration
Affirmative Action in Housing and the Obama Administration
William M. Leiter
Minority Homeownership
Affirmative action insists upon race/ethnic/gender-conscious governmental efforts to overcome the economic, residential, and educational gaps between minorities and Whites. An overall objective focuses upon the mitigation of the systemic societal discrimination to which protected groups have been subject. Affirmative action does not require as a prerequisite the demonstration of intentional discrimination; only disproportional underrepresentation in the good things America
During the first Clinton Administration, the affordable-housing goal focused on getting Fannie and Freddie to use 30% of its purchasing power to acquire mortgages issued to those with lower/moderate incomes. This was increased by the close of the 1990s to 50%.[5] The workings of the Community Reinvestment Act and the affordable-housing goals correlated with the rise in minority homeownership. Between 1994-2008, homeownership for all groups increased by 3.8%--Whites by 4.0%; Blacks by 5.1%; Hispanics by 7.9%; Asian/Native Hawaiian by 8.2%; and American Indian by 4.8%.[6] Note that the homeownership increase for each minority group was larger than it was for Whites, but the gap remained with Whites having a homeownership rate of 72%; Asian/Pacific Islanders, 59.5%; American Indians, 56.5%; Hispanics, 49.1%; and Blacks, 47.4%[7]
The increase in minority homeownership came with a cost during the Clinton and George W. Bush Administrations: underwriting standards by lending institutions were lowered; and higher-cost, subprime lending for those with spotty credit histories increased markedly. For most minority groups, the percentage of subprime mortgages was greater than for Whites, and when the housing “bubble” burst at the end of the first decade of the new millennium with its steep housing-value decline and “train-wreck” of foreclosures, the highest rate of foreclosures was experienced by subprime mortgage holders.[8]
Was the governmental affirmative-action promotion of minority homeownership responsible for the housing bubble and its burst? This is indeed a hotly debated topic. In what appears to be a most exhaustive study, the U.S. Civil Rights Commission staff noted that the federal mortgage-lending policies associated with the Community Reinvestment Act and the GSE affordable-housing targets pursued and achieved relaxed mortgage-lending standards for minorities, but there is insufficient evidence to say that the relaxed standards afforded minorities produced the house-buying mania and its “sky-high” prices. Most subprimes went to Whites, and most mortgage lending was conducted by private-label lenders not covered by the CRA.[9] Further, the evidence available to Civil Rights Staff did not support the notion that minority racial or ethnic groups were systematically subjected to predatory lending schemes.[10]
Generally, during the Obama Administration servicing the mortgage-origination needs of lower-income earners (including minorities) who either did not have the 20% down payment demanded by the traditional banking standards, and/or had blemished credit records, has been assumed by the Federal Housing Administration (FHA).[11] FHA does not lend money directly, but insures banks against mortgage-lending loss. FHA has insured loans involving as little as a 3.5% down payment and credit rankings considerably lower than those acceptable to conventional non-FHA lenders. The FHA-arm of the Obama Administration, to one scholar, has been the laudatory lender of last resort. Loans in Black zip codes were likely to be FHA loans, and efforts should be made to determine whether bankers not using FHA insurance to cover their loans disparately “redlined” (rejected) minorities.[12] Another advocate of racial justice argues that –irrespective of FHA activities—Blacks have been disproportionately neglected by the mortgage market during the Obama years in a fashion far more vicious in its impact than intentional redlining.[13] Still another researcher concerned with lower-income mortgage loans argues that FHA has been engaged in mortgage malpractice during the Obama years. He claims to have identified 9,000 zip codes where, in 2012, 40% of the loans were subprime—made to people with credit scores below 600 (the median U.S. score is 720), or who had debt-income ratio of 50% or more. (Foreclosure risk rises substantially in FHA loans where that ratio is greater than 35%.) Many of the studied zip-code areas had mortgage-payment failure rates of 20%, 30%, or higher.[14]
Foreclosure
Minorities were particularly hard hit by the foreclosure “train wreck” that has
emotionally and economically maimed the country in the last few years; but the policies of the Obama Administration have reached only a portion of those needing assistance. In mid 2012, housing expert, Professor Alex Schwartz reported that between 2008 and 2011 more than four million homes have been foreclosed, and that another three to four million are at risk of being foreclosed.[15] Much touted as a major accomplishment of the Obama Administration, the 2010 Dodd-Frank financial reform measure[16] is supposed to mitigate future foreclosures by requiring bankers to ensure that mortgagees are able to pay back their loans. The statute also prohibits financial incentives to encourage borrowers to assume more costly loans, and requires that lenders hold on to a portion of a mortgage rather than selling it all off thus encouraging the making of loans to those who cannot afford them.[17] The success of Dodd-Frank remains to be determined. During the Obama years, the head of the Civil Rights Division of the U.S. Department of Justice noted at a congressional committee hearing that “the more segregated a community of color is, the more likely it is that homeowners will face foreclosure because the lenders who peddled the most toxic loans targeted those communities.”[18] And the Center for Responsible Lending has estimated that 20% of African-Americans and Hispanics will lose their homes—more than twice as high as for Whites.[19]
