HUD legal opinion: Special Purpose Credit Programs – a type designed to correct past lending shortfalls to protected groups – are legal under the Fair Housing Act.
WASHINGTON – Can a lender legally create a special program for communities that have historically experienced lending discrimination?
Yes, according to a legal decision rendered by the Department of Housing and Urban Development (HUD).
In 1976, Congress created Special Purpose Credit Programs (SPCP) when it amended the Equal Credit Opportunity Act (ECOA). The SPCPs were created to “help remedy longstanding discrimination in credit markets,” noting that “such remedial programs do not themselves constitute unlawful discrimination.”
However, HUD says a number of lenders haven’t created programs because they’re “worried that those programs may run afoul of the Fair Housing Act and other federal anti-discrimination laws.”
HUD’s legal opinion, released Monday, makes it clear that in HUD’s opinion, the Fair Housing Act doesn’t pose a threat to creating an SPCP.
According to HUD, the Fair Housing Act “prohibits discrimination in the sale or rental of housing … based on race, color, religion, sex, disability, familial status, or national origin.” However, it’s not “limited to preventing discrimination alone, as Congress included an affirmative provision requiring the federal government to take a proactive role in redressing longstanding housing discrimination.”
It says SPCPs should be “carefully tailored,” but they generally don’t discriminate within the meaning of the Fair Housing Act, “just as they do not constitute discrimination under ECOA.”
The response by housing groups was positive.
“Special Purpose Credit Programs are an innovative approach to addressing a problem that has persisted for decades,” says National Association of Realtors® President Leslie Rouda Smith. “We look forward to learning more about these programs and how they can potentially benefit homebuyers around the country.”
Bob Broeksmit, CMB, president and CEO of the Mortgage Bankers Association, says he appreciates HUD’s clarification.
“SPCPs exist to help low-income and historically disadvantaged borrowers, and this clarification is an important step in providing lenders additional tools to help these borrowers purchase a home,” Broeksmit says. “We look forward to working with HUD, the CFPB, and other regulators to assist in the expansion of compliant SPCPs to meet their potential for assisting communities and reducing the racial homeownership gap.”
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