Skip to main content
OCC Flag

An official website of the United States government

Appeal of Potential Violation of the Fair Housing Act - (Second Quarter 1998)


An institution filed a formal appeal with the ombudsman's office concerning a potential violation of the Fair Housing Act (FHA).  The potential violation involved possible discrimination against applicants for mortgage loans on the basis of familial status.  The institution received correspondence stating the Office of the Comptroller of the Currency (OCC) had determined that it has reason to believe the bank engaged in a pattern or practice of violating the FHA by applying different appraisal criteria to property located in family developments than it did to property located in developments restricted to adults only or carefully separated adult/family sections.  At the time of the potential violation the bank was operating under written residential appraisal report guidelines that set forth mobile home park rating criteria.  The criteria contained 11 quality rating categories ranging from "exclusive" to "negative influences."  Contained within the criteria was descriptive language which differentiated between "adult" and "family" occupancy and specified that "adult" parks would be rated higher than "family" parks.  The guidelines specified that an appraisal should include a designated park rating and a statement referring to the criteria on which the rating was based. 

A third-party fee appraiser was engaged to provide appraisals for loan applications originating from a family oriented mobile home park.  The appraiser had earlier signed a bank statement confirming that he would comply with the guidelines to the best of his ability.  While the record is unclear as to whether he actually applied the guidelines in conducting the appraisals, it is clear that he compared lots in nearby "adult" mobile home parks to the applicant lots located in the "family" mobile home park.  Consequently, the appraiser applied a substantial discount to each of the proposed collateral lots.  At a later date, the bank revised the guidelines eliminating differentiating language between adult and family occupancy.

The OCC conducted a review of the mobile home application documents and informed the bank that the agency found there was reason to believe the bank had violated the FHA when its fee appraiser discounted the value of lots in the family park at least, in part, on the basis of familial status.  The OCC determined there remained reason to believe the bank had engaged in a pattern or practice of violating the FHA by applying different appraisal criteria to property located in family developments than it did to property located in developments restricted to adults only or carefully separated adult/family sections.  The supervisory office concluded that it was therefore obligated to refer this matter to the U.S. Department of Justice (DOJ) and to notify the U.S. Department of Housing and Urban Development (HUD).

The bank appealed this decision to the ombudsman.


The FHA, 42 USC 3605, prohibits a lender from discriminating on a prohibited basis in a residential real estate related transaction (including the making of loans) or in the terms or conditions of the transaction.  The implementing regulation, 24 CFR 100.130, describes unlawful conduct as using different policies, practices, or procedures for any loan which is secured by residential real estate because of, among other factors, familial status. 

The appraiser exemption, 42 USC 3605©, states that nothing in the FHA prohibits an appraiser from considering factors other than prohibited criteria (e.g., familial status).  The implementing regulation 24 CFR 100.135(d) further describes unlawful practices as using an appraisal for financing any dwelling where the person knows or reasonably should know that the appraisal improperly contained familial status consideration.  42 USC 3607(b) establishes specific criteria for housing to qualify for the "housing for older persons" exemption.  It states that the FHA provisions that protect familial status do not apply to "housing for older persons" as housing (i) intended for, and solely occupied by, persons 62 year of age or older; and (ii) intended for and operated for occupancy by at least one person 55 or older per unit. 

The Interagency Policy Statement on Discrimination in Lending offers guidance on the meaning of a pattern or practice.  The Policy Statement states that "repeated, intentional, regular, usual, deliberate, or institutionalized practices will almost always constitute a pattern or practice" of lending discrimination but "isolated, unrelated, or accidental occurrences will not."  In assessing whether a pattern or practice exists, the OCC considers the totality of circumstances, including the following factors:

  • Whether the conduct appears to be grounded in a written or unwritten policy or established practice that is discriminatory in purpose or effect.
  • Whether there is evidence of similar conduct by a bank toward more than one applicant.
  • Whether the conduct has some common source or cause within the bank's control.
  • The relationship of the instances of conduct to one another.
  • The relationship of the number of instances of conduct to the bank's total lending activity.  This list of factors is not exhaustive and whether the OCC finds evidence of a pattern or practice depends on the egregiousness of the facts and circumstances involved.  Each inquiry is intensively fact-specific and there is no minimum number of violations that will trigger a finding of a pattern or practice of discrimination.

The term "pattern or practice" is not defined in the FHA but has generally been interpreted to mean that the discrimination must not be isolated, sporadic, or accidental.  Also, while there is no minimum number of incidents that must be proven as a prerequisite to finding a pattern or practice of discrimination, a party does not have to discriminate consistently to be engaging in a pattern or practice.

What the facts in the judicial decisions and the examples in the Policy Statement indicate, however, is that a "pattern or practice" involves some degree of action or conduct toward a protected person.  In particular, the Policy Statement specifically refers to a lender's "conduct" in describing relevant factors to a "pattern or practice" determination.

Even in the absence of a discriminatory policy, evidence of a contractor's discriminatory actions may still affect the bank when the bank hires the contractor to act as the bank's agent.  According to agency law, a principal generally is liable for the acts of its agents.  Thus, if the contractor's actions constitute a pattern or practice of discrimination (even if the contractor alleged that he or she followed nondiscriminatory criteria), the bank may be liable as principal for those actions.  The fact that a single agent acted without express direction by the principal should not preclude a finding a liability. 

Under the FHA, which protects persons from discriminatory housing treatment that is about to occur, a discriminatory policy (even if not acted on) could nevertheless signal the likelihood of imminent discriminatory treatment and could provide a basis for a charge by the Secretary of HUD.  In accordance with Executive Order 12892, the OCC must notify HUD whenever it has received information "suggesting a violation" of the FHA and the OCC must forward such information to the DOJ if it "indicates a possible pattern or practice."

Where there is an openly declared or otherwise manifested policy that discriminates on a prohibited basis, it is not necessary to prove that the policy was consistently followed in order to believe that a pattern or practice existed.  The written appraisal report guidelines of the bank did contain discriminatory familial status considerations.  Moreover, under the FHA, any consideration by a lender or appraiser of a prohibitive factor such as familial status constitutes discrimination.  Although the appraiser failed to provide a designated park quality rating as detailed by the guidelines, this does not alter the fact that he applied familial status considerations as one of the stated reasons for discounting the properties.  While the appraiser had the latitude under the law to consider legitimate market and economic factors in appraising particular properties, any consideration of a prohibited factor such as familial status (rather than fair market value derived from comparable sales) is sufficient reason to believe that discrimination occurred.


The ombudsman concluded that there was sufficient reason to believe that a violation of the FHA occurred and as such, remanded to the OCC's supervisory office the matter of notification to the U.S. Department of Housing and Urban Development and a referral to the U.S. Department of Justice.