House Financial Services Subcommittee Issues Testimony From National Fair Housing Alliance Executive VP Bailey
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Chair Davidson, Ranking Member Cleaver, and other distinguished members of the
Today, the nation is faced with a fair and affordable housing crisis that is squeezing the budget of American consumers, particularly consumers of color. Low housing inventory, record competition from corporate investors, restrictive zoning ordinances, high interest rates, and more are all driving prices higher. NFHA advised
My testimony draws heavily from previous testimonies2 and makes the following key points:
* Housing continues to be a major driver of inflation and will not subside until the end of 2024 and beyond.
* The
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2 See, e.g., Testimony of
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* Misguided efforts to reverse equitable gains harms individuals, communities, and the economy.
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Congress Should Promote Equitable Housing Solutions to Address the Nation's Fair and Affordable Housing Crisis
Issue #1: Segregation and Discrimination Continue to Be the Bedrocks of Inequality in the
The roots of discrimination in housing are deep, pernicious, and persistent. Thousands of race- conscious housing, banking, and other policies created systems and structures that were highly inequitable. Unfair laws and policies also produced a dual market--a separate and unequal housing system that rewarded White households while simultaneously debilitating Black, Latino, Asian American/Pacific Islander (AAPI), and Native American households.
Even laws that appeared to be racially neutral were implemented with racialized policies. For example, in the 1930s, the New Deal's federal
The federal government developed other explicitly discriminatory policies that perpetuated the unfounded association between race and risk into the nation's housing and financial markets. For example, the
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3 The Home Owners' Loan Act of 1933 established the HOLC as an emergency agency under the Federal Home Loan
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From 1934 to 1962, the federal government backed over
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4 See Shelley v. Kraemer,
5 See, e.g.,
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7 See
8 See
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Recommendation:
* Opposing any anti-AFFH budget riders;
* Providing sufficient funding for the
* Urging the Administration to ensure the American Rescue Plan Act, Bipartisan Infrastructure Law, Inflation Reduction Act, and CHIPS and Science Act are implemented with AFFH principles;
* Urging HUD to implement comprehensive AFFH education and training for municipalities, public housing authorities, fair housing groups, and others; and
* Requesting the Secretaries of
* Increasing funding for the Fair Housing Initiatives Program to at least
* Increasing funding for the
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Issue #2: Housing Costs Are at Records Highs
Housing Costs Are a Main Driver of Inflation and American Consumers Are Feeling the Squeeze
Rising housing, gas, and food costs are the main drivers of inflation. But housing costs are the key driver.12 Housing costs are now the largest single driver of inflation, according to the
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12 See
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More Than Half of Renters of Color Are "Cost-Burdened"
In 2022, a record-high 22.4 million renter households were "cost-burdened," meaning they spent more than 30 percent of their income on rent and utilities.13 This is an increase of 2 million households over three years. Black and Latino renters were more likely than White renters to be cost-burdened. More than half of Black renters (57 percent) and Latino renters (54 percent) were cost-burdened, while about 45 percent of White renters were cost-burdened. These disparities make it more difficult for Black and Latino renters to build wealth and save for down payments for homeownership.
Recommendation:
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Issue #3: The Black-White and Latino-White Homeownership and Wealth Gaps Remain Wide and Persistent
The Homeownership Gap Is Wide and Persistent
In 1960, when housing discrimination was legal, there was a 27-percentage points gap between Black homeownership (38 percent) and White homeownership (65 percent).14 In 2021, the racial homeownership gap was even wider at 29 percentage points, representing another barrier to wealth-building for households of color. Currently, the homeownership rate is 73 percent for White households, 51 percent for Latino households, and 44 percent for Black households. The White homeownership rate is nearly 67 percent higher than the Black homeownership rate, 45 percent higher than the Latino homeownership rate, and 20 percent higher than the rate for the Asian American community.
