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HUD restores 2013 discriminatory effects rule
On March 17, HUD announced the submission of a final rule—Reinstatement of HUD’s Discriminatory Effects Standard—which would rescind the agency’s 2020 regulation governing Fair Housing Act (FHA or the Act) disparate impact claims and reinstate the agency’s 2013 discriminatory effects rule. Explaining that “the 2013 rule is more consistent with how the [FHA] has been applied in the courts and in front of the agency for more than 50 years,” HUD emphasized that it also “more effectively implements the Act’s broad remedial purpose of eliminating unnecessary discriminatory practices from the housing market.”
As previously covered by InfoBytes, in 2021, HUD proposed rescinding the 2020 rule, which was intended to align the 2013 rule with the U.S. Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. The 2020 rule included, among other things, a modification of the three-step burden-shifting framework in its 2013 rule, several new elements that plaintiffs must show to establish that a policy or practice has a “discriminatory effect,” and specific defenses that defendants can assert to refute disparate impact claims. According to HUD’s recent announcement, the modifications contained within the 2020 rule complicated the discriminatory effects framework, created challenges for establishing whether a policy violates the FHA, and made it harder for entities regulated by the Act to assess whether their policies were lawful.
The final rule is effective 30 days after publication in the Federal Register. According to HUD, the 2020 rule never went into effect due to a preliminary injunction issued by the U.S. District Court for the District of Massachusetts, and the 2013 rule has been and currently is in effect. Regulated entities that have been complying with the 2013 rule will not need to change any practices currently in place to comply with the final rule, HUD said.
Biden administration releases Renters Bill of Rights
On January 25, the Biden administration announced new actions for enhancing tenant protections and furthering fair housing principles, which align with the administration’s Blueprint for a Renters Bill of Rights that was released the same day. The Blueprint and fact sheet lay out several new actions that federal agencies and state and local partners will take to protect tenants and increase housing affordability and access.
- The FTC and CFPB will collect information to identify practices that unfairly prevent applicants and tenants from accessing or staying in housing, “including the creation and use of tenant background checks, the use of algorithms in tenant screenings, the provision of adverse action notices by landlords and property management companies, and how an applicant’s source of income factors into housing decisions.” According to the White House, this marks the first time the FTC has issued a request for information that explores unfair practices in the rental market. The data will inform enforcement and policy actions under each agency’s jurisdiction.
- The CFPB will issue guidance and coordinate enforcement actions with the FTC to ensure information in the credit reporting system is accurate and to hold background check companies accountable for having unreasonable procedures.
- The FHFA will launch a transparent public process for examining “proposed actions promoting renter protections and limits on egregious rent increases for future investments.” Periodic updates, including one within the next six months will be provided to interested stakeholders. FHFA Director Sandra L. Thompson commented that the agency “will conduct a public stakeholder engagement process to identify tangible solutions for addressing the affordability challenges renters are facing nationwide, particularly among underserved communities. The proposals discussed during this process will focus on properties financed by [Fannie Mae and Freddie Mac].” She noted that FHFA will continue to evaluate Fannie and Freddie’s role in providing tenant protections and advancing affordable housing opportunities.
- The DOJ intends to hold a workshop to inform potential guidance updates centered on anti-competitive information sharing, including within the rental market space.
- HUD will publish a notice of proposed rulemaking to require public housing authorities and owners of project-based rental assistance properties to provide tenants at least 30 days’ advanced notice before terminating a lease due to nonpayment.
- The Biden administration will also hold quarterly meetings with a diverse group of tenants and tenant advocates to share ideas on ways to strengthen tenant protections.
According to the announcement, the agencies’ actions exemplify the principles laid out in the Blueprint, which underscores key tenant protections, including: (i) renters should be able to access safe, quality, accessible, and affordable housing; (ii) renters should be provided clear and fair leases with defined rental terms, rights, and responsibilities; (iii) federal, state, and local governments should ensure renters are aware of their rights and are protected from unlawful discrimination and exclusion; (iv) renters should be given the freedom to organize without obstruction or harassment from housing providers or property managers; and (v) renters should be able to access resources to prevent evictions, ensure eviction proceedings are fair, and avoid future housing instability.
The administration also announced it is launching a related “Resident-Centered Housing Challenge”—a call to action for housing providers and other stakeholders to strengthen their practices and make independent commitments that will improve the quality of life for renters. The Challenge will launch this spring and encourages states, local, tribal, and territorial governments to improve existing fair housing policies and develop new ones.