President Obama announced, at the onset of his Administration, that his HAMP and HARP policies would assist between 7 and 9 million homeowners suffering from mortgage distress, a goal incorporating sizeable affirmative-action objectives. Both HAMP and HARP were voluntary, but mortgage servicers who participated received federal monetary awards. HAMP (Home Affordable Modification Program) focused on mortgage modification for those facing default, or who had failed to keep up with payments. By June, 2012, only 67,000 mortgages had been modified under that program, but its goal was to assist 3 to 4 million endangered homeowners. HARP (Home Affordable Refinancing Program) looked to refinancing mortgages for those who had kept up with their payments, but who were unable to refinance because their homes were “under water,” that is, the market value of their homes had fallen below what they owed. HARP’s announced goal was to achieve some 4 to 5 million refinances. In May, 2012, only 1.3 million refinances resulted from HARP efforts.[21]
Blinder attributes the modest accomplishments and limited affirmative-action achievements of HARP and HAMP to the following: the mortgage market had come to involve the sale of mortgages as securities which “carved up” (“tranched” as the financiers called it) the mortgages, and distributed the ownership of homes into multiple hands. Consequently, the numerous mortgage owners had to agree to modification, and this proved difficult and time-consuming. The huge expense of replicating the HOLC approach in our time (some $800 billion) negated the rebirth of an HOLC undertaking. Additionally, the Administration limited the HAMP and HARP eligible populations in order to dampen the charges that its mortgage-distress program was morally hazardous by “bailing out” those who intentionally gambled on real estate and lost because of their own fiscal imprudence. For example, HAMP was limited to those whose mortgage monthly debt was no greater than 31% of their monthly income.[22]
Minorities, Predatory Lending, and Disparate Impact Theory
As noted the U.S. Civil Rights Commission report determined that, after an extensive study of the mortgage crisis, the evidence it reviewed did not support the contention that racial or ethnic minorities were targeted systematically for predatory mortgage lending.[23] Rather, the lending patterns affecting both Whites and minorities mirrored each other, and all groups during the blossoming of the housing bubble sought to “game” the system: some borrowers lied about their incomes to obtain loans; some mortgage brokers falsified documents and in other ways misled loan seekers; and there were a variety of schemes designed to mislead lenders.[24] ‘The report continued by saying:
It would be misleading, however, to assume that disparities in lending levels between various racial and ethnic groups necessarily reflect discrimination. For example, while an analysis of Home Mortgage Disclosure Act data might show that [higher-cost] subprime lending is disproportionately concentrated in low-income and minority neighborhoods, reports indicate that similar conclusions could be reached based on such factors as age, sex, and martial status. In addition. . ., disparities between different racial and ethnic groups might be explained by an examination of the specific creditworthiness of the individuals examined.[25]
The sentiments of the U.S. Civil Rights Commission report did not prevent the Department of Justice’s Civil Rights Division from focusing on suing lenders regarded as imposing a disparate impact on minorities through their lending policies.[26] Disparate-impact theory has operated as a key instrumentality of affirmative action. This theory of systemic discrimination maintains that protected racial and ethnic minorities are the victims of illegal discrimination when they are disproportionately treated in a negative fashion relative to non-protected Whites. Intentional discrimination –called disparate treatment in the law--need not be proven; statistical over or underrepresentation is what counts. The Civil Rights Division of the Department of Justice has been wedded[27] to disparate-impact theory in the Obama Administration’s attack on predatory lending as is reflected in DOJ’s suit against Bank of America’s Countrywide mortgage unit. The Department of Housing and Urban Development (HUD) has, in its Code of Federal Regulations, recently affixed a disparate-impact interpretation as to what constitutes prohibited discrimination in the Fair Housing Act.[28] The U.S. Courts of Appeal have generally ruled that disparate-impact theory can be used to define prohibited discrimination in the Fair Housing Act. The U.S. Supreme Court has not, as yet, so ruled. And as discussed below, critics of the Obama Administration insist that the Administration’s Chief of the DOJ’s Civil Rights Division, Thomas Perez, attempted to prevent the Supreme Court from addressing the question of whether the Fair Housing Act prohibits disparate-impact discrimination. This charge has thus far stymied President Obama’s nomination of Perez as Secretary of Labor.
