This study results from several years of research related to fair housing issues. by a research team comprised of several relevant stakeholders. The research team, comprised of several relevant stakeholders, includes faculty and students from the University of Arkansas at Little Rock, the director of the Arkansas Fair Housing Commission, and an Arkansas real estate appraiser. The work which inspired this research team was completed on mortgage lending practices in the Washington, D.C. area during the 1990s, which focused on both large and small banks. (1) This earlier research included an examination of the Fair Isaac Model, the details of which are a closely kept secret within the housing industry. This model's cryptic process and the impact on credit scores as output from it, as well as concerns over what goes into the application procedure, generally became key areas for additional research.
In 2006, meetings were held housing stakeholders in Arkansas over Fair Housing Act compliance. The aim was to identify what possible gaps in the literature exist with respect to fair housing in Arkansas. One gap found as a result of these meetings was that there were no studies examining whether crime levels in neighborhoods impacted the appraisal of houses located there. Apparently, stakeholders in the mortgage process differed in opinions of the appropriateness of using crime statistics as a factor in the appraisal process (2); thus, the specific focus of this study was born.
Allegations of fair housing violations, both nationally and within Arkansas, persist today, despite decades of efforts. These efforts include significant funding, education around, and enforcement of fair housing guidelines. Though redlining or stipulating areas for which loans will not be granted is no longer common place, many reports of "steering" involve real estate professionals (i.e. without the knowledge of potential buyers) intentionally (3) failing to show certain properties to potential buyers, even though the potential buyers have requested to see such properties. (4) In the post-Second World War era, many historically disenfranchised groups, such as minority groups, were unable to participate within some housing assistance programs due to the reality of segregation. Efforts nationally have provided education on the history of discriminatory barriers in fair housing and have provided assistance to aid many groups, including people with disabilities, low-income people, and the elderly to obtain housing.
Funding aimed at helping people navigate the myriad of regulatory guidelines and complexities of the mortgage have helped address this problem to some degree. Though education and assistance with obtaining housing are always needed, one area in which a serious gap still exists is the enforcement of fair housing guidelines. Given the psychological legacy of discriminatory efforts and volume of housing venues in existence nationally, it is difficult to appropriately cover all the housing needs even with the influence and authority at both the federal and state levels. (5) The true extent of housing discrimination in Arkansas is not known, but it is clear that minority groups and the disabled are in need of additional enforcement efforts to identify possible housing discrimination. In the past, private enforcement initiatives have focused on central Arkansas. (6) Since then, Arkansas began experiencing exponential growth within several major geographic areas. However, areas not experiencing such growth are still vulnerable. Therefore, a fair housing private enforcement initiative effort is needed statewide, covering the four quadrants and central Arkansas.
It is important to consider the findings of the U.S. Department of Housing and Urban Development (HUD), published in their 2005 Annual Report on Fair Housing. (7) Nationally, more complaints were received regarding discrimination based on disability than based on race. Research completed in Chicago mentioned within this HUD report found complaints of negative treatment of the disabled accounted for 49.5 percent of discriminatory practices. Examples of "negative treatment" refers to refusals to answer questions, hanging up on the potential renter/buyer, rental unit officials refusing to make reasonable modifications to units, or housing officials refusing to make reasonable parking space accommodations for individuals with wheelchairs. Though the number of racially discriminatory complaints found by HUD was lower than that for disabled, research in this report indicated that one out of five minority applicants received negative treatment during the housing process. The use of "paired testing," that is comparing discrimination based on racial criteria as was shown within this report, is a useful tool to identify possible discrimination.
This same report documents that 25.7 percent of TTY users (hearing impaired) received negative treatment in terms of refusal to answer questions and hanging up on them. In 16 percent of cases uncovered, rental unit officials refused those asking to make reasonable modifications to units. Twenty percent of housing officials refused to make reasonable parking space accommodations for individuals with wheelchairs. In 2005, the Secretary of HUD issued a letter to housing officials nationally based on indicators that hurricane evacuees were unfairly denied housing. To this end, the reality of Hurricane Katrina (and Hurricane Rita) evacuees and the response of HUD to address their problems mandated the need for concerned groups to renew interest in private enforcement of fair housing.
Discrimination based on race and/or national origin was systemic nationally (largely due to the legacy of restrictive covenants) and was clearly seen in how neighborhoods in Arkansas were still largely segregated. Discrimination based on age impacted the growing demographic of senior citizens within Arkansas; primarily based on senior citizens either relocating to retire in Arkansas (known as "The Natural State"), or the inability of low-income senior citizens in Arkansas to move from their homes based on a growing state economy. Finally, discrimination impacting evacuees from Hurricane Katrina effected many states neighboring Louisiana, as evacuees might not have been able to obtain housing. It was noted that many evacuees had limited funds and fell within the previous three categories of race, age, or disabled, therefore it was reasonable to presume that enforcement needs to be investigated.
Review of the Literature
Since the rubrics of the Fair Issac Model are trade secrets, we do not completely understand how lenders make decisions about the credit-worthiness of borrowers. (8) Conversations among relevant stakeholders have largely been vague about the notion of quantifying crime with respect to fair housing. Many scholarly works and government reports have attempted to address this general issue. However, there is a dearth of literature with respect to works directly addressing home appraisal reports. This literature review simply provides some thematic understanding in order to set the stage for researching appraisal reports with respect to descriptors of crime.
In a 1992 landmark study on fair housing in the "post-redlining" era, it was found that "crime" seemed to be the primary variable associated with rejections received by home buyer applicants. (9) This was important in the sense that even after the legal barriers associated with exclusion from home buying opportunities based on zip codes were officially removed, the issues associated with where potential buyers might be moving from, played a role.
In 1988, a study was produced providing understanding that many of the allegations of redlining in Atlanta and all over the country had very little accurate evidence. (10) While subtle forms of discrimination were difficult to detect, Benston speculated that the best way to obtain useful information on the matter was to interview people who had unsuccessfully attempted to buy a home. Other studies compared prices charged for loans, but this approach did not explain why mortgages banks denied some applicants. That study concluded that there is no hard evidence that supported the existence of discrimination, at least at the level perceived from the number of complaints and allegations.
Blank and Montague's 1999 study utilized qualitative field research in order to examine practices exhibited by mortgage lending institutions in the Washington, DC metropolitan area. (11) Their fieldwork specifically examined the responses of local and national lending institutions with respect to their efforts to address current disparities stemming from historical discrimination. Larger corporate lenders were found to be more supportive of minority lending due to clear-cut policies and procedures common to sizable corporate infrastructures. The...