The Fair Housing Council of Oregon recently published its audit of Portland for the city’s Housing Bureau which revealed 64 percent of black and Latino renters in the stalwart liberal city were discriminated against when inquiring of available units. Following the release, an outcry that cut across party lines cascaded down the state’s media pipelines — and the animus wasn’t all aimed at the disturbing results.

Caught in the crossroads were city officials who were bound by administrative procedure to assess the results and leave all options on the table. To fair housing experts, that meant considering what action to take against the offenders, which can range from mediation and education on fair housing laws to fines and civil suits. Leland Jones, a spokesperson for U.S. Department of Housing and Urban Development, the government agency commissioned by Congress to enforce fair house laws and the 1968 Fair Housing Act, told The American Independent, “[City Commissioner Nick Fish] is doing what he is supposed to be doing. He’s surveyed the landscape.”

Fish told the Oregonian he was “outraged by the results,” but parried questions whether he would go after the violating landlords and leasing agents named in the study. Fisk said: “That’s not the right question. The intent is to do a balanced approach. I have concluded that the best approach is to look at changes to the system and not just individual remedies.”

That response did not sit well with legislators and fair housing advocates. Shanna Smith, president of the National Fair Housing Alliance told the Oregonian, “I find it unconscionable for a city to supply the money for the audit and then not enforce the law.”

A strongly-worded letter with the signatures of the 12-member Republican Senate Caucus, currently in the minority, was made public last Thursday. The letter read (PDF), “We, the Senate Republican Caucus, are asking that you prioritize enforcement of these statutes, citing, and where appropriate, prosecuting individuals who violate the civil rights of another.”

In response, Fish wrote a letter to leading Senate Republican Jackie Winters and the Republican delegation last Friday, which read in part, “Last week, I announced that Portland would pursue a dual track to combat discrimination in housing: enforcement of the law coupled with beefed-up education and outreach to renters and landlords. In the weeks ahead, I will announce an action plan, developed with key community and government partners, to combat bias in rental housing.”

On Wednesday, Fish’s office sent letters to the offices of 26 apartment buildings that were listed in the report as sites of discrimination; the addresses were also released (PDF) to the public. The Portland Housing Bureau, which Fish oversees, intends on turning over the results of the audit to the Oregon Bureau of Labor and Industries, the state’s labor department that aims to “protect employment rights, advance employment opportunities, and protect access to housing and public accommodations free from discrimination.”

To Jones of HUD, the initial media coverage poorly explained why Portland was suddenly faced with reports of discrimination. “the coverage should’ve noted that why Protland knows it has troubling numbers is because of the process, the analysis of impediments to fair housing, which conducted the tests which reported the troubling numbers,” Jones said.

The Oregonian reported the audit was commissioned by the city to satisfy the terms the federal government places on the city for accepting grants toward community development and fair housing, but Jones chided onlookers who asked why the analysis “isn’t doing anything.”

“Commissioner Fish is preparing recommendations, using all tools available, meaning enforcement and education,” Jones says.

HUD is watching how the city is responding to the audit’s findings. If the agency believes local authorities shirked enforcement, HUD can request the details of the report be passed over to its investigators. However, Jones did not criticize the city’s handling since news of the audit became public.

Fair Housing Council of Oregon (FHCO), the organization that conducted the audits, receives money from HUD to function as a watch group in the state. HUD runs two programs, the Fair Housing Assistance Program (FHAP) and Fair Housing Initiatives Program (FIHP) that contract organizations like FHCO to investigate claims of discrimination and provide education to tenants and landlords on fair housing rights.

The framework of an audit — wherein an investigator who is Caucasian or representative of the “majority” population is sent to landlords and leasing agents to compare treatment they gave to investigators who are visibly of a “protected class” — is a reliable mechanism for HUD and other housing agencies out to uncover discrimination. Sometimes the results of an audit warrant greater scrutiny, and a second wave of investigations follow. That thoroughness is to protect HUD or the U.S. Justice Department, which can represent the agency in civil suits in federal courts, from judges who are willing to throw out a case if the methodology used by the government is not sound.

