The proposed changes to the “disparate impact” rule come at a time when the gap between black and white homeowners is growing, according to a Redfin study.

The U.S. Department of Housing and Urban Development is reportedly mulling a change to the 2013 “disparate impact rule” that would make it harder for individuals to bring lawsuits for housing discrimination, according to a memo obtained by Politico. 

The updated rule would outline a five-step threshold for plaintiffs to prove unintentional discrimination and give defendants more leeway to rebut the claims, Politico reported.

HUD announced last summer it was seeking public comment on the “disparate impact rule,” a rule that was created to eliminate policies that aren’t intended to be discriminatory but have a discriminatory impact on one of the classes protected by the Fair Housing Act.

The rule currently has a three-step process. First, the plaintiff must prove the practice has a “discriminatory effect where it actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin,” according to the Code of Federal Regulations.

The second step shifts the burden onto the defendant to argue whether or not there’s a legally sufficient justification for the practice in question.

Finally, the investigating agency must determine, even if there’s a legally sufficient justification, whether or not there are “alternative practices that may be comparably effective with less disparate impact,” according to the U.S. Department of Justice. 

The changes, which are not yet public, are expected to be released in August, according to Politico. They are intended to bring the law more in line with a 2015 Supreme Court ruling, according to the proposal. In that 2015 ruling in the case of Texas Department of Housing & Community Affairs v. The Inclusive Communities Project, Inc., the court upheld disparate impact but set vague limitations on applying the rule.

The report says plaintiffs would now have to establish a link that the practice in question is, “arbitrary, artificial and unnecessary,” and establish a robust link between the practice and impact. It further requires the plaintiff to prove the practice will have an impact on an entire protected class — and not just an individual member of a protected class.

The final two steps require the plaintiffs to prove the disparity is significant, and for them to show that their alleged injury is directly caused by the challenged practice.

The proposed changes come at a time when the homeownership and home equity gap between black Americans and white Americans is growing, according to a newly published study by real estate brokerage Redfin.

The report found that in the recovery of the recession, the homeownership rate for black Americans has fallen five percentage points to 40.6 percent – the lowest rate ever recorded. Over the same period, majority-white neighborhoods have seen home equity gains of $191,000 while majority-black neighborhoods have seen home equity gains of $121,000.

Graph courtesy Redfin

“With higher unemployment rates and less wealth to begin with, black Americans were less able to buy homes even when prices were at their lowest point, meaning many missed out on opportunities to build wealth and put down roots in their communities through homeownership,” Redfin chief economist Daryl Fairweather said in a statement.

“The growing racial homeownership gap has widened the wealth gap, as home equity remains one of the most significant wealth-building tools,” Fairweather added. “And now, with higher home prices and tighter lending standards than before the housing crash of 2008, it’s more difficult than ever for minorities to break into the housing market. That’s likely to contribute to growing economic inequality in the U.S.”

Email Patrick Kearns

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