HUD proposes streamlined AFFH rule
Recently, HUD announced plans to publish a notice of proposed rulemaking (NPRM) entitled “Affirmatively Furthering Fair Housing” (AFFH). The new rule will update a 2015 final rule that was intended to implement the Fair Housing Act’s statutory mandate that HUD ensure that recipients of its funding work to further fair housing, which was repealed by the Trump administration. In 2021, the Biden administration published an interim final rule to restore certain definitions and certifications to its regulations implementing the Fair Housing Act’s requirement to affirmatively further fair housing (covered by InfoBytes here). “This proposed rule is a major step towards fulfilling the law’s full promise and advancing our legal, ethical, and moral charge to provide equitable access to opportunity for all,” HUD Secretary Marcia L. Fudge said in an announcement.
The NPRM incorporates much of the 2015 AFFH rule and will streamline the required fair housing analysis for states, local communities, and public housing agencies. Program participants would be required to ensure protected classes have equitable access to affordable housing opportunities, by, for example, submitting an equity plan to HUD every five years. HUD-accepted equity plan analysis, goals, and strategies would then be incorporated into program participants’ subsequent planning documents. Program participants would also be required to conduct and submit annual progress evaluations. Both the equity plans and annual progress evaluations would be made available online.
HUD further explained that the NPRM is intended to simplify required fair housing analysis, increase transparency for public review and comment, improve compliance oversight, provide a process for regular progress evaluations, and enhance accountability, among other things. Comments on the NPRM are due April 24. HUD’s quick reference guide provides additional information.
National Fair Housing Alliance settles redlining allegations against real estate company
On April 29, the National Fair Housing Alliance (NFHA) announced a settlement agreement with a real estate company resolving allegations that the company perpetuated redlining practices through its policies and procedures. NFHA, along with nine other fair housing organizations, sued the company following an investigation into its practices. The fair housing organizations alleged that the company’s minimum home price policy violated the Fair Housing Act by discriminating against sellers and buyers of homes in communities of color. Limiting or denying services for homes priced under a certain value can “perpetuate racial segregation and contribute to the racial wealth gap” the organizations claimed in the press release. According to the complaint, the company disproportionately withheld its services to homebuyers and sellers in these communities at a higher rate than in White zip codes in multiple major cities across the U.S, thereby disincentivizing homebuying within these communities, reducing housing demand and values, and perpetuating residential segregation. Under the terms of the settlement, the company will make several national operational changes and enhancements, including (i) expanding housing opportunities for consumers in communities of color in major cities throughout the country; (ii) eliminating its minimum housing price policy for a period of five years; and (iii) appointing a fair housing compliance officer, adopting an equal opportunity in housing policy, and developing a fair housing training program. The company will also pay $4 million to go towards expanding homeownership opportunities in the covered cities and to cover conduct monitoring, compliance efforts, litigation fees and costs.
Fannie Mae to pay $53 million to settle fair housing violations
On February 7, the Fair Housing Advocates of Northern California, along with the National Fair Housing Alliance and 19 local fair housing organizations from across the country announced a $53 million settlement with Fannie Mae to resolve allegations that Fannie Mae allowed foreclosed homes in predominantly White neighborhoods to be better maintained and marketed than similar homes in communities of color, a claim corroborated by a four year-long investigation of over 2,300 Fannie Mae real estate owned (REO) properties in 39 metropolitan areas. The plaintiffs alleged that they attempted to get Fannie Mae to voluntarily comply with the Fair Housing Act and change its discriminatory policies and practices, but claimed that Fannie Mae “continued to maintain its REO properties differently based on the predominant race and national origin of neighborhoods” and caused “particularized and concrete injury to those homeowners and residents.”
Under the terms of the settlement, Fannie Mae is required to pay $53 million to cover claims for damages, attorneys’ fees, and cost. Nearly $35.4 million of the settlement amount will be used to address community needs, including “addressing home ownership, neighborhood and/or community stabilization, access to credit, property rehabilitation, residential development in African American and Latino communities, fair housing education and outreach, counseling, and other fair housing activities” in the allegedly harmed areas.
The announcement further noted that the plaintiffs—who will manage and disburse the settlement funds—intend to provide grants that will go towards down-payment assistance for first-generation homebuyers and renovations for homes that languished in foreclosure, as well as innovative programs and partnerships to promote fair housing. The announcement also noted that Fannie Mae has implemented several measures to avoid similar occurrences in the future, such as increasing its oversight of maintenance of its REO properties, prioritizing owner-occupants instead of investors as purchasers of REOs, ensuring compliance with fair housing laws, and providing fair housing training to its employees and vendors. According to the announcement, this case marks the first time a federal court confirmed that the Fair Housing Act has covered the maintenance and marketing of REO properties.
Following the announcement, HUD released a statement applauding the settlement. “It is our hope that settlement of these cases will bring about much needed positive outcomes for these undeserved communities,” Principal Deputy Assistant Secretary for HUD’s Office of Fair Housing and Equal Opportunity Demetria L. McCain said. “We also hope mortgage lenders across the country will take steps to avoid fair housing violations in their own REO portfolios.”
