A pending U.S. Supreme Court case with the potential to impact the legal liability of mortgage lenders has settled before trial, creating continuing questions concerning the risk of inadvertently discriminating against borrowers based on race.

The dispute centered on the 10,000-resident township of Mount Holly, N.J.'s plan to redevelop a section of town known as Mt. Holly Gardens, demolishing some homes in the process and displacing residents in the largely minority community.  A community group, Mt. Holly Citizens in Action, Inc., joined 50 of those residents in a claim that the action was discriminatory and violated the Fair Housing Act.

The settlement included the construction of new homes for some of those residents and the relocation of others. Parties in Mount Holly v. Mt. Holly Citizens in Action, Inc. were originally scheduled to go before the court on Dec. 4.

In avoiding a trial before the country's highest court, the case failed to answer some enduring questions about the prudent way that banks, in particular those active in the residential mortgage realm, should include racial concerns as part of their lending standards.

[caption id="attachment_50168" align="alignleft" width="160"] Rachel Dollar[/caption]

"It leaves the Department of Justice, and HUD, and the CFPB with the description of 'fair lending' where disparate impact is still the standard. In order for that to change, it needs to go before the Supreme Court," said Rachel Dollar, an expert in mortgage law and partner in the Santa Rosa-based law firm Smith Dollar.

Under current rules affecting lenders, hiring managers and others, a bank or otherwise can be in legal jeopardy for a seemingly neutral practice that ultimately ends up discriminating on the basis of race or national origin.

Yet even without an intentional impact, Ms. Dollar noted that lenders could find themselves at risk under the current rules.

Some have argued that a legal standard putting greater focus on the intent to discriminate could be more appropriate, while housing advocates argue that such an approach would diminish existing protections.

The American Bankers Association joined the U.S. Chamber of Commerce and a number of financial trade groups in arguing in the brief to the court that lenders in particular should be subject to a proven intent to discriminate under the Fair Housing Act. Yet without a court decision, the question remains.***Send items for this column to eric.gneckow@busjrnl.com or call 707-521-4259.