The Continued Importance of Fair Lending in the Age of Obama

Housing discrimination continues to plague the market, as does the myth that the housing crisis resulted from extending homeownership and home mortgage credit to historically underserved groups: minority families. Even with the Obama administration's Homeowner Affordability and Stability Plan and, within that, the Making Home Affordable program, minority groups continue to suffer ongoing discrimination and fair housing violations.

A Brief History

Real estate and home mortgage professionals openly discriminated against racial minorities in housing sales, home insurance, and mortgage finance in the early decades of the 20th century. Neighborhoods were redlined, while others formed neighborhood associations replete with specific provisions that enforced racially- and ethnically-restrictive housing. Groups subjected to these covenants have included African Americans, Hispanics, Jews, Chinese, Eastern Europeans and others. African Americans were the most common group to be excluded from white neighborhoods. Douglas Massey and Nancy Denton document this history in their important book, American Apartheid: Segregation and the Making of the Underclass.

The Home Owners Loan Corporation (HOLC), established by the federal government in 1933, gave concrete form to these discriminatory practices and institutionalized them. In the words of Massey and Denton, “it lent the power, prestige, and support of the federal government to the systematic practice of racial discrimination in housing.” The Federal Housing Administration and the Veterans Administration that were set up soon afterwards adopted the practices institutionalized by the HOLC. Thus, redlining became an officially recommended practice and the industry norm during this period of unprecedented expansion of homeownership through federally assisted mortgages.

The period of blatant credit denial and housing discrimination against minorities and minority-neighborhoods continued unabated until sporadic legal challenges and the legislation that came about as a result of the civil rights movement in the 1960s made discrimination in housing illegal. The Fair Housing Act of 1968 banned discrimination in home mortgage lending. And the Equal Credit Opportunity Act of 1974 (ECOA) banned discrimination in any aspect of a credit transaction, including home mortgage lending. However, even through the 1970s and 1980s, housing and lending discrimination persisted, practiced in covert forms and varied guises in an industry known for being conservative and resistant to change.

Dr. Nandinee K. Kutty is an economist and a policy consultant. She is an editor and contributor for the book Segregation: The Rising Costs for America (Routledge 2008). She is the author of numerous research papers published in peer-reviewed journals of economics and public policy. Dr. Kutty was formerly a professor at Cornell University. Her published research papers and op-eds are currently on the reading lists for courses taught at various universities in the U.S. Her e-mail address is


  1. Nandinee—Tiny point, in an overall very important article, but wouldn’t revaluing overvalued homes downward increase the debt to value ratio and make fewer owners eligible for refinancing under the 105% rule? Or am I misunderstanding your suggestion somehow?

  2. @Miriam Axel-Lute: Thanks for the comment Miriam. My suggestion is to use the loan value that would have occurred if the home had been appraised correctly (rather than over-appraised) at the time of the home purchase, and then to apply the 105% rule—which is now the 125% rule—to determine eligibility for refinancing. This adjustment would be made solely for the purpose of determining eligibility for refinancing. The debt to value ratio and any other parameters for determining the terms of the refinancing would be unaffected.


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