En banc 9th Circuit: FHA does not support downstream injuries
On September 28, the U.S. Court of Appeals for the Ninth Circuit issued an en banc decision concluding that the Fair Housing Act (FHA) “is not a statute that supports proximate cause for injuries further downstream.” As previously covered by InfoBytes, the City of Oakland sued a national bank alleging violations of the FHA and the California Fair Employment and Housing Act, claiming the bank provided minority borrowers mortgage loans with less favorable terms than similarly situated non-minority borrowers, which led to disproportionate defaults and foreclosures and caused (i) decreased property tax revenue; (ii) increased city expenditures; and (iii) neutralized spending in Oakland’s fair-housing programs. In 2020, a three-judge panel affirmed both the district court’s denial of the bank’s motion to dismiss claims for decreased property tax revenue, as well as the court’s dismissal of Oakland’s claims for increased city expenditures. (Covered by InfoBytes here.) The panel further held that Oakland’s claims for injunctive and declaratory relief were also subject to the FHA’s proximate-cause requirement and, on remand, the district court must determine whether Oakland’s allegations satisfied this requirement. The bank filed a petition for panel rehearing and rehearing en banc last year arguing, among other things, that the panel had “fashioned a looser, FHA-specific proximate-cause standard” in conflict with the U.S. Supreme Court’s decision in Bank of America Corp. v. City of Miami. As covered by a Buckley Special Alert, in 2017, the Supreme Court held that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the FHA against lenders for injuries allegedly flowing from discriminatory lending practices, but that such injuries must be proximately caused by, rather than simply the foreseeable result of, the alleged misconduct.
The 9th Circuit agreed with the bank and remanded the case for dismissal of the FHA claims and proceedings consistent with the opinion. Citing the Miami decision as one of the leading factors, the panel stated that “[w]e begin where Miami began, with ‘[t]he general tendency. . .not to go beyond the first step,’” adding that “[t]here is no question that Oakland’s theory of harm goes beyond the first step—the harm to minority borrowers who receive predatory loans. Oakland’s theory of harm runs far beyond that—to depressed housing values, and ultimately to reduced tax revenue and increased municipal expenditures. Oakland thus fails a strict application of the general tendency not to stretch proximate causation beyond the first step.” The panel also affirmed the district court’s decision that Oakland failed to sufficiently plead claims related to increased municipal expenditures and reversed the district court’s denial of the bank’s motion to dismiss claims for lost property tax revenue and injunctive and declaratory relief.
HUD proposes restoring 2013 discriminatory effects rule
On June 25, HUD published a notice of proposed rulemaking (NPRM) that would rescind the agency’s 2020 disparate impact regulation (2020 Rule) and reinstate the agency’s 2013 rule (2013 Rule). The 2020 Rule (covered by a Buckley Special Alert) was intended to align its disparate impact regulation, adopted in 2013, with the U.S. Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. The 2020 Rule included, among other things, a modification of the three-step burden-shifting framework in its 2013 Rule, several new elements that plaintiffs must show to establish that a policy or practice has a “discriminatory effect,” and specific defenses that defendants can assert to refute disparate impact claims. Prior to the effective date of the 2020 Rule, the U.S. District Court for the District of Massachusetts issued a preliminary injunction staying HUD’s implementation and enforcement of the 2020 Rule.
After a period of reconsideration, “HUD is proposing to recodify its previously promulgated rule titled, ‘Implementation of the Fair Housing Act’s Discriminatory Effects Standard’, which, as of the date of publication of this [NPRM], remains in effect due to the preliminary injunction,” the NPRM stated, adding that HUD “believes the 2013 Rule better states Fair Housing Act jurisprudence and is more consistent with the Fair Housing Act's remedial purposes.” HUD emphasized that the 2013 Rule codified longstanding judicial and agency consensus concerning discriminatory effects law. “Under the 2013 rule, the discriminatory effects framework was straightforward: a policy that had a discriminatory effect on a protected class was unlawful if it did not serve a substantial, legitimate, nondiscriminatory interest or if a less discriminatory alternative could also serve that interest,” HUD said in its press release. “The 2020 rule complicated that analysis by adding new pleading requirements, new proof requirements, and new defenses, all of which made it harder to establish that a policy violates the Fair Housing Act. HUD now proposes to return to the 2013 rule’s straightforward analysis.” Comments on the NPRM are due August 24.
HUD restores AFFH definitions and certifications
On June 10, HUD published an interim final rule (IFR) to restore certain definitions and certifications to its regulations implementing the Fair Housing Act’s requirement to affirmatively further fair housing (AFFH). The IFR also reinstates a process where HUD will provide technical assistance and other support to funding recipients engaged in fair housing planning. The IFR essentially repeals HUD’s 2020 final rule (covered by a Buckley Special Alert), which was intended to align its disparate impact regulation, adopted in 2013, with the U.S. Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. As previously covered by InfoBytes, earlier in January, President Biden directed HUD to examine the effects of the final rule while emphasizing that HUD has a “statutory duty to ensure compliance with the Fair Housing Act,” and on April 12, the Office of Management and Budget posted notices (covered by InfoBytes here) announcing a pending proposed rule to reinstate HUD’s Discriminatory Effects Standard related to the 2020 final rule.
