Making Disparate Impact deliver fairness

HUD’s proposed revisions to our disparate-impact rule enhance our commitment to fairness for everyone.

Everyone agrees that discrimination has no place in society. But everyone also agrees that a city should be able to require that landlords kill rats without facing a lawsuit. The current “disparate impact” rule under the Fair Housing Act (FHA) does not reflect this common sense. But the Supreme Court has ruled that it does not have to be this way, and the Department of Housing and Urban Development (HUD) is proposing a revised rule that both fights discrimination and stops courts from second-guessing reasonable requirements (such as rat removal). It is good for housing and for the people protected by the FHA.

Long before becoming a pediatric neurosurgeon and later HUD secretary, I grew up in tenement housing where there were rats the size of cats. I did not know much about the world at the time, but one thing was self-evident: Nothing good comes from rats.

But in Gallagher v. Magner (2010), a federal appeals court allowed a lawsuit to proceed in Saint Paul, Minn., where the city was sued for aggressively enforcing its housing-code policy on rat removal. Landlords argued that the city’s enforcement efforts had an illegal disparate impact because they would drive up rents, disproportionately affecting minorities. The city withdrew its appeal of this case, which had reached the Supreme Court, bowing to significant pressure from the Obama-era Department of Justice.

Many Americans without law degrees may wonder how such a case could arise. The FHA prohibits discrimination in the sale, rent, or financing of housing-related activities based on protected classes such as race, sex, or religion. Traditionally, this has meant treating people from different groups differently, or “disparate treatment.” However, under “disparate impact,” businesses and towns can also be liable for policies and ordinances that are neutral on their face, neutral in intent, and neutrally applied but under which a protected minority group is disproportionately affected.

Disparate-impact litigation is hotly contested. Proponents argue that expansive disparate-impact liability helps overcome the country’s history of racism. They emphasize its use for targeting hidden or unconscious biases or remedying past wrongs. Critics argue that the FHA did not expressly authorize disparate-impact liability, that virtually every policy causes some statistical imbalance, and that it is unfair to hold governments and businesses liable for otherwise legal and even necessary actions—such as killing rats—because it was discovered after the fact to have a disproportionate effect.

The Supreme Court resolved some of this debate in 2015 under Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. There, it upheld the existence of disparate-impact liability under the FHA but outlined some prudential and constitutional limits. These limits, to quote the Supreme Court, help avoid setting “our Nation back in its quest to reduce the salience of race in our social and economic system.”

The proposed new rule better reflects the Supreme Court’s ruling in Inclusive Communities Project and provides everyone with better guidance on what constitutes unintentional but unlawful discrimination. Under HUD’s proposed revisions, plaintiffs must demonstrate that the challenged practice is arbitrary, artificial, and unnecessary. Plaintiffs must also show a robust causal link between the challenged policy and the disparity that is not established by statistical imbalances alone. Defendants would also be able to assert as a complete defense that the actions they took were required by other state, local, or federal laws. It is only fair that a party should not be found to violate one law for following another.

Our proposed rule revisions, if finalized, would make disparate-impact liability work better and more fairly. This will provide plaintiffs with a roadmap for pleading stronger cases (evidence shows only about 20 percent of claims are successful on appeal) while empowering defendants to assert effective defenses earlier in the process—saving them and their customers time and money. Ultimately, these changes will lead to more innovation and an increase of lower-cost housing and related services.

I understand that people may have differing opinions about the proposal. We welcome and encourage comment letters on any issues raised by the proposed rule and will consider all of them seriously to make sure the disparate impact regulation is as effective as it can be.

As numerous recent actions taken by HUD, such as our anti-discrimination lawsuits against Facebook and the city of Los Angeles and our investigation into San Francisco’s housing policies, demonstrate HUD remains vigilant in our mission of pursuing justice on behalf of Americans who are victims of housing discrimination. HUD’s proposed revisions to our disparate-impact rule enhance our commitment to fairness for everyone.

Author Ben Carson is secretary of the Department of Housing and Urban Development.

FHA releases 2019 annual report to Congress

The Federal Housing Administration (FHA) released its 2019 Annual Report to Congress on the economic condition of the agency’s Mutual Mortgage Insurance Fund (MMI Fund). FHA reports that at the end of Fiscal Year (FY) 2019, The FHA MMI Fund Capital Ratio for FY 2019 was 4.84 percent, the highest level since FY 2007.

The MMI Fund supports FHA’s single-family mortgage insurance programs, including all forward mortgage purchase and refinance transactions, as well as mortgages insured under the Home Equity Conversion Mortgage (HECM), or reverse mortgage program, since FY 2009.