The control group is not always white. The Justice Department filed a lawsuit in 2006 against developer Donald Sterling, owner of the National Basketball Association’s Los Angeles Clippers, and Korean landlords in Los Angeles were for excluding non-Koreans from the rental process. Investigators posed as Koreans and compared their treatment to investigators acting as prospective renters of a different background.

Most penalties in fair housing are civil, which typically means a fine. However, if the discriminatory act also involves the use of force or a threat to use force to willfully injure or intimidate, imprisonment can result in addition to fines.

Jones says the agency has a stark reminder when education and outreach is possible: “We remind people housing discrimination is against the law.”

The enforcement of fair housing, therefore, is crucial to HUD’s mission of paring back instances of preferential treatment based on sex, race and background, he added. “Societies follow laws only if jurisdictions enforce them.”

UPDATE, 12:45 p.m.: Via an email to TAI, HUD Spokesperson Leland Jones updates his view of Portland City Commissioner Nick Fish’s decision to make public the violating rental properties that were listed in the Fair Housing Council of Oregon audit: “As was the case in the City’s decision to contract with the [FHCO] to conduct a ‘test’ in advance of the City’s revision of its Analysis of Impediments to Fair Housing and the association action plan, the City’s release yesterday of the list – as well as the sending of letters to landlords and owners – reflects the City’s commitment to fulfilling its obligations under the Act.”

The proposal, according to a HUD press release, would do the following:

Prohibiting lenders from using sexual orientation or gender identity as a basis to determine a borrower’s eligibility for FHA-insured mortgage financing. FHA’s current regulations provide that a mortgage lender’s determination of the adequacy of a borrower’s income “shall be made in a uniform manner without regard to” specified prohibited grounds. The proposed rule would add actual or perceived sexual orientation and gender identity to the prohibited grounds to ensure FHA-approved lenders do not deny or otherwise alter the terms of mortgages on the basis of irrelevant criteria.

Clarifying that all otherwise eligible families, regardless of marital status, sexual orientation, or gender identity, have the opportunity to participate in HUD programs. In the majority of HUD’s rental and homeownership programs the term “family” already has a broad scope, and includes a single person and families with or without children. HUD’s proposed rule clarifies that families, otherwise eligible for HUD programs, may not be excluded because one or more members of the family may be an LGBT individual, have an LGBT relationship, or be perceived to be such an individual or in such relationship.

Prohibiting owners and operators of HUD-assisted housing, or housing whose financing is insured by HUD, from inquiring about the sexual orientation or gender identity of an applicant for, or occupant of, the dwelling, whether renter- or owner-occupied. HUD is proposing to institute this policy in its rental assistance and homeownership programs, which include the Federal Housing Administration (FHA) mortgage insurance programs, community development programs, and public and assisted housing programs.

The proposed rule can be reviewed here.

Last year, HUD required all groups and organizations receiving federal support to follow local and state non-discrimination ordinances, including those which prohibit discrimination on the basis of sexual orientation or gender identity. It is also conducting the first ever study of LGBT people and housing needs.

The National Gay and Lesbian Task Force praised the agency for the new rule in a press statement Thursday. Rea Carey, executive director of NGLTF, released the following statement:

“These are critically important reforms given that lesbian, gay, bisexual and transgender people remain particularly vulnerable in seeking or retaining housing due to widespread bias, discrimination and a lack of housing protections. We’re talking about one of the most fundamental needs a person can have: shelter. Everyone should be able to obtain affordable housing free from discrimination, have a safe place to live and a roof over their head.

