President Barack Obama's recess appointment to direct the Consumer Financial Protection Bureau (CFPB), Richard Cordray, wasted no time in announcing the watchdog agency's "nonbank supervision program." Bringing nonbank mortgage lenders more fully and formally under federal supervision could represent a historic moment for fair housing enforcement more than four decades after the passage of the 1968 Fair Housing Act.
But only if congressional Republicans get out of the way and let Mr. Cordray do his job.
Primarily targeting discrimination by real estate brokers, the 1968 law made it illegal to refuse to rent or sell real estate on the basis of race, religion, or national origin — all common practices prior to its passage. The act also prohibited discriminatory lending, but it failed to spell out a clear enforcement mechanism for the provision. As a result, over its 44 years, the Fair Housing Act's effectiveness in curbing unfair lending has depended on the willingness and ability of federal regulators to monitor lenders, often with disappointing results.
The CFPB's nonbank supervision initiative promises to give fair housing enforcement maximum coverage over the nation's mortgage lenders. But this historic advance could be turned back if Republicans continue to obstruct the new consumer protection agency.
After all, this wouldn't be the first time that fair housing regulation seemed to have turned a corner — but didn't quite get there.
The first apparent breakthrough happened in the mid- to late 1970s, when first the Federal Home Loan Bank Board, the regulator of the nation's savings and loan associations, and then the Federal Deposit Insurance Corporation, after years of delay, finally issued fair housing regulations. Only after civil rights activists petitioned and then sued the federal agencies did they agree to take some responsibility for fair lending enforcement. But at long last, by 1978, the overwhelming majority of residential mortgage lenders fell under the jurisdiction of federal fair housing regulation.
Yet this hard-won victory would prove to be short-lived.
In the early 1980s, the newly deregulated savings and loan industry began to drastically reduce its role in residential mortgage lending. Increasingly, mortgages would be originated by brokers who operated beyond the reach of the federal financial regulators. While most mortgage brokers did not engage in discriminatory lending, the absence of oversight created the space for the less scrupulous among them to thrive, preying on the borrowers fair housing regulation was intended to protect.
The CFPB nonbank initiative will correct this long-standing regulatory deficiency. For the first time since the late 1970s, nearly all mortgage lenders will again fall under fair lending supervision and enforcement. Yet, if congressional Republicans succeed in scaling back the authority of the CFPB, this opportunity to fulfill the promise of the Fair Housing Act will be lost.
Republicans will likely contest Mr. Cordray's appointment, and if they can't repeal Dodd-Frank and the CFPB altogether, they will undoubtedly attempt to curb the agency's funding and restrict its power any way that they can.
In the coming weeks, there is likely to be much partisan rancor over the legitimacy of the Cordray appointment and continued groaning from congressional Republicans over the "unaccountability" of the CFPB. The rhetoric will center on the appropriate use of executive power and the proper role of government regulation in the economy. These are issues on which Americans are deeply divided.
But that is not all that is at stake. So is an issue on which most Americans have long since agreed — ensuring equal opportunity for housing.
Whatever the fate of Mr. Cordray or of the CFPB, the extension of federal regulatory oversight to nonbank financial institutions must remain. It's the best chance we have of fulfilling the promise made long ago by the Fair Housing Act.
Robert Henderson is a fellow at the University of Virigina's Miller Center of Public Affairs and a PhD candidate in history at the University of Maryland, College Park. His email is firstname.lastname@example.org.Copyright © 2015, The Baltimore Sun