Thirty Years of Fair Housing 1968 - 1998
The Fair Housing Act, which governs how banks do business with their customers, is now thirty years old. It's actual anniversary is in April. The Fair Housing Act is one of the first of the modern compliance laws and still one of the most complex. The Act is a product of the turbulent '60s and is broadly written to accommodate the widely varied situations that were under challenge. Because of its breadth, the Act has grown with the times, and is as central and urgent to compliance programs in 1998 as it should have been in 1968.
The Fair Housing Act was passed at a time when practices now considered unbelievably blatant were standard fare. In the '60's, for example, it was common for lenders to use special application forms to denote the identity of the applicant. Applications from "people of color" were often marked with a "c" in one of the upper corners so the loan committee would know who and what they were dealing with. Applications from women were often taken on pink paper.
Loan officers relied on the property evaluations of appraisers who had been trained to take into account the type of people living in the neighborhood to determine property value. People of northern European heritage were value enhancers for their neighborhood. However, people of any color - and particularly those whose ancestors came from south of the Equator - detracted from the property value.
Numerous practices took into account the applicants' gender, marital status, and family situation. Under the guise of acting in the best interest of the applicant, loan officers and loan committees made judgments - often based on their personal preferences - that prevented huge groups in our population from becoming home owners.
The '60s brought us enormous change. The change we are still dealing with today is rooted in that era. We are still working on the American dream. The American dream means many things, but at its core it means achieving economic independence and success.
Since 1968, banks have been deluged with laws, regulations, regulatory policies, and examination procedures that bring about social change. Fair Housing, ECOA, CRA, ADA, and HMDA have all been passed and put into place to change how banks and others do business.
But it doesn't stop with the laws themselves. The interpretations keep changing, growing with the times, and responding to changes in society. And the participants in the fair lending debate periodically sharpen their weapons. For example, ten years ago, credit scoring was considered the safest, most consistent way to make credit decisions. Now, however, supposedly neutral systems developed in back rooms by statisticians are becoming subject to challenge. The question raised is whether the statistically based credit scoring system has actually built in discrimination, using higher math. Credit scoring is one of the new frontiers of fair lending.
This is a good time to check the frontiers and see where we are headed. On this 30th anniversary of the Fair Housing Act, ComplianceAction looks at where we stand now, and how to head in the right direction for the Fair Housing Act's 35th anniversary.
Copyright © 1998 Compliance Action. Originally appeared in Compliance Action, Vol. 3 , No. 5 & 6, 4/98
First published on 04/01/1998