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The Wealth Gap is Wide and Persistent
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Since the Great Recession, the typical Black and Latino household has had between about
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Inclusive Policies are Needed to Circumvent Structural Inequality
First-Generation Downpayment Assistance
By investing
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Special Purpose Credit Programs
The Equal Credit Opportunity Act (ECOA) and Regulation B19 allow Special Purpose Credit Programs (SPCPs), which are targeted lending products designed to specifically advantage an economically disadvantaged group of people. SPCPs can be created to benefit designated protected classes of people. They were designed to circumvent structural inequality and replace them with fairer systems to counteract centuries of unfair laws and policies that deprived millions of consumers of the right and opportunity to fairly access mortgage and credit opportunities. Those unfair laws and policies created many inequities and barriers in our housing and lending markets that still impact millions of consumers. SPCPs are a way of providing these consumers access to the quality, affordable, sustainable credit they need to live successful, thriving lives. The
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15 Aditya Aladangady,
16 NFHA and
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19 Equal Credit Opportunity Act, 15 U.S.C. Sec. 1691(c); Regulation B, 12 CFR Sec. 1002.8.
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Recommendation:
Issue #4: Housing Discrimination Complaints Are at an
Every year, there are over 4 million incidents of housing discrimination, with most going unreported. In 2022, we saw the largest number of complaints ever, up 5.74% higher than 2021.22 Domestic violence and source of income complaints increased significantly. Complaints on the basis of sex were the highest since recording the data. These are signs that the organizations investigating housing discrimination cases need more resources to address these critical problems.
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20 HUD, Guidance on the
21 See
22 NFHA, 2023 Fair Housing Trends Report: Advancing a Blueprint for Equity (2023).
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Recommendation:
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Issue #5: Some Housing Policies Risk Gentrification and Displacement
The Neighborhood Home Investment Act can provide much-needed investment in underserved areas, but risks displacing people of color residing in neighborhoods of color.
The bill passed the
* Establish a new federal tax credit to incentivize the construction and rehabilitation of affordable homes in distressed neighborhoods;
* Allocate
* Include
But historically, investment in underserved communities has led to displacement of current residents, disproportionately affecting people of color.
Recommendation:
To this end,
(1) Supports continuing homeownership for current residents of distressed neighborhoods as part of the revitalization of those neighborhoods;
(2) Seeks to minimize displacement of current residents of distressed neighborhoods; and
(3) Expects that the Departments of
Issue #6: Appraisal Bias Continues to Undercut Wealth-Building Opportunities for Families of Color
In 2021, homes in White neighborhoods were appraised at values nearly 250 percent higher than similar homes in similar Black neighborhoods and at values nearly 278 percent higher than similar homes in similar Latino neighborhoods within the same metropolitan areas, depriving households of color of opportunities to build wealth.23 Overall, White communities have access to over
Recommendation:
* Holding a hearing to determine:
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* HUD's plans to resolve the backlog of appraisal discrimination complaints; and
* The feasibility of releasing to the public the property-level uniform appraisal datasets from the
* Increasing FHIP funding to allow private fair housing centers to appropriately investigate complaints;
* Supporting legislation such as the "Fair Appraisal and Inequity Reform Act" and the "Real Estate Valuation Fairness and Improvement Act," which focus on accountable, efficient governance; fair, consistent, and accurate processes; reasonable appraiser qualification criteria; and public datasets; and
* Ensuring all appraisers in the
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Issue #7: Many Communities Remain Underserved Because of the Lack of Small Dollar Loans
Rising home prices and lack of availability of small dollar mortgage loans have impacted entire cities and regions of the nation that have not fully recovered from the housing crisis. Cities like
Recommendation:
* Ensuring our nation's fair lending and consumer protection laws are fully enforced, including in land contracts and rent-to-own agreements;
* Encouraging the
* Encouraging the
* Encouraging regulators to promote technological solutions to improve the experience of borrowers to reduce barriers; and
* Supporting the use of positive rental payment data in underwriting.
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24
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26 Inside Mortgage Finance, A Stunning Year for Wholesale Lenders,
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Issue #8: Institutional Investors Are Exacerbating the Fair and Affordable Housing Crisis
Investor purchases put homeownership further out of reach for first-time homebuyers and prevent families from generating wealth that could be invested in education or small businesses or passed on to the next generation. Investors have cash on hand to outbid owner-occupants and developers are selling newly-built homes to investors because consumers face stiff barriers in accessing mortgage loans. In 2021, one in 7 homes sold in 40 major metro areas were bought by investors, driving up purchase prices by record highs.28 This trend also has a disparate impact on communities of color. In 2021, 30 percent of home sales in majority Black neighborhoods were to investors, compared with only 12 percent in other zip codes. Moreover, research has shown that many renters living in investor-owned properties report subpar housing conditions, unexpected fees, and unresponsive management staff.
