Chapter 9

Federal Housing Policies: Part Two

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Chapter 9 Learning Objectives Understand how federal laws protect the home buyer from

discrimination in sales and financing

Understand the theories of discrimination

Understand the types of discrimination

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Fair Housing Act (1968)

Part of Civil Rights Act of 1968

Prohibits discrimination in sale or renting of residential housing on the basis of race, color, religion, or national origin

Gender was added as a protected class by the Housing and Community Development Act in 1974

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Fair Housing Act (1968) Families (with children under 18) and the handicapped

protected under the Fair Housing Amendment Act of 1988

The act exempts some property owners from its provisions E.g. an owner-occupant who does not employ a broker or

uses discriminatory advertising to sell or rent the properties

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Fair Housing Amendment Act of 1988

According to the Act it is unlawful to:1. Refuse to sell or rent or make unavailable a residential

dwelling to protected groups

2. Modify the terms of conditions of a sale or rental on the basis of group membership

3. Advertise that sale or rental is available only to certain groups

4. Represent to any member of a protected group that a residential dwelling is unavailable for sale when it is

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Fair Housing Amendment Act of 1988 Unlawful to:

5. Induce sale of dwelling unit by representing that individuals of any classification re moving to the neighborhood (known as blockbusting)

6. Modify the terms of a mortgage based on the classification of the borrower in a protected group

7. Deny access to a MLS to any individual in a protected group

8. Deny or make different terms for home loans by commercial lenders

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Equal Credit Opportunity Act (1974)

Prevents discrimination in the credit market based on gender and marital status

Extended to protect on basis of age, race, national origin, religion, color, welfare recipient and those previously filing with ECOA

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Equal Credit Opportunity Act (1974) The Act prohibits lenders from requesting the following

information: Whether or not the applicant has children Whether or not there exist child care problems Whether or not there may be interruption of income due to

future childbirth Whether or not the applicant receives alimony, child support, or

separate maintenance Whether or not the applicant is widowed, divorced, or single Whether or not the applicant has a listed telephone number

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Identifying Discrimination

Effects method – Minority groups are underrepresented in the class of credit recipients relative to general population

Intent approach – Lender intends to treat minorities differently

Practices method – Lender fails to adhere to established guidelines

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Economic Theory of Discrimination

Preference for discrimination - Having a “taste” for discrimination gives psychological satisfaction

Economics of information - Cost of obtaining information may be greater than the benefits (marital status or young single males are examples)

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Empirical Evidence of Discrimination Group membership and credit risk

Females have better payment record than male Older borrowers have better payment histories Weak evidence that married debtors have lower credit risks Race – significant factor

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Empirical Evidence of Discrimination Existence of discrimination

Difference in the default rate between members of a group and general debtor, as lenders may require higher standards for that group

Application of tougher qualifying standards

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Effects of ECOA Discrimination by firms is costly in the long-run Evidence suggest that discrimination in the credit

markets was not pervasive prior to ECOA Legislation should have little or no impact on total credit

available or its distribution among potential borrowers

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Effects of ECOA Post-ECOA studies show that legislation has not

increased credit available to protected classes; the opposite may have occurred

By preventing lenders from considering group membership, credit available to some protected classes may have been reduced

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Effects of the Fair Housing Act (FHA) Greater access to housing for minorities Housing laws appear to be more important than equal

credit laws

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Home Mortgage Disclosure Act (1975)

Discourages lending institutions from avoiding certain neighborhoods

Followed by the Community Reinvestment Act in 1978 which encourages lenders to evaluate lending patterns in their defined community

Discourages “redlining” or “FHAing” a neighborhood Redlining – lenders “draw” a red line on a map indicating neighborhood within which they

would not make mortgage loans

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Fair Housing Amendments Act of 1988

Prohibits discrimination in renting on basis of age, number and gender of children, and disabilities

Housing includes apartment complexes, single-family homes, condos, co-ops, and mobile homes

Exemptions for older adults

Handicap may be physical or mental

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