DEC 4, 2013 10:43am ET

HUD as Prosecutor and Judge

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The Department of Housing and Urban Development is a rare government agency that funds private enforcement of its own regulations. It does so via its Fair Housing Initiatives Program, which offers grants to nonprofits to carry out the work.

Consumer advocates say they provide a cost-effective grassroots network that's capable of ferreting out discrimination in minority communities across the country. They also claim to be responsible for processing more than 65% of all fair housing complaints, the majority of which involve rental properties. HUD's own 545-person Office of Fair Housing and Equal Opportunity, which conducts is own investigations, is responsible for the rest.

In September, HUD awarded $38 million to fair housing groups and other nonprofits. Most of the money went to the National Fair Housing Alliance, a quarter-century old group that conducts preliminary investigations into discrimination claims. It also dispatches "testers" who apply for housing-related services with the aim of determining whether suppliers are engaging in racial discrimination.

NFHA itself received more than $2 million from HUD's most recent grants, including $1.5 million for a national anti-discrimination media campaign and $325,000 for investigations into whether banks and mortgage servicers are guilty of neglecting REO properties in minority neighborhoods. (REO, or real estate owned, is an industry term for properties that come under bank ownership following foreclosures.) Its affiliates received an additional $24.7 million earmarked for enforcement activities.

Supervision of the grants falls to Sara Pratt, HUD's deputy assistant secretary of programs and enforcement. An attorney widely acknowledged for her breadth of fair housing experience, Pratt headed HUD's fair housing enforcement unit during most of the Clinton administration. She then went to work as the NFHA's own enforcement director before taking on jobs as a fair housing trainer, expert witness and consultant.

Precisely what role Pratt played at NHFA in developing its strategy of going after banks over alleged discrimination in foreclosed-home maintenance—and getting HUD to fund it—is unclear. What is known is that she performed consulting work and authored NFHA research at the time when the group was seeking to launch the initiative. Pratt declined comment for this series through a HUD spokesman.

"Sara Pratt had nothing to with the design or implementation of NFHA's REO investigation. I designed the investigation with members of my staff in 2009," says NFHA president Shanna Smith.

Since returning to HUD three years ago, Pratt has pushed the enforcement division into the front lines of discrimination law, including its cases involving alleged racial discrimination by banks in foreclosure management. She was also involved in talks that led to a controversial deal in which officials in St. Paul, Minnesota dropped a Supreme Court challenge to the legal theory of disparate impact (under which lenders can be held liable for unintentional discrimination) in exchange for the Department of Justice's abandoning of an unrelated case against the city—a legal quid pro quo that had critics crying foul and bankers howling.

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