Recommendation:
* Supporting HUD's efforts to implement AFFH, including encouraging jurisdictions to make it easier for consumers to purchase housing;
* Directing the GAO to conduct an analysis of this issue and provide recommendations;
* Urging the GSEs and FHA to make every effort to sell REO assets to owner-occupants;
* Passing the Housing Crisis Response Act, Neighborhood Homes Investment Act, Downpayment Toward Equity Act, and LIFT Act;
* Supporting lenders and other entities in developing Special Purpose Credit Programs;
* Passing the Stop Predatory Investing Act (
* Providing additional Community Development
* Passing the Neighborhood Home Investment Act.
Issue #9: Ensure the LIHTC and Other Tax Credits Provide Consumers with Fair Housing Options
The Low-Income Housing Tax Credit ("LIHTC") plays a significant role in determining where families with low incomes are able to reside. Often LIHTC properties are located in communities that are severely under-resourced and racially segregated. Rarely are LIHTC properties developed in communities that have the amenities that all residents need to thrive. LIHTC properties must be equitably developed in all communities to ensure residents have fair housing options. Further action must be taken to ensure the benefits of the LIHTC reach residents and not just wealthy developers.
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Recommendation:
* Increasing the number of LIHTC developments that are located in well-resourced communities.
* Encouraging the
* Encouraging the
* Encouraging the
* Prohibiting lending institutions, housing providers, and other entities that operate in the housing space from accessing federal programs, subsidies, tax breaks, or other government assistance if they have been found in violation of the Fair Housing Act or Equal Credit Opportunity Act within the last five years; and
* Encouraging federal agencies to require meaningful fair housing impact analyses in every effort to fill the nation's affordable housing shortage. Reporting requirements are a critical step, but are not sufficient to change the location, types and cost of housing units available to households in the
Issue #10: Zoning Can Be a Barrier to Fair and
Single-family zoning has been used to effectively lock out renters, low-income individuals, and people of color from certain neighborhoods.29 While zoning and land use reforms are often discussed as a tool to improve rental housing affordability, certain reforms, such as upzoning and minimum lot sizes, can also be used to support the creation of more affordable, entry-level homeownership opportunities. For example, zoning reforms can help promote missing middle housing, such as condos in triplexes, quadplexes, and a range of other options beyond typical single-family detached homes and high-rises that help reduce the cost of construction and home prices.30 Some states are using legislation to reduce local zoning barriers. 31 In 2023,
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Recommendation:
* Ensuring proper resources to fully implement HUD's proposed final AFFH rule; and
* Supporting HUD's work in administering
Issue #11: CDFI Fund Investments Support Wealthy Developers Instead of Potential Homebuyers
Despite a unique history rooted in the work of racial justice and community development advocates, research shows that the majority of Community Development Financial Institutions' ("CDFIs") investments have gone to real estate developments in low-income communities, which are not necessarily communities of color. According to the
Recommendation:
* Applies the
* Develops a fair housing and fair lending oversight program that is more consistent with the oversight structure of the other federal financial regulators;
* Provides CDFIs with guidance on the use of less discriminatory alternatives to traditional credit scoring;
* Requires fair housing and fair lending training for CDFI boards, executive staff, and staff;
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32
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* Audits CDFI Community Reinvestment Act (CRA) activities for compliance with the
* Allows First-Generation Downpayment Assistance and Special Purpose Credit Programs (SPCPs) to count as eligible financial products and services, including SPCPs that are designed to remove the over-reliance on discriminatory credit scoring systems or designed to consider positive rental housing payments;
* Encourages CDFI investments in investors of color;
* Requires CDFI Venture Funds seeking certification to provide data transparency and data collection to ensure compliance with our nation's fair housing and fair lending laws;
* Requires each CDFI certified by the
* For CDFIs with assets greater than
* Requires them to enter into Community Benefits Agreements in their Target Markets to make sure their missions remain a focus of their work and loans are not just flowing to high-wealth developers;
* Permits CDFI product innovation that better transmits the benefits of their subsidies directly to consumers;
* Requires CFDIs to provide automatic interest rate reductions every 24-36 months for mortgage borrowers who perform well; and
* Requires more direct mortgage lending, including to Black and female consumers through first-generation down payment assistance, Special Purpose Credit Programs, and small dollar pilot initiatives.
