NCRC 2012 Annual Conference

1. Defending an Important Tool for Equal Housing
Opportunity: The Debate Over Disparate Impact
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2. Defending an Important Tool for Equal Housing
Opportunity: The Debate Over Disparate Impact
Julie Nepveu, Esq.
April 19, 2012
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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)?

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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
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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.
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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)
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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).
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8. “In February 2011, IBC received a ‘Needs to
Improve’ CRA rating as a result of alleged fair
lending issues associated with mortgage
origination activities of IBC in prior years. Unless
and until IBC’s CRA rating improves, IBC will be
ineligible for expedited treatment and is unlikely to
receive approval for branch, merger, and acquisition
applications and IBC and the Company will be
subject to certain other regulatory limitations.”
IBC 10-K for Year ending 12/31/2011, p. 21.
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9. The foundation of the business of insurance, and in
particular underwriting and rate-making, is
classifying insurance applicants and policyholders
by risk. Insurers make decisions based on actuarial
and business principles that group policyholders for
the purpose of treating those with similar risk
profiles similarly. Race or other protected class
characteristics are not part of the risk assessment
process.”
omment submitted to HUD at 3.
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10. To achieve a condition in which no statistical
disparities exist in the average rate paid by different
demographic groups, many if not most risk- based
variables would have to be eliminated from the
underwriting process. In other words, to avoid
creating a disparate impact, an insurer would have
to charge everyone the same rate, regardless of
risk.”
d.
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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.  “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.
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13. “We can go across this country and find almost
every city zoned racially. The zoning is in the minds
of the banks and the lending institutions, the
builders, the real estate brokers. It is written down
in very few places. But it is at work in the principles
of the real estate boards. It is in the patterns and
practices of the industry.”
Hearing before the S. Subcomm. on Housing and Urban
Affairs of the S. Comm. on Banking and Currency, 90th
Cong. 174 (1967) (statement of Algernon Black of the
American Civil Liberties Union)
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14. ace-neutral policies have the effect of enforcing
segregation as effectively or more effectively
than individual prejudice:
“Zoning ordinances, minimum size requirements,
water and sewer permits, building codes,
restriction standards, and other legal and
administrative devices . . . . function[ ] as a racial
exclusion in our time.”
d. at 217 (statement of Edward Rutledge of the National
Committee Against Discrimination in Housing). 14

15. Race neutral policies are often cloaked
intentional discrimination:
“The South, while professing ‘freedom of choice’
where it will perpetuate segregation, is also
promoting de facto segregation in many urban
areas by the skillful use of urban redevelopment
and other governmentally assisted programs.”
Id. at 103 (statement of Executive Director of the NAACP
Roy Wilkins)
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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).
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17. Mhany Management, Inc. v. County of Nassau
and Village of Garden City, C. A. No. 05-2301
(E.D.N.Y.).
Village voted down a zoning proposal to build
355-unit multi-family development with a mix of
affordable and market rate units recommended by
its own consultants because of racially tinged
opposition.
The zoning adopted in its place would make it
virtually impossible to develop affordable housing.
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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;
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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;
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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;
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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;
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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)
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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
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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
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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.
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26.  Refusing to consider alimony payments in
determining eligibility;
 Evicting tenants who receive welfare;
 Evicting victims of domestic violence;
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27.  Requiring that tenants speak English or be
United States citizens.

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28. recluded from pursuing legitimate goals?
he FHA’s prohibition against disparate-impact
discrimination does not condemn policies simply
because they have adverse effects.
t precludes only those policies that have such
adverse effects and that are unnecessary to the
achievement of the defendant’s legitimate, non-
discriminatory goals.
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HA protects against discriminatory impacts as

29. The Township may be correct that a disparate
impact analysis will often allow plaintiffs to make
out a prima facie case when a segregated
neighborhood is redeveloped in circumstances
where there is a shortage of alternative affordable
housing. But this is a feature of the FHA’s
programming, not a bug.”
Mt. Holly, at 384-85.
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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.
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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.
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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
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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.  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.
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35. [E]ffectively, plaintiffs are seeking to remain living in
the blighted and unsafe conditions until they are
awarded money damages for their claims and
sufficient compensation to secure housing in the local
housing market. Although couched at times like an
effort to have the development go up around them,
like a highway built around a protected tree, or to
have their units rehabilitated, this makes little if no
practical sense after years of litigation, approved
redevelopment plans, and the expenditure of
significant public resources.”
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36. “At this late stage, the only real practical remedy is
for plaintiffs to receive the fair value for their
home as well as proper and non-discriminatory
relocation procedures and benefits . . . . The relief
they are seeking is inconsistent with proving the
fourth element of their FHA claim-namely, that an
alternative course of action to eminent domain and
relocation is viable.”
Order, D. Ct NJ, entered Jan. 3, 2011, p. 17 n. 12
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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.
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38. Defendant uniquely positioned to explain its
rationale as to why there is no less discriminatory
alternative. Can point to:
factors they analyzed or relied upon when
adopting the policy;
problems or harms they sought to remedy;
any previous policies they pursued that did not
sufficiently address their objectives.
Plaintiff can then come forward to show there are
less discrim alternatives. See Mt Holly.
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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.
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40. Planned phased development, but aggressively
acquired homes - left vacant then destroyed.
Should show total demolition, relocation, and new
construction 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.
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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.
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42. Resources
Robert Schwemm and Sara Pratt, Disparate Impact
Under the Fair Housing Act: A Proposed Approach,
http://papers.ssrn.com/sol3/papers.cfm?
abstract_id=1577291
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43. THANK YOU!
To follow up with the speaker:
Julie Nepveu, Esq.
Senior Attorney
AARP Foundation Litigation
601 E Street, NW
Washington, DC 20049
Email: JNepveu@aarp.org
Web: www.aarp.org
V 202-434-2075
TTY 1-877-434-7598
Presentations will be available at www.ncrc.org/conference by
April 30, 2012
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