“We’ve heard painful stories over the years from lesbians, gay men, bisexual and transgender people who were discriminated against when trying to secure a home. These reforms will go a long way toward ending an injustice that has had such a profound and far-reaching negative impact on people’s lives. What this means for our community is greater access to and protections for safe and secure housing. HUD plays a major role in low-income housing programs and the private mortgage market. These proposed steps would do much to help our families. LGBT low-income families regardless of where they live will have equal access to HUD housing programs. LGBT people will be judged based on credit-worthiness for mortgages without regard to sexual orientation or gender identity. And, LGBT families would be included in the definition of family for HUD-related programs.

Michigan has no state law prohibiting discrimination on the basis of sexual orientation or gender identity in employment or housing, and only a handful of municipalities and even not all of those prohibit discrimination on the basis of gender identity.

[B]anks must follow the law — and those that haven’t should immediately fix what is wrong. Given the problems that have already been found and admitted to by some servicers, the Obama Administration fully supports the voluntary moratoria that are already in place and others should they be deemed necessary. Some have suggested, however, that all foreclosures in every state, under every servicer, should be stopped. But a national, blanket moratorium on all foreclosure sales would do far more harm than good — hurting homeowners and home-buyers alike.

Though a few politicians and many housing advocates are calling for a blanket moratorium, it seems unlikely now. But the situation does underscore that the Obama administration could do more, much more, to help families underwater, in foreclosure and otherwise hit by the housing crisis. Towards the end of the piece, Donovan writes:

By the time the home gets to foreclosure, it’s often too late to help families stay in their homes — they may be too far behind or in some cases, they’ve already left the home. Banks need to provide more help, more people, more resources to those families facing a crisis long before they ever get to a foreclosure — so more families can keep their homes. And where foreclosure is not avoidable, having been processed legally and appropriately, banks should help families transition to sustainable housing situations with dignity.

Two things here: First, there is ample evidence that banks are not following and have not followed the proper process for dealing with homeowners in default. Banks are usually contractually obligated to provide a number of alternative solutions to homeowners behind on their mortgages. In recent years, though, servicers have tended to rush homeowners straight to foreclosure. The administration should make sure servicers and lenders are following the preexisting guidelines.

Second, it is all well and good for Donovan to say that the banks should “help families transition to sustainable housing situations with dignity.” But the administration can do more to make sure that happens. It could, for instance, push for right-to-rent legislation to move out of Congress. And the Treasury has spent only a fraction of its Home Affordable Modification Program funding –funding it could be using to provide incentives for banks to keep families in their homes, by improving and expanding HAMP and related programs.

But regulations on servicers are thin. Servicers can, Andy Kroll noted earlier this year, change their charges and fees without notifying homeowners in advance. The companies routinely mess up families’ paperwork. And often they benefit from the confusion — tacking late-payment or wrong-payment fees onto customers’ bills.

Servicers have existed for decades, but have remained obscure — to the press, to the public and even to the regulators meant to be overseeing them. The federal regulators in charge of mortgage servicers — including the Office of the Comptroller of the Currency and the Federal Trade Commission, though each in a limited capacity — generally have not taken action when they break laws. In fact, though the Housing and Urban Development Department receives thousands of complaints a year, Washington hardly ever reacts. Instead, state governments are responsible for regulation. And that means a patchwork quilt of responses. Some states, like Ohio, go after the companies aggressively. Others don’t.

The good news is that this will soon change. Already, the Consumer Financial Protection Bureau technically has the mandate to oversee and write rules for mortgage servicers, though it is not staffed or set up yet. If the foreclosure fraud crisis is big enough, the new Office of Financial Research and Financial Stability Oversight Council might become involved. And last week, Rep. Brad Miller (D-N.C.) said of Congress, “We now have resolution authority that we can take out for a spin.”

Plus, Congress and the White House are now paying attention. Though the administration is using kid gloves, not pushing for new solutions or calling for a national moratorium on foreclosures, the Hill is more active. Sens. Richard Shelby (R-Ala.) and Chris Dodd (D-Conn.) have called for hearings when Congress comes back into session, after the November elections. Other offices I spoke with, including Sen. Sherrod Brown’s (D-Ohio), said they are considering new legislation or hearings to look into the fraud crisis. In the meantime, about 40 state attorneys general are investigating or initiating cases related to the crisis.