Issue #12: The Federal Home Loan Banks Continue to Reap Private Benefits Rather Than Promote Fair and
Generally, the
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33 See Testimony of Director
Recommendation:
* Requiring the FHLBanks to direct substantially more of their net income to affordable housing, with a substantial portion of that amount dedicated to affirmatively furthering fair housing;
* Expanding the purpose of the Affordable Housing Program to include funding for climate resiliency;
* Requiring the FHLBanks to submit Equitable Housing Finance Plans;
* Requiring the FHLBanks to ensure that member advances are not used to promote source of income discrimination in multi-family rental housing; and
* Requiring the FHLBanks to add more public interest independent directors, including those with experience in fair housing and fair lending.
Issue #13: The GSEs Must Fulfill Their Mission Mandates
Discrimination in the mortgage market is by no means a relic of the past and continues to manifest in multiple ways. Data from the Home Mortgage Disclosure Act and the
Recommendation:
* Fully implementing their robust Equitable Housing Finance Plans that focus on addressing the racial homeownership gap;
* Considering the elimination of the Loan Level Pricing Adjustments35 ("LLPAs") as well as addressing barriers such as biased credit scores, lack of collateral and appraisal issues, and discrimination which can all restrict access to credit for underserved groups;
* Insert fair housing protections into the eligibility guidelines of all their affordable housing programs, including the Low-Income Housing Tax Credit,
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34 FHFA, Annual Housing Report 2021 at 68, Appendix E (October 2021).
35 The GSEs updated their Loan Level Pricing Adjustments grid which helped address concerns that the LLPAs presented a discriminatory impact against borrowers of color. However, the GSEs should seriously examine the complete elimination of the LLPAs, which were added during the financial crisis to help the GSEs repay their tax-payer bailout.
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* Including in their financing contracts an affirmative obligation for developers to build housing in accordance with the accessibility requirements mandated by fair housing laws as well as an affirmative obligation to further fair housing; and
* Facilitating the widescale use of Special Purpose Credit Programs.
Issue #14: Artificial Intelligence Related to Housing and Lending Offers Both Promise and Peril
Artificial Intelligence (AI) holds great promise for improving systems, democratizing opportunities, lowering costs, and increasing productivity. Yet, it also holds great dangers for perpetuating bias, spreading mis-information, excluding people from necessary services, and generating other harms. AI and automated systems are already used extensively in the housing and finance sectors, including in credit scoring, tenant screening, automated underwriting, risk-based pricing, dynamic rental pricing, marketing, automated valuation models. Typically, AI models are developed using historical data, which can exacerbate historical discrimination.
Recommendation
* Advance Legislative Actions for Safe, Secure, And Trustworthy Use of AI to Address the Fair and Affordable Housing Crisis
The rapid advancement of Artificial Intelligence (AI) technology has significantly boosted its integration into the US's housing and financial services system. This integration is evident in the widespread adoption of automated underwriting systems, risk-based pricing systems, and automated valuation models, among other applications. Though there are bias and discrimination risks in AI systems and their impact on housing and financial services, they can be mitigated and decreased to allow AI systems to promote fairer outcomes.
