, , , , , ,

State Gobbles Man

The cause of racial unity is not well-served by abusive application of the “disparate impact” doctrine. A dispute has reached the U.S. Supreme Court over tax credits for Section 8 (low income) housing in the Dallas area, which are dispensed by the Texas Department of Housing. The Inclusive Community Project (ICP) alleges that too many permits are issued in low-income areas, leading to segregation of minorities. Of course, housing prices may limit the feasibility of Section 8 housing in higher-income communities, so the result is a natural consequence of reasonable decision-making. The case is of  broad importance, however, as discussed in this IBD opinion.

Established business and social practices based on sound principles may have, as a by-product, a disproportionate or disparate impact on disadvantaged minorities. For example, if a minority population has less savings, on average, than non-minorities, they will tend to require higher loan-to-value ratios when applying to lenders for similar mortgage amounts. They are therefore more likely to have their applications declined or priced less favorably. This obviously differs from outright discrimination against the minority, and it should not rise to a cause of action against a lender who merely attempts to protect investors from excessive risk or to comply with regulations against excessive risk-taking. From the IBD opinion piece:

‘The risk of disparate-impact lawsuits, in the absence of guidance from the court, pressures the residential mortgage lending industry to arrive at particular outcomes and end numbers to avoid such lawsuits,’ the American Bankers Association wrote the high bench in a joint amicus brief. …

Such pressure can force lenders to water down underwriting standards and take on more risk, since ‘down-payment requirements, debt-to-income requirements, loan-to-value requirements, and other neutral, risk-based underwriting requirements can all affect various racial and ethnic groups differently,’ ABA added.

Policy goals should be at least compatible. Whether or not the plight of disadvantaged populations justifies some form of redistributive “justice,” there is no reasonable excuse for undermining prudent business practices that are otherwise free of any intent to discriminate against minorities. And in any case, a less efficient economy diminishes society’s capacity to redress such ills. Indeed, it’s more likely to aggravate them and allow disharmony to fester.