[Richard Cordray, the Attorney General for the state of Ohio] has filed a lawsuit in Lucas County (Toledo) Common Pleas Court against GMAC Mortgage and their parent company Ally Financial, in a suit which names Jeffrey Stephan, the infamous “robo-signer” who signed off on up to 10,000 foreclosures a month across the country with affidavits, without verifying the information in the foreclosure documents. The lawsuit alleges fraud on the part of GMAC, along with violations of the Ohio Consumer Sales Practices Act, in filing false affidavits to mislead the courts in what they describe as “hundreds” of Ohio foreclosure cases. And, the Attorney General is treating every single false affidavit filed in an Ohio court as a separate violation, with a fine of up to $25,000, plus additional restitution for the homeowner of an unspecified amount.

This is a major lawsuit, and as Cordray told reporters, “We’re at the beginning of this, not the middle or end, and we’ll see where it leads us.” For context, approximately 450,000 foreclosures have been filed in Ohio since 2005, and potentially all of them used this robo-signing process. At the outer edge of this, if every one of those foreclosure processes is seen as a single case of fraud, the fines for the entire lending industry would add up to $11.25 BILLION dollars, just in the state of Ohio, not including the extra restitution for homeowners.

And political pressure is growing from all levels of government — local, state and federal, from attorneys to senators — for all banks to halt all evictions until the paperwork fiasco is sorted out. Rep. John Conyers (D-Mich.), for instance, sent out this advisory this afternoon, calling for a halt to evictions in Michigan:

Thus far, only three lenders — [Ally], Bank of America, and JP Morgan Chase — have ceased post-foreclosure enforcement actions in 23 states that have court-controlled foreclosure proceedings: Connecticut, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont, and Wisconsin. Even those lenders appear to have only ceased evictions, while they continue to engage in foreclosures, which take title from homeowners.

At this point Michigan and 26 other states are not on the moratorium list for these lenders, purportedly because they have a non-judicial foreclosure process. However, without judicial oversight, the possibility of abuse can be even greater in these states. As a result, elected state officials in non-judicial foreclosure states such as California, Colorado, Texas, Massachusetts, and Maryland have recently asked lenders to suspend their foreclosures.

And Sen. Jeff Merkley (D-Ore.) is calling for Treasury and Housing and Urban Development officials to name a special investigator into the fraud crisis and to halt foreclosures in the meantime. In a letter, he writes:

According to credible reports … Ally Financial did not exercise proper professional standards as decisions were made about the fate of families struggling to maintain their homes. These reports are even more disturbing because the U. S. Government is a majority stakeholder in Ally Financial. The recent freeze in foreclosures announced by J.P. Morgan Chase, GMAC Mortgage, and Bank of America while internal investigations take place suggests that this problem may be widespread and not limited to poor management at a single company.

Accordingly, I request that the full resources of your departments, and of other relevant agencies of the U. S. Government, be brought to bear on this situation. Specifically, I urge you to jointly appoint an independent investigator to examine the foreclosure actions at the major loan servicers. I believe that foreclosures initiated by Ally Financial and other servicers with established problems should not be allowed to move forward until it can be ascertained that all proper steps were followed for any affected homeowner.

The report is, well, not great. And the accompanying press release is short of triumphant. “The housing market is performing better than the predictions made over a year ago,” Raphael Bostic, a HUD assistant secretary, says in the release. “We’re absolutely not claiming victory, but due to the Obama administration’s efforts, improved home affordability is continuing to provide opportunities for prospective, qualified homebuyers.”

In June, the program gained 38,700 new participants and granted 51,025 homeowners permanent mortgage modifications. It also kicked 91,100 participants out. The program generally drops participants if they cannot keep up with payments, or if they do not complete the requisite paperwork or meet certain requirements. All in all, the program has 364,100 homeowners still participating, has helped 389,200 get permanent mortgage modifications and has dropped 520,800 participants.

