More Banks & Non-Bank Lenders are Omitting Racial Information from Home Loan Data — Preventing the Identification of Lending Discrimination

 

The Home Mortgage Disclosure Act (HMDA) legally requires 5,000 financial institutions that originated a home loan in the U.S. to collect information about race to help identify potential discrimination against borrowers. The data has in the past year been cited by the Consumer Financial Protection Bureau among others.

However, over 12% of borrowers do not give the information requested by the law and some 90% of loans sold to third parties do not provide the racial data that is acquired, according to the National Community Reinvestment Coalition (NCRC). “The impact is profound,” according to a new NCRC report “as these gaps hinder our ability to understand who is receiving loans and under what terms, which is vital for assessing fairness and inclusivity.”

To help fight the problem, the NCRC has pledged to never again use any data that doesn’t include demographics on race. “Beginning with this report, NCRC is eliminating records without demographic data from our calculations of the percent of loans made to specific races.” 

The NCRC and others say the missing data is largely due to loopholes in the HMDA. Passed in 1975, the HMDA rule requires that in-person and phone applicants provide demographic data - but online applicants can opt out.

Third-party loan purchasers are not required to track demographic information. Seven of the top 10 loan-purchasing institutions from 2023 used a loophole that allows them to erase borrower demographic data on the mortgages they bought, according to an NCRC report. “A few years ago, it was rare for lenders to buy loans and strip demographic data, but Citibank pioneered this practice. Now, many lenders who purchase loans use this loophole.” Citi declined to comment.

The NCRC report shows “in what might be a sign of a historic point” that Hispanic lending for home loans -16.5% of all 2023 home purchases - was nearly identical to their overall share of the U.S. adult population. Black borrowers' lending rates improved, though not near to their overall share of the population.

Unfortunately, these seemingly positive trends are difficult to confirm because of the incomplete data. Any increase in data collection about borrowers comes with increased risk of invasion of privacy. Though the CFPB says there’s low, if any, privacy risk in the HMDA, a 2017  report  by economist Anthony Yezer stated concerns such data collection could lead to widespread violations of privacy.

To the NCRC. “The extensive benefits of detailed data collection, encompassing income, race, sexual orientation and gender identity, decisively outweigh any concerns over burden or privacy. It’s imperative t hat efforts to curtail this essential data collection be recognized as not just misguided but as detrimental to the health and well-being of our communities.”

Read the October 4, 2024 Yahoo Finance article.

Read the October 3, 2024 Fortune article.

HUD Charges Owner & Operators of New Hampshire Apartment Buildings with Disability Discrimination

The U.S. Department of Housing and Urban Development (HUD) has charged Good Team Realty LLC, Jack O Cohen Revocable Trust, and Jack Cohen, owners and operators of more than 40 rental apartments in New Hampshire, with discriminating against potential tenants because of disability. The Charge alleges that the Respondents violated the Fair Housing Act by refusing to negotiate for and show an available apartment to prospective tenants who used assistance animals for their disabilities. Read HUD’s Charge.

“In 1988 the Fair Housing Act was extended to protect persons from discrimination in housing because of a disability, yet people with disabilities continue to be subjected to discriminatory treatment,” said Diane M. Shelley, HUD’s Principal Deputy Assistant Secretary for Fair Housing and Equal Opportunity. "Today's action demonstrates HUD's ongoing commitment to take appropriate action when housing providers fail to comply with the Fair Housing Act."

HUD’s Charge of Discrimination alleges that the Complainants spoke with property owner, Jack Cohen, about renting an apartment and that during the conversation the Complainants revealed that they had an assistance animal. The Charge further alleges that the Complainants arranged to meet Mr. Cohen to view the apartment but that Mr. Cohen refused to allow the Complainants inside the apartment because they did not have medical documentation verifying their need for the assistance animal with them at that time.

A U. S. Administrative Law Judge will hear HUD’s charge unless any party to the charge elects to have the case heard in federal district court. If an administrative law judge finds, after a hearing, that discrimination has occurred, they may award damages to the family for their losses as a result of the discrimination, injunctive relief, and other equitable relief, as well as payment of attorney fees. In addition, the judge may impose civil penalties and punitive damages to the complainant.

Go to HUD Fair Housing.

Coffee Break with Alice This Friday October 11th!

The next Coffee Break with Alice takes place Friday, October 11, 2024, at Noon.   Scan the QR Code or use the registration link below to receive the meeting link. Register to receive meeting link: CoffeeBreakOCT ###

Baltimore City Civil Rights Week 2024 Programming Announcement

The Office of Equity and Civil Rights is excited to invite you to join us for our annual Civil Rights Week from October 4th - 12th! We have several events scheduled throughout the week that touch on key topics including Police Accountability, The History of Redlining and Housing Discrimination in the city, Legislative Access for Women, a History of Immigration and Inclusion in Baltimore and more! Check out some of what's happening below and sign up to join us. All events are free and open to the public. Hope to see you there! Register Here!

