Dodd-Frank's Unfair Housing Rules

Anyone who has tried to refinance their home or buy a house knows all about the hoops you need to jump through today for banks. It’s only going to get worse. Frank Keating, former governor of Oklahoma and HUD general counsel, is president and CEO of the American Bankers Association. He writes the following in today’s Wall Street Journal:

Bankers will soon step into a mortgage minefield—a no-win landscape in which every move will be fraught with peril, and in which the ultimate casualties will be the nascent housing recovery and the American home buyer.

This minefield—a set of incompatible, contradictory regulations—is a creation of the federal government. The first regulation came from the Department of Housing and Urban Development in March, and it said that mortgage lenders can be liable for violations of the 1968 Fair Housing Act if their lending decisions have a so-called “disparate impact” on minorities. No evidence of discriminatory intent or action is required, merely statistical variance in a bank’s lending outcomes.

Bankers support equal housing opportunity, but this represents a radical shift in how the government enforces fair housing law. The text of the law prohibits discrimination “because of” race, religion, sex and other protected classes, which means that the lender must have intended to discriminate. This is how we understood the law during the first Bush administration, when I enforced fair housing laws as general counsel and acting deputy secretary at HUD.

The Supreme Court recently agreed to hear the Mount Holly v. Mt. Holly Gardens Citizens in Action case to review whether disparate impact creates liability under the Fair Housing Act. But in the meantime, lenders are facing lawsuits and prosecutions even if they have done nothing wrong.

That’s bad enough, but on Jan. 10, the Consumer Financial Protection Bureau’s “ability to repay” rule will take effect. This Dodd-Frank mandated rule exposes lenders to risk of litigation if borrowers default on a mortgage—unless the loan falls into a legal “safe harbor” under the CFPB’s qualified-mortgage, or QM, guidelines. For example, a loan in which the borrower’s total monthly debt payments exceed 43% of his income would presumably fall outside the QM safe harbor.

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E.J. Smith - Your Survival Guy

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E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.