Caroline Gerardo NMLS # 324982
Newport Beach, California
Mortgage Banker
cell phone: (949)784.9699
The Mortgage Bankers Association released their report February
21, 2013 showing mortgage delinquencies are at their lowest levels since 2008.
Nationwide we have hit the “turn around” point.
The Mortgage Bankers Bureau has acknowledged
several areas of concern regarding the Qualified Mortgage rule and potential
negative impact on the access to and availability of mortgage credit to certain
consumers.
The Bureau is asking mortgage brokers and bankers to apply pressure under the Dodd/Frank Act and consider an
extension to the effective date for the Qualified Mortgage for further analysis
of the loans originated today and how originators are currently determining
consumers ability to repay.
On
February 8 2013, HUD issued a final rule authorizing
so-called “disparate impact” or “effects test” claims under the Fair Housing
Act. The final ruling spells out the details for private or governmental
plaintiffs challenging housing or mortgage lending practices that have a
“disparate impact” on protected classes of individuals. This will open the door
to lawsuits even if the practice is in reality neutral and non-discriminatory
and there is no evidence that the practice was motivated by a discriminatory
intent. In other words, any protected class could file suit claiming under this
rule that they were treated unfairly or over charged whether if it is true or
not. The rule also will allow challenges based on claims that the practice
improperly creates, increases, reinforces, or perpetuates segregated housing
patterns.
This
month HUD nailed down a three-step burden-shifting approach to determine
liability under a disparate impact claim. Once a practice has been shown by the
plaintiff to have a disparate impact on a protected class, the final rule
states that the defendant would have the burden of showing that the challenged
practice “is necessary to achieve one or more substantial, legitimate,
nondiscriminatory interests of the respondent . . . or defendant . . . . A
legally sufficient justification must be supported by evidence and may not be
hypothetical or speculative” Defendants
shoulder the burden of proof that the challenged practice “has a necessary and
manifest relationship to one or more legitimate, nondiscriminatory interests.”
HUD
explained in the rule’s preamble that, although it declined to use the term
“business necessity” in the second prong of the disparate impact analysis, the
phrase “substantial, legitimate, nondiscriminatory interest” is “equivalent to
the ‘business necessity’ standard found in the Joint Policy Statement. The
standard set forth in this rule is not to be interpreted as a more lenient
standard than ‘business necessity.’” HUD also highlighted the removal of the
word “manifest,” which was replaced by the language “a legally sufficient
justification must be supported by evidence and may not be hypothetical or
speculative.” HUD noted that the revised language is “intended to convey that
defendants and respondents . . . must be able to prove with evidence the
substantial, legitimate, nondiscriminatory interest supporting the challenged
practice and the necessity of the challenged practice to achieve that
interest.”
Regarding
the discriminatory alternative prong, HUD clarified that the alternative must
also serve the specified interest supporting the challenge. However, HUD
declined to specify in the rule that the less discriminatory alternative must
be “equally effective” as the challenged policy – which would have made the
rule consistent with the legal standard set forth in the Supreme Court case
Wards Cove Packing Co. v. Atonio, 490 U.S. 642 (1989).
The
final ruling also itemizes these points:
- HUD’s decision
not to address comments raising objections to the rule based on the fact
that the disparate impact standard is inconsistent with that set forth in Smith
v. City of Jackson Miss., 544 U.S. 228 (2005) and Wards Cove.
- HUD’s statement
that the rule applies to pending and future cases because it is not a
change in HUD’s position but rather a formal interpretation of the Fair
Housing Act that clarifies the appropriate standards for proving a violation
under an effects theory. HUD also chose not to conduct a cost/benefit
analysis on this basis.
- HUD’s
clarification that the Fair Housing Act provides in these cases awards of
damages, both actual and punitive. This means huge dollar lawsuits and the
“suits” not consumers most always reap the benefits in legal fees.
- Changes in the
language in the regulation stating that unlawful discriminatory conduct
under the Fair Housing Act includes “servicing of loans or other financial
assistance with respect to dwellings in a manner that discriminates, or
servicing loans or other financial assistance which are secured by residential
real estate in a manner that discriminates, or providing such loans or
financial assistance with other terms or conditions that discriminate” on
a prohibited basis.
- Language in the preamble restating HUD’s position that the Fair Housing Act applies to homeowner’s insurance.
This is interesting and I wonder if we will see
insurance corporations catch what this could cost. Landlords will also be subject to this rule. How can a small landlord measure and report what quota of a protected class they rented to? Mortgage companies will provide statistical information on loans denied and fees charged measuring against these protected groups ( by racial group, religious affiliation, marital status, gay and lesbians?) Mortgage originators, insurance companies and insurance companies don't track all aspects of "protected groups." This opens up a dumpster of lawsuits to be poured into our court system. HUD failed to define the groups and nail down how to verify if a person was discriminated against. Does this mean a small individual landlord must rent his unit to a person with bad credit who also is a person of color?
What do you think?