The number of trial modifications is down 18.6 percent month-on-month. The number of permanent modifications is down 30 percent. The number of counseled borrowers has fallen by more than 200,000 from last quarter. The program continues to drop more than half of homeowners before their modifications become permanent. (Under the terms of the program, a homeowner and bank agree on lowered payments. The modification enters a trial period, where the homeowner has to demonstrate her earnings and ability to make payments. If she cannot, the modification is dropped.) The one silver lining is that around half of those dropped borrowers have received help from their banks’ modification programs, and only 7 percent have ended up in foreclosure.

Still, the report is sobering. HAMP has helped 346,000 homeowners receive a permanent modification — a good number, but a fraction of the number of homeowners the administration initially hoped to aid. The housing market remains weak, with 10 million homeowners underwater. And a recent Fitch Ratings report predicted that most borrowers who receive permanent modifications under HAMP will redefault anyway, because “the median ratio of total debt payments to pretax income is still 64 percent.” From the Wall Street Journal story on the Fitch report:

Fitch based the redefault forecast on the performance of loans that were modified in the first quarter of 2009. Those modifications were done outside of HAMP, which took effect later in the year. But [Diane Pendley, a managing director at Fitch] doesn’t expect a major difference between the results of HAMP modifications and those made under lenders’ programs.

Even if two-thirds of the loan modifications fail, Ms. Pendley said, that doesn’t mean HAMP is a failure. “If you can save one-third of the borrowers, I think it is worth the exercise,” she said. She also said the HAMP program, announced in early 2009, had provided a basic outline for loan servicers to follow in modifying loans. Loan servicers, often owned by banks, collect payments and handle foreclosures. Previously they were “all over the place” in their methods for dealing with foreclosures, Ms. Pendley said.

Cold comfort: At least if housing double-dips, loan servicers will be better at modifications. I think I’d prefer preemptive cramdown legislation.

Rep. Barney Frank (D-Mass.) supported the strategic-defaulter provision, if crankily: “I am going to urge people to vote for it. I will say that it might need a word or two of improvement. If it had, in fact, been offered at the Financial Services Committee, either provision, we could have accepted it then, but then members wouldn’t have had a chance to make dramatic speeches on the floor, so I suppose that explains why we had to go through this.”

Here is Lee on the motion:

According to a study by Experian and management consulting firm Oliver Wyman, from 2007 to 2008, the number of strategic defaults more than doubled to 588,000, and a separate 2009 survey found that more than a quarter of all existing defaults were strategic.

Meanwhile, there are lawyers, scam artists and opportunists touting the financial benefits of walking away from a mortgage and offering to help you do that for a fee. Not a day goes by that we don’t read another news article about folks who are making calculated decisions to stop paying their mortgages even though they still have the ability to pay. We are not talking about those families who have fallen on hard times or who simply can no longer afford to make their payments. We are talking about this new trend of people who voluntarily choose to stop paying their mortgages even though they still have the ability to pay.

While these decisions should ultimately be left to the individual, we should put in place more stringent penalties to discourage this irresponsible behavior. If borrowers make decisions to strategically default on their loans, they certainly should not be allowed to benefit from a government-subsidized program.

This motion makes it clear: if you can afford to pay your mortgage and choose not to, you will no longer be eligible to secure an FHA mortgage. This motion calls on the Secretary of HUD to define strategic default and to work with lenders to identify and to prevent borrowers from participating in the FHA program.

The language prohibits the FHA from “newly [insuring] any mortgage under this title that is secured by a 1- to 4-family dwelling unless the mortgagee has determined, in accordance with such standards and requirements established by the Secretary, that the mortgagor under such mortgage has not previously engaged in any strategic default with respect to any residential mortgage loan.” It says that the FHA needs to figure out what an “intentional default” is in the first place.