US Antisemitic Incidents Surge to Record High

Reports of antisemitic incidents in the US have reached a record high since last year's Hamas attack in Israel, according to a preliminary report from the Anti-Defamation League Center for Extremism (ADL). The group found over10,000 incidents from 7 October 2023 to 24 September of this year, more than a 200% increase compared to the same period last year. It is the highest ever since the ADL began tracking such incidents in 1979.

The report is days after the FBI and Department of Homeland Security issued a joint statement warning of possible violent threats amid the ongoing turmoil in the Middle East. Since last October’s Hamas attack on Israel which saw around 1,200 people killed "Jewish Americans haven’t had a single moment of respite,” ADL CEO Jonathan Greenblatt said in a statement. “Instead, we’ve faced a shocking number of antisemitic threats and experienced calls for more violence against Israelis and Jews everywhere.”

The antisemitism episodes reported by the ADL included about 8,015 incidents of verbal or written harassment, 1,840 incidents of vandalism, and 150 incidents of physical assault. The states with the highest number of recorded cases were California, with 1,266 incidents, New York 1,218, New Jersey  830, and Florida 463. The ADL expects its preliminary numbers to increase as it receives more data. The final report for 2024 will be published in the spring of 2025.

Part of the overall increase comes from a change in methodology to include "expressions of opposition to Zionism, as well as support for resistance against Israel or Zionists that could be perceived as supporting terrorism", the ADL said. The ADL's preliminary report counted over 3,000 of incidents during anti-Israel rallies "which featured regular explicit expressions of support for terrorist groups", including Hamas and Hezbollah. Excluding these incidents, the ADL counted 7,523 episodes of antisemitism, a 103% increase from 2022.

The continued violence in the Middle East region has led to a surge in anti-Muslim and Islamophobic incidents across the US. Anti-Muslim incidents were 8,061 in 2023, according to a report from the Council on American-Islamic Relations (CAIR) released this April. This was the highest level since CAIR began tallying almost 30 years ago, with nearly half coming after the 7 October attack.

Read the October 6, 2024 BBC News article.

NCRC and Fintechs Urge Federal Regulators to Use AI to Detect and Eliminate Lending Discrimination

 

The National Community Reinvestment Coalition (NCRC) and a group of financial technology firms submitted a joint letter urging regulators issue clear guidelines to lenders on how the new AI fair lending tools could better evaluate disparities in lending. The letter to the Consumer Financial Protection Bureau (CFPB) and Federal Housing Finance Agency (FHFA) - signed by NCRC, Zest AI, Upstart, Stratyfy, and FairPlay - was issued in response to the White House’s Executive Order on AI in October, 2023.

Some lenders have not adopted these newer tools for underwriting analysis because they believe they can remain compliant with existing fair lending laws despite evidence that suggests older scoring models continue to contribute to systemic discrimination. Newer fair lending tools can allow lenders to conduct searches for new underwriting models that perform as well as older scoring models, while also mitigating the risk of discrimination in their analysis of an LMI credit applicant.

From the companies’ perspective, the power of the new AI tools can help lenders comply with regulations and improve their ability to expand credit access to applicants who have traditionally been underserved or considered too risky by old underwriting models.

The key recommendations of the letter include:

1. Don’t wait for perfect information to act. AI will continue to rapidly evolve. Supervisory highlights should be used by regulators to highlight best practices within the industry.
2. Provide written guidance on activity that triggers fair lending oversight. The CFPB should provide clearer guidelines on the conditions that would require a lender to engage in a Less Discriminatory Alternative (LDA) search, as well as the frequency with which such searches will be conducted.
3. Clarify that fair lending applies not only to how applicants are treated, but also how they are selected. Evaluating the creditworthiness of applicants can happen at the earliest stages of the lending process, including during marketing campaign planning. AI tools that can more comprehensively assess the risk of an applicant should be adopted earlier and favored over older models and tools.
4. The FHFA should continue to build upon its 2022 AI Advisory Opinions. The prior advisory opinions offered AI-specific guidance to the GSEs based on select use cases with potential to improve housing finance for consumers.
5. The CFPB should assert that fair lending compliance should be as high a priority as all other parts of the lending process. For companies using AI in credit decisioning, the CFPB should make clear the usage of outdated tools is not sufficient to remain compliant with fair lending laws.
6. Supervisory examination and training should address routine review of financial institutions’ model testing protocols and results. Fair lending examinations should also include reviews of the models used, testing protocols and positive assessment of LDA searches. Data concerning the efficacy of tools and practices should be shared in a forum with regulators and policymakers.

Photo by BoliviaInteligente on Unsplash

Read the September 30, 2024 NCRC article.

