SCORE ONE FOR THE AFFORDABLE SOLUTION
By Linda Bush

© Copyright  2002-2008 Landlord.com

Try placing a phone call to virtually any public housing authority in the country, and you'll probably hear something like this: “Our Section 8 waiting list is currently closed. The approximate waiting period for low-rent public housing applications is 18 months to two years.”

This is the message you hear when you call your local Housing Authority. It underscores the reality that demand for affordable housing vastly exceeds supply. Federal, state and local governments already assist millions of families with housing. But millions more go unassisted, including 3.7 million working families that work the equivalent of a full-time job, according to the National Housing Conference.

Some affordable housing advocates think they can solve the crisis through legislation and litigation that would force properties to accept applicants who use Section 8 vouchers. Several jurisdictions, including the State of California, have laws prohibiting source of income discrimination, and courts in Connecticut, New Jersey and Illinois have ruled that property owners can be forced to accept Section 8 applicants.

The day may come when all property owners have to open their doors to affordable housing residents.

Credit Scoring Option

This prospect may not sit well with property owners who believe affordable applicants are more risky than market-rate applicants. But affordable applicants don't have to be more risky than market-rate applicants. Property owners with affordable units have a powerful tool that sorts prospective residents to find the ones that present the least amount of risk. That tool is credit scoring  the same applicant screening process used to successfully screen millions of market-rate applicants.

Department of Housing and Urban Development guidelines for screening affordable applicants are straightforward. Property Managers cannot treat a person differently when determining whether he satisfies any admission requirements. Further, applicants for affordable housing cannot be declined because they lack credit history, but they can be declined for having a negative credit history.

Apartment credit scoring for affordable housing works a lot like it does for market-rate applicants.  It ranks consumers by the loss they are likely to cause a property owner for unpaid rent, termination costs and physical property damages. Apartment credit scores are derived from actual renter histories, which makes them extremely effective in predicting renter behavior.

Specialized Screening Data

Applicant screening services for affordable applicants need to be sophisticated enough to know what data can and cannot be used to screen affordable applicants.  Specifically, some variables that would normally be applied to market-rate applicants, like the lack of credit, must not be used to screen affordable applicants.

The screening system should be sophisticated enough to ensure that property owners comply with Fair Housing laws. For owners of mixed-use properties, where both market-rate and affordable applicants live, this issue is especially critical.

“If you have a property that’s 100 percent affordable, that’s easy,” says Deborah Bayles, the Chief Legal Officer for SafeRent Inc., an online applicant screening service for market-rate and affordable housing. “Where fair housing issues can arise is when you have mixed properties where you are screening both an affordable applicant and a market-rate applicant for the same unit.”

Market Rate vs. Affordable Screening

A property that sets aside a certain percentage of units for applicants with incomes below a pre-defined threshold while leaving the rest of its units open to market-rate applicants can, under certain circumstances, use two separate screening models  one for affordable applicants and one for market-rate applicants. In this situation, the owners may treat their screening processes as if they owned two separate properties.

Applicant screening gets more complicated at properties where voucher holders and market-rate applicants compete for the same units. In order to comply with HUD’s screening guidelines, data that could be used to evaluate the risk of market-rate applicants cannot be used to evaluate affordable applicants. And in order to comply with Fair Housing, all applicants for the same pool of units  affordable and market  should be screened with the same criteria.

The best option in this situation is to screen affordable and market applicants through a process that complies with the regulations for screening affordable applicants.

Some property owners may be tempted to accept any applicant who shows up with a voucher. Affordable applicants come with a guaranteed rental payment, the property owner reasons, so why should I worry about screening them?

In some instances, affordable applicants do pose less financial risk than market applicants. But that does not mean affordable applicants can't cost a property owner money by neglecting to pay their share of the rent, damaging property or behaving in a way that forces other residents to leave the property.

In markets where demand for affordable housing is so great that 20 applicants may be on a wait list for a single unit, it is in the property owner’s best interest to use a screening system that fairly evaluates applicants. This is especially important when you consider the complexities of the eviction process.

Credit Scoring Accuracy

Credit scoring isn't the only option available for screening affordable applicants. But companies that provide reliable credit scoring have proven their worth by increasing occupancy and reducing debt for many of the biggest property management companies in the country.

And there are other advantages. What would a leasing associate who uses a rule-of-thumb screening process do with applicants who have only one account on their credit report, and that account is in collections?

The leasing associate tied to the rule-of-thumb method may be forced to decline such an applicant. But a credit scoring system looks beyond the collection by evaluating variables unknown and unseen to the leasing associate. Some of these applicants might be worth accepting, but with the rule-of-thumb method, you would never know.
 
Online credit screening also provides a fast, consistent way of evaluating applicants even though the property management industry is plagued by high turnover rates. Property owners who use an online credit screening process can be assured that even a new employee untrained in the legal requirements of affordable housing can still screen affordable applicants without violating Fair Housing law.

The process can also save money by eliminating bad applicants before leasing associates spend time doing the paper work and inspections required by many public housing authorities.

Applicant screening services are becoming big businesses. More and more property owners are turning to screening companies to limit their exposure to liability.  But using a screening company to screen your affordable applicants without understanding if the service complies with screening regulations for affordable housing can be more damaging than not screening at all.


Linda Bush is co-founder and CEO of SafeRent, Inc. (www.saferent.com), the leader in web-based applicant screening services.  She is co-author of "The Growing Use of Credit Scoring to Improve Apartment Applicant Selection,” a white paper commissioned by the National Multi-Housing Council.  SafeRent screens applicants for more than 800,000 apartments throughout the United States.  The company offers award-winning applicant screening services to the apartment industry for market rate, affordable and independent owners/managers. 

"Reprinted with permission from the April 2002 ABODE magazine, the official publication of the Houston Apartment Association. Copyright 2002, Houston Apartment Association.

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