Defending an Important Tool for Equal HousingOpportunity: The Debate Over Disparate Impact                                ...
Defending an Important Tool for Equal HousingOpportunity: The Debate Over Disparate ImpactJulie Nepveu, Esq.April 19, 2012...
1. What are the debates?2. Why do we need Disparate Impact?3. What about HUD’s Proposed Rule,   Implementation of the Fair...
   “[H]omeowners’ insurers do not discriminate    on the basis of race and, indeed, it would be    illegal in all states ...
     “…and whether such HUD actions would      violate a federal statute [McCarren-Ferguson]      reserving the power to ...
   “engrafting DI onto the FHA will limit credit to    low and moderate income home buyers”   “[FHA] requires intentiona...
   Expanding DI analysis from “pricing and    underwriting” of mortgage loans to “cost, rate of    denial, terms and cond...
“In February 2011, IBC received a ‘Needs toImprove’ CRA rating as a result of alleged fairlending issues associated with m...
The foundation of the business of insurance, and inparticular underwriting and rate-making, isclassifying insurance applic...
To achieve a condition in which no statisticaldisparities exist in the average rate paid by differentdemographic groups, m...
   “[E]xtensive published literature has now    demonstrated that bias often affects judgment and    decision-making in u...
   “Borrowers in protected groups have no means    of comparing themselves to similarly-situated    counterparts.   Abil...
“We can go across this country and find almostevery city zoned racially. The zoning is in the mindsof the banks and the le...
ace-neutral policies have the effect of enforcingsegregation as effectively or more effectivelythan individual prejudice:“...
Race neutral policies are often cloakedintentional discrimination:“The South, while professing ‘freedom of choice’where it...
   Informal veto powers of city council aldermen    resulted in 99 percent of new public-housing    units being located i...
Mhany Management, Inc. v. County of Nassauand Village of Garden City, C. A. No. 05-2301(E.D.N.Y.).Village voted down a zo...
Zoning and land-use policies and decisions which:       Restrict private construction of multifamily        housing to a ...
   Employ discrim. underwriting, pricing and fee    policies;   Determine home mortgage interest rates with    discrimin...
   Deny insurance based on the age of the home;   Do not provide replacement value insurance    policies because of the ...
   Impose residency requirements and other    admissions procedures for affordable or    assisted housing in predominantl...
   Governmental redevelopment or demolition    plans or policies disproportionately displace    minorities and persons wi...
   Exclude group homes for persons with disabilities    with zoning restrictions, neighbor notification,    spacing requi...
   CCRC may force move to higher level of care;   Assisted Living Facilities may exclude walkers or    wheelchairs from ...
   Unreasonably restrictive occupancy standards    adopted by landlords result in excluding or    limiting families with ...
   Refusing to consider alimony payments in    determining eligibility;   Evicting tenants who receive welfare;   Evict...
   Requiring that tenants speak English or be    United States citizens.                                                ...
recluded from pursuing legitimate goals?he FHA’s prohibition against disparate-impactdiscrimination does not condemn polic...
The Township may be correct that a disparateimpact analysis will often allow plaintiffs to makeout a prima facie case when...
   Plaintiffs must trace any adverse effects to a    specific, identifiable practice.   Beyond identifying a specific pr...
   If a prima facie case is established, look to see    whether the defendant has a legitimate, non-    discriminatory re...
   329 homes, on 30 acres, one mile from downtown;   1,031 low income residents, 19.7% White, 46.1%    AA; 28.8% Hispani...
   After State Ct. dismissed claims finding area    blighted, state law not violated, and discrim    claims not ripe beca...
   Affordable housing scarce, and most residents    would not be able to afford market-rate units    elsewhere in the Tow...
[E]ffectively, plaintiffs are seeking to remain living inthe blighted and unsafe conditions until they areawarded money da...
“At this late stage, the only real practical remedy isfor plaintiffs to receive the fair value for theirhome as well as pr...
   Under HUD’s proposed rule, 76 Fed. Reg. at    70,924, Defendant has the burden at the second    stage of demonstrating...
Defendant uniquely positioned to explain itsrationale as to why there is no less discriminatoryalternative. Can point to:...
   In Magner Amicus US DOJ suggests that the    beneficial effects of code enforcement may    provide grounds for rejecti...
Planned phased development, but aggressivelyacquired homes - left vacant then destroyed.Should show total demolition, rel...
   Mt Holly: en banc review denied March 14, 2012.    Township has 45 days to decide whether to    appeal to U.S. Sup. Ct...
ResourcesRobert Schwemm and Sara Pratt, Disparate ImpactUnder the Fair Housing Act: A Proposed Approach,http://papers.ssrn...
THANK YOU!To follow up with the speaker:Julie Nepveu, Esq.Senior AttorneyAARP Foundation Litigation601 E Street, NWWashing...
