Good afternoon —
Intention is hard to determine, yet it undergirds much of our legal and regulatory system. The difference between a charge of manslaughter and murder, for instance, hinges on intention…did one person mean to kill another, or was it an accident?
When it comes to housing regulation, discriminating against people based on race, religion, national origin, sex, marital status, familial status, handicaps and more, is expressly forbidden by the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act. But there are three types of proof of lending discrimination:
- Overt evidence of disparate treatment
- Comparative evidence of disparate treatment
- Evidence of disparate impact
That last one, evidence of disparate impact, does not require intention, as spelled out in the Federal Reserve's compliance handbook.
In a new twist, that same standard may now be applied to the GSEs when looking at the overall effect of their underwriting policies and processes. Senior Mortgage Reporter Georgia Kromrei explores this in her recent article: Is HUD and FHFA's new agreement a game changer?
HUD and FHFA's memo of understanding formalizes sharing of information, resources, and coordination of existing and potential investigations between the federal agencies. It also specifically highlights the GSE's underwriting and appraisal policies.
As Kromrei notes, loans to Black borrowers make up only 3.06% of the loans Fannie Mae acquired in 2020. And just 3.8% of the owner-occupied mortgages Freddie Mac bought last year were from Black borrowers.
From the story:
Fannie Mae's loan-level price adjustments and Freddie Mac's delivery fees, which are meant to offset higher risk for loans to borrowers with lower credit scores and lower down payments, may come under heightened scrutiny, according to Michael Stegman, a fellow at the Urban Institute who was previously senior policy advisor for housing in the Obama administration.
"It's one thing to make sure that your underwriting engines are in compliance with the Fair Housing Act," said Stegman. "It's another thing to say, you've got to really look at how your programs and policies can be proactive in dismantling the infrastructure of exclusion and racial bias."
While some in the mortgage industry are wary of the newfound cooperation between HUD and FHFA, others see it as a positive. It all comes down to your perspective of their intent: Are regulators out to get honest mortgage lenders? Or do they simply want to root out the bad apples? Feel free to share your thoughts with me at swheeler@housingwire.com
Until tomorrow —
Sarah Wheeler
HousingWire Editor in Chief
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