MAY 1, 2012

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Servicing Lens

Are All REOs Treated Equally?

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In this season of high political drama it is not really surprising that potential candidates, as well as a myriad of federal agencies, are all jockeying for the most complimentary spot in the limelight. The National Fair Housing Alliance is no exception.

Given the ongoing economic situation, it is no surprise that the bull’s-eye is still squarely aligned on the financial sector, particularly mortgage banking and servicing as the target “du jour.” Several complaints filed by the NFHA against multiple banking entities are a recent example of this focus on the mortgage banking and servicing sector.

The complaints filed by the NFHA are the result of undercover investigations of REO properties to determine if foreclosed properties in predominately white neighborhoods are better maintained and marketed more aggressively than those in neighborhoods of color.

The investigation was funded in part by grants through two of the largest owners of foreclosures, HUD and Fannie Mae. Andrew Wilson, a Fannie Mae spokesman, stated they work “to facilitate the maintenance, marketing and sale of foreclosed properties in predominantly minority communities, including training real estate agents and examining practices of financial institutions,” hence their involvement in this study.

The legal footing for the NFHA complaints is based on the Fair Housing Act, which makes it illegal to discriminate against seven protected classes of people, including race, color, religion, national origin, sex, disability and familial status, as well as the race or national origin of residents of a neighborhood.

The investigation involved the exterior inspection of over 1,000 properties which were pulled from populations of REOs in nine major metropolitan areas. The NFHA claims that the undercover investigation revealed an ongoing issue of disparate treatment of REO properties between predominantly white neighborhoods and those in neighborhoods of color.

Not everyone agrees with the findings of the investigation.

Like most complex situations, there is always more than one perspective on the issue. It can be argued that the inspections undertaken in the investigation do not provide an accurate basis for comparison.

The drive-by exterior inspections of the REO properties did not take into account the original condition of the property before it became an REO, nor did it account for any repairs or renovations that might have been underway at the time of foreclosure.

Reports of this nature are necessary as tools to insure the industry is in alignment with the Fair Housing Act. However, the methodology used in creating such a study should account for variances in the subject properties that pre-existed the testing period.

Metrics for this type of study should contain an honest assessment with defined components and criteria throughout the gathering of data.

Though this is sometimes difficult to attain, the measurements should be as objective as possible and the organizations conducting the research should be prepared to conduct root-cause analysis to avoid jumping to erroneous subjective conclusions.

The adage “garbage-in, garbage-out” certainly applies to the report produced for the NFHA, subsequently rendering the contents of their complaints excessively subjective and flawed on so many fronts that it should, and probably will be, rendered inconsequential.

 

Diane Gozza is EVP, business development, Integrated Mortgage Solutions, Houston.

Comments (1)
As a OREO Manager at a large multi-state bank located in the midwest I had the challenge of acquiring, managing and selling over 300 properies in 9 different states. We had several groups of new homes that were located in what I came to call "Instant Ghetto's". There were no "owner occupant" type buyers so many of the banks sold their homes to investors who in turn rented them out to Housing Authority tenants and the neighborhoods went to heck in a hurry. Minorities made up the majority of the tenants. The challenge in managing these homes was that they were constantly vandalized and you would no more fix them back up and they were immediately re-vandalized. Good money after bad...finally as a business decision we maintained only one home at a time and listed it and tried to sell it. The others were left alone for the most part. Were we guilty of treating these homes differently than homes we had in up scale neighborhoods? Absolutely! And you had to be an idiot to do it any other way. The "do gooders" need to get out of their offices and their suburban neighborhoods and take drives through these minority neighborhoods before they make accusations of unfair treatment of OROE in minority neighbhorhoods.
Posted by Brian Kamler | Wednesday, May 02 2012 at 10:39AM ET
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