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Julie Nepveu - Dis. Impact the debate continues

  1. 1. Defending an Important Tool for Equal HousingOpportunity: The Debate Over Disparate Impact 1
  2. 2. Defending an Important Tool for Equal HousingOpportunity: The Debate Over Disparate ImpactJulie Nepveu, Esq.April 19, 2012 2
  3. 3. 1. What are the debates?2. Why do we need Disparate Impact?3. What about HUD’s Proposed Rule, Implementation of the Fair Housing Act’s Discriminatory Effects Standard, 76 Fed. Reg. 70,921 (Nov. 16, 2011)? 3
  4. 4.  “[H]omeowners’ insurers do not discriminate on the basis of race and, indeed, it would be illegal in all states for them to do so.” “The issue the rule presents for insurers is whether non-racially motivated and sound actuarial underwriting principles recognized by state insurance regulators that permit accurate risk-based pricing for consumers can be prohibited by federal regulators who find them to have a “disparate impact”Comments submitted to HUD 4
  5. 5.  “…and whether such HUD actions would violate a federal statute [McCarren-Ferguson] reserving the power to regulate insurance to the states.” (threatening legal action); “HUD’s misrepresentation and misuse of the finding in the Ojo case raises an alarming specter that the agency may seek to enforce its disparate impact rules to prevent insurers from using racially neutral credit scoring information to price insurance risks.”Id. 5
  6. 6.  “engrafting DI onto the FHA will limit credit to low and moderate income home buyers” “[FHA] requires intentional conduct. It does not prohibit behaviors that are nondiscriminatory but that might have some discriminatory effect when evaluated through the lens of an obscure statistical analysis.”Comment Submitted to HUD, at 3 (Jan. 13, 2012) 6
  7. 7.  Expanding DI analysis from “pricing and underwriting” of mortgage loans to “cost, rate of denial, terms and conditions creates a level of uncertainty … that ultimately leads to either cookie cutter loans with rigid criteria or an exit from the credit product due to the regulatory compliance cost and enforcement litigation cost” Id. at 3 (emphasis added). “This is especially true when the analysis used to determine the “effect” is based on unspecified, ill- conceived statistical analyses.” Id. at 3 (emphasis added). 7
  8. 8. “In February 2011, IBC received a ‘Needs toImprove’ CRA rating as a result of alleged fairlending issues associated with mortgageorigination activities of IBC in prior years. Unlessand until IBC’s CRA rating improves, IBC will beineligible for expedited treatment and is unlikely toreceive approval for branch, merger, and acquisitionapplications and IBC and the Company will besubject to certain other regulatory limitations.”IBC 10-K for Year ending 12/31/2011, p. 21. 8
  9. 9. The foundation of the business of insurance, and inparticular underwriting and rate-making, isclassifying insurance applicants and policyholdersby risk. Insurers make decisions based on actuarialand business principles that group policyholders forthe purpose of treating those with similar riskprofiles similarly. Race or other protected classcharacteristics are not part of the risk assessmentprocess.”omment submitted to HUD at 3. 9
  10. 10. To achieve a condition in which no statisticaldisparities exist in the average rate paid by differentdemographic groups, many if not most risk- basedvariables would have to be eliminated from theunderwriting process. In other words, to avoidcreating a disparate impact, an insurer would haveto charge everyone the same rate, regardless ofrisk.”d. 10
  11. 11.  “[E]xtensive published literature has now demonstrated that bias often affects judgment and decision-making in unconscious ways, in a manner such that the decision-makers themselves are unaware of the disparity and bias for which they are responsible.” “While there were no allegations of “smoking gun” policies or practices that would clearly show intentional misconduct, there were substantial and statistically significant disparities that the States believed could not be explained by business reasons.” State AG Magner Amicus 11
  12. 12.  “Borrowers in protected groups have no means of comparing themselves to similarly-situated counterparts. Ability to bring a disparate impact claim all the more critical, particularly for AG’s, who have the ability to aggregate and analyze large pools of potentially affected individuals.” Id. 12
  13. 13. “We can go across this country and find almostevery city zoned racially. The zoning is in the mindsof the banks and the lending institutions, thebuilders, the real estate brokers. It is written downin very few places. But it is at work in the principlesof the real estate boards. It is in the patterns andpractices of the industry.”Hearing before the S. Subcomm. on Housing and UrbanAffairs of the S. Comm. on Banking and Currency, 90thCong. 174 (1967) (statement of Algernon Black of theAmerican Civil Liberties Union) 13
  14. 14. ace-neutral policies have the effect of enforcingsegregation as effectively or more effectivelythan individual prejudice:“Zoning ordinances, minimum size requirements,water and sewer permits, building codes,restriction standards, and other legal andadministrative devices . . . . function[ ] as a racialexclusion in our time.”d. at 217 (statement of Edward Rutledge of the NationalCommittee Against Discrimination in Housing). 14
