Chapter 9 Federal Housing Policies: Part Two © OnCourse Learning

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 2 © OnCourse Learning

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 © OnCourse Learning 3

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 4 © OnCourse Learning

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 5 © OnCourse Learning

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 6 © OnCourse Learning

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 © OnCourse Learning 7

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 8 © OnCourse Learning

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 © OnCourse Learning 9

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) © OnCourse Learning 10

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 11 © OnCourse Learning

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 12 © OnCourse Learning

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 13 © OnCourse Learning

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 14 © OnCourse Learning

Effects of the Fair Housing Act (FHA)  Greater access to housing for minorities  Housing laws appear to be more important than equal credit laws 15 © OnCourse Learning

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 © OnCourse Learning 16

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 © OnCourse Learning 17