Baltimore Regional Housing Partnership Analyzes Source of Income Discrimination Law Effectiveness

 

During HUD's Quarterly Update event on July 25, 2024, panelists explored the emerging research on source of income discrimination laws and the enforcement strategies employed by municipalities in Maryland and New York. Some 50 years ago, Congress enacted the Housing Choice Voucher (HCV) program to promote housing stability, health, and economic mobility by allowing households to choose where to use their rental subsidy. Many voucher holders, however, remain in high-poverty areas because area landlords practice source of income discrimination (SOID) by refusing to accept vouchers outright. To address this behavior, states and localities began enacting SOID laws in the 1970s; however, even in areas where SOID laws are in place, landlords sometimes find indirect ways to deny housing to voucher holders. 

On July 25, 2024, HUD's Office of Policy Development and Research (PD&R) hosted a PD&R Quarterly Update featuring two panel discussions examining the implementation of these laws and the latest research on their effectiveness. Adria Crutchfield, executive director of the Baltimore Regional Housing Partnership (BRHP) participated in the discussions and analysis.

Prevalence, Evolution, and Effectiveness of SOID Protections

As of February 2024, HUD's Office of Public and Indian Housing reports that 17 states, 21 counties, and over 85 cities have passed laws regarding SOID. According to Poverty & Race Research Action Council (PRRAC) data, the number of state and local SOID laws has more than doubled over the past 10 years. Alongside the rise in SOID laws, the National Fair Housing Alliance reports a corresponding increase in complaints that local fair housing organizations have filed concerning landlord offenses. Lawyers previously needed to challenge laws that did not explicitly include federal housing assistance as a protected source of income (SOI) or address minimum income requirements and landlord objections to inspections. Policymakers have changed the language of recent ordinances to more effectively address SOID issues, eliminating outdated defenses and strengthening enforcement. At the same time, institutions are prioritizing making information about SOID laws more accessible. Earlier in 2024, the Office of Public and Indian Housing launched a website detailing SOID laws. In addition, PRRAC maintains and regularly updates a compilation of state, local, and federal laws prohibiting SOID.

To understand the effect of SOID laws on voucher utilization and movement to low-poverty neighborhoods, the Urban Institute did a study that analyzed 43 SOID laws passed between 2001 and 2017. They noted that before these laws were enacted, only one in four families with vouchers lived in low-poverty neighborhoods, and the concentration of voucher holders in high-poverty areas was growing. After SOID laws were passed, access to lower-poverty neighborhoods improved, although "with a 3- to 4-year lag" for laws to take into effect.

Despite the rise in SOID laws enacted nationwide and the positive mobility outcomes for voucher holders they have supported, it was asserted that "too few households reach low-poverty, high-opportunity neighborhoods, and too many households are unable to find housing with their vouchers." A paired-testing study HUD conducted in partnership with the Urban Institute between 2016 and 2017 evidenced the pervasiveness of landlord discrimination as an explanation for the "stubborn and persistent challenges" that families with housing choice vouchers face.

Lessons From State and Local Implementation of SOID

The second panel discussion presented insights from practitioners in Baltimore and New York. The panelists discussed the specifics of SOID laws in their respective jurisdictions, enforcement mechanisms, and strategies for engaging landlords to enhance housing access. Since 2019, New York state law has protected SOI under human rights legislation and prohibited discrimination against legal sources of income in housing advertisements. The law covers numerous SOI categories, including various forms of public assistance, and incorporates provisions for individuals to pursue legal action through state courts or the Division of Human Rights. 

BRHP's Crutchfield explained that Maryland's 2020 Housing Opportunities Made Equal Act, which expanded SOI protections statewide, addressed negative provisions in earlier city-level SOI laws. For example, in Baltimore, the act ended the practice of allowing landlords with a certain percentage of HCV tenants to reject future voucher applicants.

Despite these advances, both the New York representative and Crutchfield noted that landlords' efforts to evade enforcement present ongoing challenges for HCV holders. Crutchfield shared anecdotes from clients of BRHP's housing counseling team that faced discriminatory screening practices and neighborhood resistance. For example, tenants have reported that some landlords impose stringent credit score requirements or income multipliers, and homeowners associations sometimes amend their bylaws to introduce additional screening criteria related to criminal records. 

Incentivizing Landlord Participation in Antidiscrimination

Speakers on both panels agreed that strategies to incentivize landlord participation can make SOID protection more effective. Crutchfield described BRHP's proactive marketing to landlords, including conducting social media campaigns to promote the benefits of renting to voucher holders. BRHP also produces webinars to educate landlords about the involved legal requirements.

Still, all agreed these efforts are just the beginning. "There's more work to be done around educating landlords, and there's more work to be done around understanding what might change landlord behavior, but this is an encouraging time to [be gaining] more evidence about the value that these laws bring to voucher holders and their outcomes." New York's office is currently partnering with a behavioral insights team to understand and address landlords' awareness and perceptions of SOID.

Read the October 1, 2024 PD&R article.