  15. 15. Race neutral policies are often cloakedintentional discrimination:“The South, while professing ‘freedom of choice’where it will perpetuate segregation, is alsopromoting de facto segregation in many urbanareas by the skillful use of urban redevelopmentand other governmentally assisted programs.”Id. at 103 (statement of Executive Director of the NAACPRoy Wilkins) 15
  16. 16.  Informal veto powers of city council aldermen resulted in 99 percent of new public-housing units being located in all-black neighborhoods on Chicago’s South Side in the 1950s and early 1960s. Earlier efforts to create integrated housing across the city were abandoned.See, e.g., Arnold R. Hirsch, Making the Second Ghetto: Race and Housing in Chicago 1940–1960, 240–45 (1998). 16
  17. 17. Mhany Management, Inc. v. County of Nassauand Village of Garden City, C. A. No. 05-2301(E.D.N.Y.).Village voted down a zoning proposal to build355-unit multi-family development with a mix ofaffordable and market rate units recommended byits own consultants because of racially tingedopposition.The zoning adopted in its place would make itvirtually impossible to develop affordable housing. 17
  18. 18. Zoning and land-use policies and decisions which: Restrict private construction of multifamily housing to a largely minority area, Block or limit development of affordable housing in communities of opportunity, Result:  discriminatory denial of housing to minorities  perpetuation and/or exacerbation of residential segregation; 18
  19. 19.  Employ discrim. underwriting, pricing and fee policies; Determine home mortgage interest rates with discriminatory application of credit score criteria; Impose minimum loan amounts which disproportionately exclude potential minority applicants because of their income levels or the value of the houses in which they live; and Use a credit score above the FHA minimum; 19
  20. 20.  Deny insurance based on the age of the home; Do not provide replacement value insurance policies because of the age or location of the home; Do not insure for replacement value if that value is greater than the market value of the house, based on a moral hazard rationale; and Discriminate in the pricing of homeowners’ insurance policies; 20
  21. 21.  Impose residency requirements and other admissions procedures for affordable or assisted housing in predominantly white communities which discriminate against minority persons not living in such communities; 21
  22. 22.  Governmental redevelopment or demolition plans or policies disproportionately displace minorities and persons with disabilities by eliminating housing affordable to people with lower incomes.See Mount Holly Gardens Citizens in Action v. Township of Mount Holly, 658 F.3d 375 (3d Cir. 2011) 22
  23. 23.  Exclude group homes for persons with disabilities with zoning restrictions, neighbor notification, spacing requirements, blood/marriage relative occupancy requirements; Refuse Reasonable Accommodation or Structural Modification requests (or force people to make them when should change policy); Inaccessible housing stock 23
  24. 24.  CCRC may force move to higher level of care; Assisted Living Facilities may exclude walkers or wheelchairs from dining area or on grounds; Housing providers may impose independent living requirements or refuse live in aides; Nursing Homes segregated, race correlates to low quality of care; Minority communities lack amenities needed to age in place – transportation, grocery stores, safety, health care or assisted living facilities, accessible housing 24
  25. 25.  Unreasonably restrictive occupancy standards adopted by landlords result in excluding or limiting families with children from the housing; Developers build small properties that will not accommodate families. 25
  26. 26.  Refusing to consider alimony payments in determining eligibility; Evicting tenants who receive welfare; Evicting victims of domestic violence;   26
  27. 27.  Requiring that tenants speak English or be United States citizens.   27
  28. 28. recluded from pursuing legitimate goals?he FHA’s prohibition against disparate-impactdiscrimination does not condemn policies simplybecause they have adverse effects.t precludes only those policies that have suchadverse effects and that are unnecessary to theachievement of the defendant’s legitimate, non-discriminatory goals. 28HA protects against discriminatory impacts as
  29. 29. The Township may be correct that a disparateimpact analysis will often allow plaintiffs to makeout a prima facie case when a segregatedneighborhood is redeveloped in circumstanceswhere there is a shortage of alternative affordablehousing. But this is a feature of the FHA’sprogramming, not a bug.”Mt. Holly, at 384-85. 29
  30. 30.  Plaintiffs must trace any adverse effects to a specific, identifiable practice. Beyond identifying a specific practice, plaintiffs at the prima facie stage must offer proof of disproportionate impact. Case-by-case approach to accommodate the infinite variety of statistical methods and the reality that the usefulness of different methods depends on all of the surrounding facts and circumstances. BTW, Ct. not endorsing unspecified, ill-conceived, or obscure statistical analyses. 30
