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Not All Neighborhoods Maintained Equally

JUN 12, 2012 2:00pm ET
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According to a recent report released by the National Fair Housing Alliance and four of its local member organizations, some of the larger financial institutions are not handling the maintenance problems in minority neighborhoods as well as they are in predominantly white neighborhoods. If these allegations are true it could spell trouble from federal regulators.

The report titled “The Banks Are Back, Our Neighborhoods Are Not: Discrimination in the Maintenance and Marketing of REO Properties,” looked at more than 1,000 REO properties nationwide to reach their conclusion.

The report’s authors felt their findings illustrated a clear difference. In the Philadelphia area, for instance, 91% of REO properties in neighborhoods of color had more than five maintenance problems documented, while only 63% of the properties in the mostly white sections of the city were found to have more than five problems. Over ten issues were found in 41% of homes in African American neighborhoods and none of the homes in white areas had more than ten maintenance or marketing difficulties. The report wasn’t clear about what constituted a deficiency. Of the properties of color as much as 75% was made unappealing and unhealthy by a significant accumulation of trash.

Throughout the report, the authors point to what they believe is evidence that the damage caused in these communities was perpetrated by the banks that first made unsustainable or predatory loans to residents of non-white communities and now is failing to maintain these same properties. We’re not so sure.

First of all, a sampling of 1,000 properties out of a pool of several hundred thousand around the country to me is not enough to draw a viable conclusion. It does suggest the need for a closer look at the standard practices in use throughout the country.  

In this report, the authors have taken a very cursory look at a very complex issue and in order to “peel back the onion” the report’s data should be normalized by neighborhood so that the researchers can compare like situations. For example, the economic environment and the population (regardless of race) will be a significant factor in the equation. It has to be, or the authors haven’t looked closely enough. When there are more urban environments than suburban or rural in the study and a majority of the residents are renters versus owners, the numbers can be easily skewed.

There is no clear-cut answer to this other than to examine a broader range of homes inhabited by residents of different economic levels. A broader study will undoubtedly reveal that this is not a issue or “race” but will have much more to do with the economy in general. With all of the regulations facing banks today, any attempt to do less would constitute a return to the days of “redlining” and would be a major misstep for banks that are clearly facing close scrutiny for every aspect of the current foreclosure situation. Now that would be simply foolish and every banker knows it.

From our perspective, we have seen no evidence of our lender clients specifying or requesting disparate treatment for properties in different neighborhoods. However, we do understand that if field service companies, financial institutions, brokers and residents do not work together with local enforcement problems will be the result.

Today, organizations like ours are judged on a “scorecard” system that measures the work we do and how long it takes to do it. In order to retain a relationship with a lender, companies like ours must adhere to strict timelines and quality control measures. In fact, working with code compliance in each city and town has become the norm.

From the beginning, REO Allegiance has worked closely with minority-owned contracting companies in all of the neighborhoods in which we maintain properties. It just makes sense. These are the people who live and work in these communities. By hiring them, you ensure a high level of professionalism as they are striving to build businesses in those areas.

We don’t believe this report represents a credible indictment of the major banks or servicers. We do believe in oversight from a national platform - which is our role and hiring on a local level is the best way to ensure that the job gets done right. In the final analysis, that’s what everyone wants.

Comments (2)
In a prior position, I managed over 300 OREO's in 9 states for a bank. I had the challenge of taking over subdivisions of completed and partically completed homes from bankrupt builders. In some of these new sub-divisions, investors had bought dozens of new homes from other banks and they placed Section 8 tenants in them. On came the hookers, the drug dealers, graffiti, broken windows, copper stripping, etc. Our homes were not spared so we repeatedly repainted them, fixed the busted in doors, fixed the broken windows, replaced the copper and after the third time doing this to the same houses, we stopped and we only tried to maintain a couple of the homes at a time so we could sell them. So, in this subdivision, where the occupants were predominately minorities, we did not maintain the homes as we did in other subdivisions where there was not vandilism. Was this racial discrimination. Absolutely not but I'm sure someone would call it that. I think this is what is going on in the inner city OREO neighborhoods where bank's are simply trying to lose less money vs. more money. They are not discriminating!
Posted by | Wednesday, June 13 2012 at 6:15PM ET
I find this article compelling and agree that a much broader study is needed to draw conclusive results. I'm curious to know, Mr. Logan, if a broader study has been or will be undertaken.
Posted by | Wednesday, July 18 2012 at 2:26PM ET
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