Perez underscored his Division’s affirmative-action assault on mortgage-lending practices in testimony before the Senate Judiciary Committee in March, 2012. [29]
The housing crisis has touched so many communities across the country. Communities of color, in particular African Americans and Latinos, have been hit particularly hard. . . .That is why, in the wake of the housing and foreclosure crisis, the federal government, under the leadership of President Obama, has responded forcefully. To address discrimination in lending, Attorney General Holder created a Fair Lending Unit in the Civil Rights Division’s Housing and Civil Enforcement Section. Since the establishment of the Fair Lending Unit, thanks to the committee career professionals in the division, we have brought record numbers of enforcement actions. In the approximately 24 months since the unit was established, the division filed or resolved 16 lending matters. By way of contrast, from 1993 to 2008, the department filed or resolved 37 lending matters, an average of a little more than two cases per year.
The division produced unprecedented results in 2011 alone. We filed a record eight-lending related federal law suits, and obtained eight settlements providing for more than $350 million in relief to the victims of illegal lending practices. This includes our settlement with Countrywide Financial Corporation, the largest lending discrimination case ever brought by the Department of Justice. … Our $335 million settlement against Countrywide is the largest fair housing discrimination settlement in U.S. history – more than 50 times larger than the division’s next largest fair lending settlement. Our complaint against Countrywide alleges that its systemic discrimination over a four year period violated the Equal Credit Opportunity Act and the Fair Housing Act, and impacted more than 200,000 African-American and Latino families.
At the core of our complaint is a simple story. If you were African American or Latino, you likely paid more for a Countrywide loan than a similarly-qualified white borrower simply because of your skin color. For instance, a qualified nonsubprime customer in Chicago seeking a $200,000 loan paid an average of about $1100 more in unnecessary, unjustified fees if she were Latino, and about $1235 more if African American, than the average amount charged to a similarly situated non-minority. In addition, if you were African American or Latino, you were far more likely to be steered into an expensive and risky subprime loan than a similarly-situated white borrower. There are thousands of qualified African Americans and Latinos who should have been placed in prime loans, but were denied equal credit opportunity. African Americans and Latinos who were steered paid on average tens of thousands more for their loans, which had other corrosive features such as prepayment penalties, and these loans carried an increased risk of default and foreclosure. One of the insidious aspects of these practices is African American and Latino borrowers who walked into Countrywide’s door had no idea they could have gotten a better deal. That is discrimination with a smile.