  31. 31.  If a prima facie case is established, look to see whether the defendant has a legitimate, non- discriminatory reason for its actions. If it does, the Defendant must then also establish that “no alternative course of action could be adopted that would enable that interest to be served with less discriminatory impact.” If the Defendant makes this showing, the burden once again shifts to Plaintiffs, who must demonstrate that there is a less discriminatory way to advance the defendant’s legitimate interest. 31
  32. 32.  329 homes, on 30 acres, one mile from downtown; 1,031 low income residents, 19.7% White, 46.1% AA; 28.8% Hispanic; older demographics 81% HO’s lived there >9 yrs, 72% renters >5 yrs; 22.54% of AA households (affected 8x); 32.31% of Hispanic households (affected 11x); 2.73% of White households; Rent $705/mo. vs. proposed rent of $1,230 /mo; HO’s paying $969/mo. vs. new homes estimated between $200,000 and $275,000 Township offered only $32k – 49K to acquire 32
  33. 33.  After State Ct. dismissed claims finding area blighted, state law not violated, and discrim claims not ripe because plan not yet implemented, residents filed in Fed. Dist. Ct. Dist. Ct. ruled that there was no prima facie case of discrimination and even if there was the Residents had not shown how an alternative course of action would have had a lesser impact.  100% of Whites and Minorities treated the same  Might move elsewhere in county  No segregative intent shown  No remedy available   33
  34. 34.  Affordable housing scarce, and most residents would not be able to afford market-rate units elsewhere in the Township. Eventually, Township paid to relocate 62 families, 42 of which moved outside of Mt. Holly Township. Renters who moved often had to pay more in rent at their new homes. 34
  35. 35. [E]ffectively, plaintiffs are seeking to remain living inthe blighted and unsafe conditions until they areawarded money damages for their claims andsufficient compensation to secure housing in the localhousing market. Although couched at times like aneffort to have the development go up around them,like a highway built around a protected tree, or tohave their units rehabilitated, this makes little if nopractical sense after years of litigation, approvedredevelopment plans, and the expenditure ofsignificant public resources.” 35
  36. 36. “At this late stage, the only real practical remedy isfor plaintiffs to receive the fair value for theirhome as well as proper and non-discriminatoryrelocation procedures and benefits . . . . The reliefthey are seeking is inconsistent with proving thefourth element of their FHA claim-namely, that analternative course of action to eminent domain andrelocation is viable.”Order, D. Ct NJ, entered Jan. 3, 2011, p. 17 n. 12 36
  37. 37.  Under HUD’s proposed rule, 76 Fed. Reg. at 70,924, Defendant has the burden at the second stage of demonstrating a “necessary and manifest relationship” between the challenged practice and any “legitimate, nondiscriminatory interest.” 76 Fed. Reg. at 70,924, 70,925. Plaintiff bears the burden of proof at the third stage to demonstrate that there is a less discriminatory alternative for meeting defendants’ same legitimate objectives. 37
  38. 38. Defendant uniquely positioned to explain itsrationale as to why there is no less discriminatoryalternative. Can point to:factors they analyzed or relied upon whenadopting the policy;problems or harms they sought to remedy;any previous policies they pursued that did notsufficiently address their objectives.Plaintiff can then come forward to show there areless discrim alternatives. See Mt Holly. 38
  39. 39.  In Magner Amicus US DOJ suggests that the beneficial effects of code enforcement may provide grounds for rejecting a disparate- impact claim at the prima facie stage, particularly because the “failure to aggressively enforce a housing code could give rise to a disparate-impact claim” under the FHA, These points conflate the purpose of the threshold, prima facie inquiry with the objectives of the latter stages of the burden-shifting framework. 39
  40. 40. Planned phased development, but aggressivelyacquired homes - left vacant then destroyed.Should show total demolition, relocation, and newconstruction less feasible than rehabilitation.Targeted acquisition and rehabilitation,Phased development and temp relocation,Combine some houses to make larger homes,Landscaping, decks, and porches,Selective demolition and new construction,More affordable units. 40
  41. 41.  Mt Holly: en banc review denied March 14, 2012. Township has 45 days to decide whether to appeal to U.S. Sup. Ct. Republican Senators investigating St Paul’s decision to withdraw appeal in Magner v. Gallagher, thereby wasting taxpayer money continuing a lawsuit they would have won hands down; who knows what other dark secrets will be revealed. Banks/lenders will still be covered by DI under the ECOA. 41
  42. 42. ResourcesRobert Schwemm and Sara Pratt, Disparate ImpactUnder the Fair Housing Act: A Proposed Approach,http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1577291 42
  43. 43. THANK YOU!To follow up with the speaker:Julie Nepveu, Esq.Senior AttorneyAARP Foundation Litigation601 E Street, NWWashington, DC 20049Email: JNepveu@aarp.orgWeb: www.aarp.orgV 202-434-2075TTY 1-877-434-7598Presentations will be available at www.ncrc.org/conference byApril 30, 2012 43

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