Algorithmic systems, when used responsibly, can help circumvent and overcome biases in AI and automated systems to allow for fair and affordable housing. Algorithmic fairness techniques can be utilized to mitigate bias by addressing bias at different stages of the AI life cycle, such as through pre-processing, in-processing, and post-processing, to ensure equitable outcomes in AI systems.36 AI can also assist in identifying and mitigating risk in discriminatory practices and policies for housing and employment. AI-driven approaches that assist in the identification and mitigation of discriminatory practices and policies include identifying data sets that are non-representative/under-representative of specific populations,37 internet or website crawling tools to gather online data such as housing listing, which be analyzed for patterns of discrimination, and AI tools utilizing natural language processing NLP and large language models (LLMs) to analyze textual data to identify discriminatory language or patterns in documents, policies, and communications.38 When harnessed responsibly, ethically, and safely AI can be leveraged to automate workflows streamline mortgage processes, improve data accuracy and reliability, accelerate appraisal modernization, improve borrower education and credit accessibility services provided to underserved communities, and much more.
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36 Zhou, N., Zhang, Z., Nair, V. N., Singhal, H., & Chen, J. (2022). Bias, fairness and accountability with artificial intelligence and machine learning algorithms. International Statistical Review, 90(3), 468-480.
37 7 Rie Kamikubo, Lining Wang,
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The potential benefit to the American people for fairer and more affordable housing through AI systems is glaringly apparent. However, to ensure this potential is fully realized, legislative action such as ensuring AI Systems compliance with existing civil rights and consumer protection laws, integrating the review of racial equity in the algorithm's lifecycle, auditing requirements, and ensuring public data access, transparency, and explainability for systems is imperative to ensure these technological innovations are spurring economic progress towards affordable housing and creating more equitable outcomes.
* Advance Responsible Tech Solutions for Fair and
In the current state of housing development, we face a labyrinth of regulatory processes that can stifle innovation and prolong the delivery of affordable housing. Innovative technology solutions can transform the approval process, making a substantial impact on the fair and affordable housing crisis.39 These technologies have begun to address the inefficiencies at the core of America's housing shortage. They offer reimagined finance models, alternative paths to homeownership, and pioneering construction methods, which collectively foster a more efficient real estate ecosystem. For instance, proptech companies are revolutionizing the way we understand and navigate zoning meetings and permitting processes, effectively condensing timelines that have traditionally prolonged development.40 Moreover, platforms that automate compliance and leasing processes can cut through bureaucratic red tape, saving time and resources while complying with the law. Similarly, advancements in materials technology and modular construction are setting the stage for quicker, more cost-effective building methods, vital for expanding the supply of fair and affordable housing.41 In summary, by harnessing the power of responsible and innovative tech, we can streamline the development process, reduce costs, and deliver affordable housing more rapidly to the market. These technologies are not mere conveniences; they are essential tools in our urgent quest to close the housing gap. As legislators, embracing and fostering these innovations is paramount to ensuring a future where fair and affordable housing is not a privilege, but a reality for all.
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38
39 See,
40
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Issue #15: Anti-DEI Activists Are Willing to Hold Back the American Economy to Advance Their Misguided Cause
Sustainable Growth in the Housing Market Will Depend on Fair Access to Credit for Consumers of Color
All future net household growth will be from households of color.42 Research shows that between 2020 and 2040, 16.1 million net new households will form, including 8.6 million more Latino households and 3.3 million more Black households, but fewer White households. Therefore, a sustainable, healthy housing market and housing-related businesses will depend on the ability to serve consumers of color.
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41 Zander, G. (2023, May). Innovation & AI in
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Closing the Racial Gaps Would Contribute Billions to the Economy and Trillions to GDP
Recommendation:
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Conclusion
Inequitable race-conscious housing policies created and cemented today's housing inequities, and now equitable policies are needed to rectify the problem. Housing discrimination and residential segregation are underlying factors in today's fair and affordable housing crisis and inflaming inflation. The inability to stop discrimination and overhaul unfair systems is stifling this nation as we need between 4-7 million new units to address the nation's fair and affordable housing crisis. Creating a fair, just, and equitable society is critical for the millions of people who lack access to viable financial services and opportunities to lead successful lives. But it is also imperative for our collective progress as a nation. Groundbreaking research has revealed that if we eliminated racial inequality, the
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43 Pub. L. No. 117-2 (2021)
44 See Remarks by Chairman
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Original text here: https://docs.house.gov/meetings/BA/BA04/20240320/116995/HHRG-118-BA04-Wstate-BaileyN-20240320.pdf
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