“The financial health of FHA’s single-family insurance fund is as sound as it has been in over a decade,” said U.S. Housing and Urban Development Secretary Ben Carson. “We have a strong economy with nearly full employment due to President Trump’s leadership, and this economic growth helps set the foundation for ongoing improvements in our FHA portfolio.”

Commissioner Montgomery added, “This report is welcome news. The improvements we’ve begun to put in place in the last two years to stem the losses of the reverse mortgage portfolio, aided by favorable economic conditions, are contributing to some improvements in our reverse mortgage portfolio. Looking forward, we must focus on seeking the right balance between facilitating access to mortgage credit and managing risk. Our mission is to make certain FHA remains a stable and reliable resource to provide housing finance support for first-time homebuyers, and other underserved borrowers.”

Key highlights from FHA’s 2019 annual report
  • Congress has set a mandatory minimum Capital Ratio of 2 percent for the MMI Fund. The Capital Ratio for FY 2019 was 4.84 percent, the highest level since FY 2007. The Capital Ratio is one indicator of the Fund’s financial health and includes both FHA-insured single family forward and reverse mortgage portfolios.
  • As detailed in today’s FY 2019 annual report to Congress, FHA had insurance-in-force on single family mortgages valued at almost $1.3 trillion at the end of this fiscal year.
  • The performance of the forward book of business posted a stand-alone capital ratio of 5.44 percent. The MMI Capital (formerly referred to as economic net worth) of the forward book of business also improved year-to-year by over 42 percent with a value of over $66.6 billion.

The HECM portfolio continues to show a negative stand-alone capital ratio, but improved substantially from a negative (-) 18.83 percent capital ratio in FY 2018 to negative (-) 9.22 percent in FY 2019. The HECM portfolio also showed an improvement in MMI Capital, increasing $7.7 billion.

Independent actuary

Pinnacle Actuarial Resources, Inc. (Pinnacle) served as the independent actuary for FY 2019. By serving as a critical check on the results, an independent actuarial review remains an integral part of the Annual Report process. Pinnacle’s independent actuarial review reports for forward mortgages and HECM, confirming that the estimates used in the FY 2019 Annual Report to calculate the capital ratio are reasonable. The reports are available on HUD’s website.

Trump administration announces continued decline in veteran homelessness

During a press conference at Harbor Homes in Manchester, New Hampshire, U.S. Housing and Urban Development (HUD) Secretary Ben Carson announced veteran homelessness in the U.S. continues to decline according to a new national estimate. HUD’s Annual Homeless Assessment Report indicates the total number of reported veterans experiencing homelessness in 2019 decreased 2.1 percent and 793 more veterans now have a roof over their heads. View local estimates of veteran homelessness.

“Our nation’s veterans have sacrificed so much for our country and now it’s our duty to make certain they have a home to call their own,” said Secretary Carson. “We’ve made great progress in our efforts to end veteran homelessness, but we still have a lot of work to do to ensure our heroes have access to affordable housing.”

Each year, thousands of local communities around the country conduct one-night “Point-in-Time” estimates of the number of persons experiencing homelessness—in emergency shelters, transitional housing programs and in unsheltered locations. This year’s estimate finds 37,085 veterans experienced homelessness in January 2019, compared to 37,878 reported in January 2018. HUD estimates among the total number of reported veterans experiencing homelessness in 2019, 22,740 veterans were found in sheltered settings while volunteers counted 14,345 veterans living in places not meant for human habitation.

These declines are the result of intense planning and targeted interventions, including the close collaboration between HUD and the U.S. Department of Veterans Affairs (VA). Both agencies jointly administer the HUD-VA Supportive Housing (HUD-VASH) Program, which combines permanent HUD rental assistance with case management and clinical services provided by the VA. HUD-VASH is complemented by a continuum of VA programs that use modern tools and technology to identify the most vulnerable Veterans and rapidly connect them to the appropriate interventions to become and remain stably housed. This year to date, more than 11,000 veterans, many experiencing chronic forms of homelessness, found permanent housing and critically needed support services through the HUD-VASH program.

To date, 78 local communities and three states have declared an effective end to veteran homelessness, creating systems to ensure that a veteran’s homelessness is rare, brief, and a one-time encounter.

HUD and VA have a wide range of programs that prevent and end homelessness among veterans, including health care, housing solutions, job training and education. More information about VA’s homeless programs is available. Veterans who are homeless or at imminent risk of becoming homeless should contact their local VA Medical Center and ask to speak to a homeless coordinator or call the National Call Center for Homeless Veterans at 1-877-4AID-VET.