Here’s what you need to know about the Fair Housing Act

Americans value their homes, perhaps more than any other nation. After all, homeownership is a cornerstone of the American dream.

Anyone who works hard and qualifies for a mortgage should be able to buy a home where they choose. If they don’t qualify, or prefer not to own, having fair access to lease a home is equally important.

But, sadly, discrimination and segregation, have historically been embedded in American land ownership. Not too long ago, it wasn’t uncommon for deeds to restrict non-Caucasian, Jews, and other minorities from owning or living in a particular home or neighborhood. Women were excluded from applying for a home loan. Americans were routinely denied access to certain rental homes or rejected for mortgages based solely on their race, color, religion, sex, national original, disability, or familial status.

That’s why, in 1968, Congress passed the Fair Housing Act. In keeping with contemporary realities, the Act, which prohibited discrimination in the rental, sale, or financing of a home based on race, color, religion, sex, national origin, disability, or familial status, has been expanded over time to encompass other protected classes and circumstances. For example, the U.S. Supreme Court recently expanded application of the Fair Housing Act to allow a party to prove violations of the Act by either showing intentional discrimination or by showing that a challenged practice has an unintentional disparate impact on a protected class.

And the proposed Housing Opportunity Thru Modernization Act of 2016 amends the United States Housing Act of 1937 and other housing laws to modify rental assistance and public housing programs, FHA’s requirements for condominium mortgage insurance, and the USDA’s single-family housing guaranteed loan program.

Yet, recently, some folks have begun questioning whether the Fair Housing Act goes far enough. And some are even suggesting a nexus between the Act’s failure to deliver on its promise and contemporary civil unrest in neighborhoods most impacted by that alleged failure.

Since the real estate crash, the housing gap between whites and minorities appears to have been further exacerbated. Minorities were amongst the hardest hit when the bubble burst, but seem to have been excluded from the recovery.

Take, for example, the riots in Baltimore, the one-year anniversary of which was recently recognized. Baltimore’s whites submit about twice as many mortgage loan applications as Blacks, even though Baltimore’s Black population is twice that of whites.

But those numbers also show another discrepancy: White mortgage applicants in Baltimore appear to have a decided advantage over Blacks. Of over 2,600 mortgage applications filed last year by whites, a whopping 75% were approved. Compare that to only a 61% approval rate of the mortgage applications submitted by Blacks.

Pinpointing whether this disparity is due to minorities having lower credit scores or otherwise being financially less qualified for mortgage loans than whites, or simply being denied on the basis of race is difficult because of a lack of data. This challenge is being addressed with a new rule which would require banks to provide more information, but reporting would not be required until 2018.

In the meantime, it appears the racial composition of neighborhoods is now the most significant single predictor of whether or not a mortgage in Baltimore will be approved, a practice commonly referred to as “red-lining.” Even higher income borrowers are routinely denied in neighborhoods with higher minority populations than in neighborhoods with lower minority populations, implying that neighborhood racial composition may play more of a role than a borrower’s creditworthiness, a clear violation of the Fair Housing Act.

Even worse, it creates a self-fulfilling prophecy; lenders allegedly don’t want to make mortgage loans in minority neighborhoods due to perceived risk that property values there will fall. Yet, when lenders don’t make mortgage loans in neighborhoods, property values there indeed do tend to fall. Moreover, opportunities for folks in those neighborhoods to build equity and work their way up becomes severely limited.

According to federal analysis, a borrower’s credit history is the reason behind 30% of mortgage loan denials for Black applicants. Which begs the question: what is behind the denial of the remaining 70%?

You can tell us about your experiences and thoughts concerning the Fair Housing Act. Or e-mail your questions to asktheexpert@shariolefson.com