A Significant Impact to Affordable Rental Housing

The state of New Jersey has introduced a bill that would significantly impact affordable housing across the state.  Senate, No. 1585 is seeking to establish guidelines for creditworthiness determinations concerning government subsidized housing programs.  The new restriction is intended to aide applicants who have poor credit history so their chances of receiving government assistance are improved.

Any algorithm that factors FICO and other risk models into the final decision would be prohibited.  The language contained in the proposed bill is ambiguous enough that it appears that more than just the standard FICO score would be affected.  Companies who rely upon a standardized model to assist their leasing agents in making objective decisions would be required to modify their criteria, or remove it all together.

The critical shortage of affordable housing in New Jersey has forced many low and moderate income households to reside in market-rate housing.  This is only a temporary solution, as many of these renters are unable to afford their residences and end up with damaged credit or eviction records because of it.  S1585 would remove a portion of the difficulty that these families face when attempting to be approved for subsidized housing.

The problem with this bill (as it is currently written) is removing a basis of objective information can potentially open the door to biased decisions during the rental process.  Credit scores and decision models rely upon current and accurate information that helps to qualify each applicant in a fair and equal way.   When objective information is removed from the rental process the odds become exponentially greater that a denied applicant will find cause to dispute the decision. The lack of clear and concise documentation that lead to the decision can create a manager’s worst nightmare when defending their choice.

The bill goes on to elaborate about the use of credit information outside of a scoring model.  For instance negative credit information may only be used to deny an applicant if they have failed to pay subsidized bills on two or more occasions within the previous three (3) years.  Even then the applicant is permitted a review of the circumstances that lead to the situation, and if they can produce a legitimate cause for the negative data they may still be deemed creditworthy.

While it is perfectly understandable to have a goal of fixing the housing problems that plague applicants in the affordable housing market, the removal of information used to protect companies will likely create more problems than solutions.  Reliance upon objective information is what helps companies act responsibly with regards to all of the rights applicants have protected by the Civil Rights Act of 1967, the Fair Credit Reporting Act (FCRA) and the Fair and Accurate Credit Transactions Act (FACTA).

To voice your opinion on S1585 contact Senator Shirley K. Turner (D) who is sponsoring the bill: http://www.njleg.state.nj.us/members/bio.asp?Leg=47