HUD Pulls Back on Redlining Enforcement

The federal government is dialing back its pursuit of redlining cases, a move that could reshape how mortgage lending discrimination is policed in minority neighborhoods.

An internal Department of Housing and Urban Development memo, obtained by Bloomberg, directs investigators to focus on how banks treat individual borrowers rather than how they serve entire communities. The shift effectively sidelines one of HUD’s most potent fair-housing enforcement tools, which targets lenders that deny loans or charge higher rates across neighborhoods with large minority populations.

The memo, issued Sept. 16 by John Gibbs, HUD’s deputy assistant secretary for fair housing, calls past guidance “legally unsound” for encouraging staff to weigh the racial composition of neighborhoods when probing lending practices.

HUD spokesperson Kasey Lovett said the agency is now prioritizing cases with evidence of “intentional discrimination” and working to reduce a backlog of complaints.

Critics say the change guts redlining enforcement and could reverberate beyond HUD, since agencies like the Justice Department, the CFPB and banking regulators often follow HUD’s lead.

“It’s going to matter to all the institutions that are charged with combating redlining,” Sasha Samberg-Champion, a former HUD lawyer now with the National Fair Housing Alliance, told Bloomberg.

Under the Trump administration, HUD already slashed fair housing budgets and reassigned staff away from enforcement. Field attorneys say complainants are being encouraged to drop cases and voluntary settlements now require approval from top brass, slowing resolutions to a crawl.

For lenders, the rollback may ease regulatory pressure but doesn’t eliminate risk. Attorneys note banks would be “foolhardy” to assume redlining won’t be enforced at all, since a future Democratic administration could revive oversight. Meanwhile, the 2015 Supreme Court ruling upholding “disparate impact” liability — the idea that policies can be discriminatory in effect even if not by intent — still stands.

With HUD signaling redlining is no longer a federal priority, watchdogs warn minority communities could once again be left to bear the brunt of lenders’ risk-averse strategies.

— Holden Walter-Warner