Among other things, the IFR “restores the understanding of the AFFH obligation for certain [funding recipients] to the previously established understanding by reinstating legally supportable definitions that are consistent with a meaningful AFFH requirement and certifications that incorporate these definitions.” The IFR also notes that HUD will provide technical assistance and support prior to the IFR’s July 31 effective date, due to a requirement that HUD funding recipients certify compliance with their AFFH duties on an annual basis, as well as HUD’s statutory obligation to ensure that it follows the Fair Housing Act’s AFFH requirements. HUD further recognizes that the 2020 final rule “did not interpret the AFFH mandate in a manner consistent with statutory requirements, HUD’s prior interpretations, or judicial precedent,” adding that the agency also failed to “provide sufficient justification for this substantial departure.”
HUD also announced that it will separately restore guidance and resources for funding recipients to use when conducting fair housing planning until the agency finalizes a new regulation to implement the statutory mandate to AFFH. Comments on the IFR are due July 12.
9th Circuit will rehear Oakland’s Fair Housing Act case en banc
On April 20, a majority of nonrecused active judges of the U.S. Court of Appeals for the Ninth Circuit vacated a three-judge panel’s 2020 Fair Housing Act (FHA) decision and ordered that the case be reheard en banc. As previously covered by InfoBytes, the City of Oakland sued a national bank alleging violations of the FHA and the California Fair Employment and Housing Act, claiming the bank provided minority borrowers mortgage loans with less favorable terms than similarly situated non-minority borrowers, leading to disproportionate defaults and foreclosures causing (i) decreased property tax revenue; (ii) increases in the city’s expenditures; and (iii) neutralized spending in Oakland’s fair-housing programs. Last year, the three-judge panel affirmed both the district court’s denial of the bank’s motion to dismiss claims for decreased property tax revenue, as well as the court’s dismissal of Oakland’s claims for increased city expenditures. Regarding Oakland’s alleged municipal expenditure injuries, the panel agreed with the district court that Oakland’s complaint failed to account for independent variables that may have contributed or caused such injuries and that those alleged injuries therefore did not satisfy the FHA’s proximate-cause requirement. The panel further held that Oakland’s claims for injunctive and declaratory relief were also subject to the FHA’s proximate-cause requirement, and that on remand, the district court must determine whether Oakland’s allegations satisfied this requirement. The bank filed a petition for panel rehearing and rehearing en banc last October, arguing, among other things, that the panel had “fashioned a looser, FHA-specific proximate-case standard” in conflict with the U.S. Supreme Court’s decisions involving the City of Miami (covered by InfoBytes here). Oakland responded by noting, however, that the panel’s decision is consistent with the City of Miami decisions, and that, among other things, the Supreme Court’s decision did not establish “precise boundaries of proximate cause” but rather asked lower courts to define “the contours of proximate cause under the FHA and decide how that standard applies to the City’s claims for lost property-tax revenue and increased municipal expenses.”
Biden administration to reinstate fair housing rules
On April 12, the Office of Management and Budget posted notices pending regulatory review related to two HUD fair housing rules rescinded under the Trump administration. The first notice announces a pending proposed rule to reinstate HUD’s Discriminatory Effects Standard related to a September 2020 final rule issued by the agency, which amended its interpretation of the Fair Housing Act’s 2013 disparate impact standard. As previously covered by a Buckley Special Alert, the final rule was intended to align HUD’s 2013 Rule with the Supreme Court’s 2015 decision in Texas Department of Housing and Community Affairs et al. v. Inclusive Communities Project, Inc. The final rule included, among other things, a modification of the three-step burden-shifting framework in its 2013 Rule, several new elements that plaintiffs must show to establish that a policy or practice has a “discriminatory effect,” and specific defenses that defendants can assert to refute disparate impact claims. Earlier in January, President Biden directed HUD to examine the effects of the final rule, emphasizing that HUD has a “statutory duty to ensure compliance with the Fair Housing Act.” (Covered by InfoBytes here.)
The second notice relates to a pending interim final rule: Affirmatively Furthering Fair Housing; Restoring Statutory Definitions and Certifications. As previously covered by InfoBytes, last July HUD announced plans to terminate the 2015 version of the Affirmatively Furthering Fair Housing (AFFH) rule, and proposed a new final rule titled “Preserving Community and Neighborhood Choice.” At the time, HUD stated that the AFFH rule was, among other things, overly burdensome, costly, and ineffective.