The problem associated with Perez’s Countrywide analysis is that it relied on averages. Some 200 thousand minorities paid more than the average cost for Whites. But 500 thousand loans were made to minorities which means that most Blacks and Hispanics paid the average or less. Why should a claim of prohibited discrimination be made? What about Whites who paid above the average? Why was there no claim of disparate impact for them? The Fair Housing Act prohibits all racial/ethnic discrimination, not just some.[30]
Note has been made that the U.S. Supreme Court has not determined that the Fair Housing Act recognizes disparate-impact theory. A case ( Magner v. Gallagher) which was accepted by the Court where that question could have been answered involved the City of St. Paul St. Paul St. Paul
Affirmatively Pursuing Residential Integration; Federally Assisted Rental Housing
Federal affirmative action meant to craft racially and ethnically-balanced neighborhoods has been pursued, and there has been a modest decline in Black segregation. But the typical Black still lives in a neighborhood with a near Black majority, and the average White lives in an area which is overwhelmingly White.[34] Already noted are the efforts of Presidents Clinton and George W. Bush to encourage minority homeownership—undertaken not only to foster more minority-owned real property, but as a means to socially and economically integrate minorities with the rest of the American population. However, federally assisted public housing subsidization of the rents of lower-income people has been marked by extensive racial segregation. The public housing program, inaugurated in the 1930s, was largely constructed and owned by local units of government, and came to have 42% of its units in census tracts where minorities were 80% of the population.[35] Public housing construction for the poor was ended in the 1970s, replaced by federal schemes (such as those employing vouchers) subsidizing rentals for the needy living in private property. An important federal goal in this connection was to have subsidized minorities inhabit more diverse neighborhoods. But vouchers have had limited success in promoting minority integration.[36] And residential separateness is at the heart of educational segregation as well as operating as a barrier to the elimination of inner-city poverty. A leading academician complained in the mid-1980s that:
. . . [F]ederal agencies, especially HUD, almost perfectly mirror the confusion, apathy, and shortsightedness of Congress, civil rights leaders, and the public. Ambiguity about the requirement or need to promote housing desegregation is echoed, and amplified, within the corridors of HUD, the Department of Justice, and the Office of Management and Budget. No federal agency is likely to develop a coherent, comprehensive desegregation strategy when it is whipsawed by Congress and budgetary pressures, and when its natural allies remain silent, confused, or antagonistic. Also, how does an agency begin systematic desegregation when there is judicial uncertainty about the legality of race-conscious tools needed for desegregation.[37]
Could this condemnation of federal residential integration policy be made today? Minority voucher users are more likely than non-minorities to live in census tracts with a minority population of 50%, and minority voucher holders are only slightly less likely than public-housing dwellers to live in predominately minority areas.[38] Government is divesting itself of public housing through neglect, demolition, and an oddly-named program called Hope VI (Housing Opportunities for Everyone), the latter being the major cause of public housing demolition.[39] Between 1993 and 2004, Hope VI has financed the demolition of 150,000 distressed public- housing units, replacing them with new mixed-income developments with physical amenities (e.g., lower density, central air conditioning, washer/dryers) meant to cultivate more integration and better living conditions than that available in the destroyed properties.[40] However, many of the Blacks removed from public housing were not economically or otherwise eligible to move to the Hope VI mixed-income housing. For example, in Chicago
The Obama Administration has threatened to cut off HUD subsidies to Westchester County New York unless it actively pursues a 2006 consent decree wherein the County agreed to construct 750 affordable housing units and aggressively seek to inhabit them with minorities.[42] Such use of HUD subsidies has long been advocated in order to advance racial/ethnic residential balancing.[43] Additionally, residential balancing could be vigorously abetted by the use of disparate impact theory which the Obama Administration insists is cognizable by the Fair Housing Act.[44] But the Administration is also intent on “gilding the ghetto” by rehabilitating existing public housing, while concurrently improving the educational, transport, and economic instrumentalities where public housing exists.[45] One potential objective of this “choice neighborhoods” initiative is to ultimately attract non-minorities. It would be better for the Administration, one analyst has it, to improve governmental efforts to move minorities out of ghettos to “opportunity” areas through vouchers.[46] Actually, the Administration has called for increasing the use of vouchers in privately owned dwellings, as well as the increased sale of public housing units to private hands to raise capital for public-housing rehabilitation. Housing academics frown on the use of privately owned real estate for subsidization, claiming that owners of subsidized voucher dwellings tend to jettison their public affiliations for greater profits in the private market.[47] There is extensive agreement that there is inadequate governmental assistance for the housing needs of the poor. Only one in four eligible for federally assisted housing obtains it.[48] Moreover, the “worst” cases have grown dramatically (by 43.5% to 8.5 million) in the Obama years. Worst cases are those who pay more than 50% of their income for monthly rent, and those who live in very substandard housing, or both.[49]
Copyright 2013 © by William M. Leiter. All rights reserved.
[1] U.S.
[2] Community Reinvestment Act, Pub. L. No. 95-128, Title VIII, § 802.91 Stat. 1147 (1977) (codified as amended at 12 U.S.C. §§ 2901–2908 (2011).
[3] Alex F. Schwartz, Housing Policy in the United States
[4] U.S. Civil Rights Commission, Civil Rights and the Mortgage Crisis, 1, 7-11 (cited in note 1).
[5] Gretchen Morgenson & Joshua Rosner, Reckless Endangerment: How Outsize Ambition, Greed, and Corruption Led to Economic Armageddon 116-117 (Times Books, Henry Holt, 2010).