Here is what I wrote on this topic last week:

[Republicans argue] that strategic default needs to be legislated away, and its perpetrators punished. But strategic defaulters are not committing some felony or crime. They are not even really breaching their contracts. Every mortgage contract spells out what happens if the homeowner does not pay: The bank evicts them and takes the home.Furthermore, the Republican letter does not spell out how the government would designate someone as a strategic defaulter anyway. Strategic defaulters are people who could continue to pay their mortgages but choose not to. Defaulters are people who cannot continue to pay their mortgages. But does the government really want to stipulate that homeowners have to hand over, say, up to their last $2,000 of savings to the bank before they can walk away from their home? Up to their last five percent of annual income? What if those people need the money to move, or to pay medical bills, or to buy shoes for their kids? Since when have Republicans advocated telling Americans how they can and cannot spend their money?

[...]

The way to tackle this problem is to … lower the number of strategic defaults. The best way to do that is to make sure that the recovery is strong, employment is growing and that homeowners are not underwater. Improving the Home Affordable Modification Program and “cramdown” provisions would go a long way to reducing homeowners’ monthly payments and principal, helping to keep them in their homes.

I repeat the point. There are better ways to deal with this problem than to have the FHA attempt to identify and punish strategic defaulters, particularly if Congress does nothing to ameliorate the underlying issue of homeowners being underwater on their mortgages.

“As a nation, we appear to be doing a better job sheltering those who might otherwise be living on our streets but clearly homelessness is impacting a greater share of families with children,” HUD Secretary Shaun Donovan said in a release. The report noted 78 percent of people in shelters are adults, 62 percent are members of a minority group and 61 percent are male.

Between 2008 and 2009, the number of individuals in emergency shelters and transitional housing programs declined 5 percent. But the number of homeless households increased 7 percent, to more than 170,000, and has soared 30 percent since 2007. The report notes:

The continued rise in family homelessness across the three years, from 131,000 families in 2007 to 170,000 families in 2009, is almost certainly related to the recession. However, the increase was more pronounced between 2007 and 2008, even through unemployment rates remained high during [2009]. It may be that many families already at risk of becoming homeless lacked sufficient support networks and became homeless almost immediately after the economy turned down. A much larger group turned to family and friends and may be doubled up and still at great risk of becoming homeless. The percentage of adults in families who reported that they had been staying with families before entering shelter increased steadily over the three-year period, from 24.2 percent in 2007 to 29.4 percent in 2009, as did the total percentage reporting that they had been in some sort of “housed” situation before becoming homeless, reaching 62.5 percent in 2009.

All of the increase in family homelessness in 2009 compared with 2008 was in the use of emergency shelter by family members, rather than transitional housing. Families stayed longer in shelters in 2009 than in 2008, with the median number of nights rising from 30 to 36. Not only did family homelessness continue to increase between 2008 and 2009, it also seems to have become more severe in the sense that it took the typical family longer to leave shelter.

And the report notes that the high rate of unemployment, peaking foreclosure crisis and the sustained incidence of families “doubling up” in houses in response might drive the number of homeless families up in 2010.

A recent study found a nearly five-fold increase in the rate of housing overcrowding, suggesting that many families are doubling up in response to the economic downturn. If some of these family support networks already are struggling to make ends meet, some of the doubled-up families may find their way into the homeless residential service system during 2010.

“As the number of homeowners receiving permanent modifications continues to increase, the administration’s comprehensive efforts are making an impact in the housing market’s overall recovery,” the Federal Housing Administration’s commissioner, David Stevens, said in a statement. “Today, mortgage rates remain at historic lows, around five percent; foreclosure starts are down 27 percent from last year this time; and home prices and the pace of home sales have stabilized in recent months.”

Still, the housing market remains weak and HAMP remains far short of its goal to aid 3 or 4 million homeowners by 2012. As of April, HAMP had started 1.2 million modifications, but the program had dropped more than 280,000 homeowners — a surprisingly high rate. And many of the mortgage holders aided by HAMP remain far underwater on their mortgages, and thus more likely to walk away from their homes.