[6] U.S. Civil Rights Commission, Civil Rights and the Mortgage Crisis, 1 (cited in note 1).
[7] Id at 108.
[8] Id at 109.
[9] Id.
[10] Id at 110.
[11] Dan Immergluck, From Minor to Major Player: The Geography of FHA Mortgage Lending During the US Mortgage Crisis, 33 The Journal of Urban Affairs,1, 17 (2011).
[12] Id.
[13] Barbara Mantel, Future of Home Ownership CQ Researcher, 1065 (December 14, 2012 ).
[14] Edward J. Pinto, The FHA: A Home Wrecker, Los Angeles Times, A17 (December 27, 2012).
[15] Alex F. Schwartz, U.S. Housing Policy in the Age of Obama: From Crisis to Stasis, 12 Journal of Housing Policy #2, 227, p. 230 (June, 2012).
[17] Schwartz, U.S. Housing Policy in the Age of Obama: From Crisis to Stasis, 12 Journal of Housing Policy at 235 (cited in note 15).
[18] Michael Powell, Decade of Gains Vanish For Blacks in Memphis , New York
[19] Christine Dugas, Dual System of Finance Hits Minorities; They Had Been Gaining Ground , USA April 5, 2011 ).
[20] Alan S. Blinder, When the Music Stopped: The Financial Crisis, The Response, and the Work 324-326 (Penguin Press, 2013).
[21] Id at 333-336.
[22] Id 321-323, 335-336.
[23] U.S. Civil Rights Commission, Civil Rights and the Mortgage Crisis, 110 (cited in note 1).
[24] Id at 114.
[25] Id at 116. Footnotes omitted.
[26] U.S. March 7, 2012 . Accessible at http://www.judiciary.senate.gov/pdf/12-3-7PerezTestimony.pdf
[27] See U.S. Department of Justice, Recent Fair Lending Cases, Accessible at http://www.justice.gov/crt/about/hce/lending_whatnew.php
[28] U.S.
[30] Holman W. Jenkins, Jr., Racism Is Everywhere…Statistically, Wall St. Journal, A11 (January 11, 2012 ).
[31] Quotes and data from Mary Jacoby, House Oversight Democrats Release Perez Testimony, Main Justice—Politics, Policy, and the Law (March 27, 2013 ). Accessible at http://www.mainjustice.com/2013/03/27/house-oversight-democrats-release-perez-testimony-on-st-paul/
[32] Id.
[33] Mount Holly Mt. Holly Gardens United States
[34] Sam Roberts, Study of Census Results Finds That Residential Segregation is Down Sharply, New York Times, A 13 (January 31, 2012 ).
[35] Alex F. Schwartz, Housing Policy in the United States, 188 (Routledge, 2d Ed., 2010).
[36] Id at 192.
[37] Editor's Concluding Remarks, in John Goering, ed, Housing Desegregation and Federal Policy, 330-331 (Univ of North Carolina Press, 1986).
[38] Alex F. Schwartz, Housing Policy in the United States, 192 (cited in note 35).
[39] Edward G. Goetz, Where Have All the Towers Gone? The Dismantling of Public Housing in U. S.
[40] Alex Schwartz, Housing Policy in the United States, 117-123 (cited in note 35).
[41] Thomas C. Kost, Hope After Hope VI? Reaffirming Racial Integration as a Primary Goal in Housing Policy Prescriptions,106 Northwestern L. Rev., #3, 1379, 1398, 1402, 1405 (2012).
[42] Peter Applebaum, Showdown for County and HUD, A18, Late Ed Final, New York Times (April 24, 2013 ).
[43] Charles Lamb, Housing Segregation in Suburban America New York Cambridge University
[44] U.S.
[45] Alex F. Schwartz, Housing Policy in the United States, 124 (1st ed, Routledge, 2006).
[46]Sara Aronchick Solow, Racial Justice at Home: The Case for Opportunity Housing Vouchers, 28 Yale Law & Policy Rev, 481(2010).
[47] Peter Salich, Jr., Does America
[48] Bipartisan Policy Center, Housing America’s Future: New Direction for National Policy, 10 (February 2013). Accessible at http://bipartisanpolicy.org/sites/default/files/BPC_Housing%20Report_web_0.pdf
[49] U.S.
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