Housing Advocates Want Equal Treatment for REO Homes

An investigation by the National Fair Housing Alliance found that banks are allegedly not maintaining REO properties similarly in neighborhoods throughout the nation.

The Washington-based civil rights group’s investigation called “Here Comes the Bank, There Goes Our Neighborhood: How Lenders Discriminate in the Treatment of Foreclosed Homes” targets eight lenders to see how they are preserving foreclosed homes in African-American and Latino communities compared to white neighborhoods.

Shanna Smith, president and CEO for the National Fair Housing Alliance, said in a conference call that she could not release the names of the lenders because this is still an ongoing investigation, but revealed that lenders and asset managers are violating the Fair Housing Act by discriminating maintenance issues for housing markets based on race.

“This investigation is documenting a number of alarming practices by banks that is currently perpetuating segregation in our neighborhoods and communities,” Smith said. If we leave this problem unaddressed, the banks will continue to perpetuate segregation and impede our countries economic recovery. The National Fair Housing Alliance and our partners will continue to investigate and bring administrative actions and lawsuits against the lenders and their vendors who continue to perpetuate this segregation through despaired impact and different treatments of REO properties because of the racial composition of the neighborhood.”

The NFHA and three of its member organizations—the Miami Valley Fair Housing Center, Connecticut Fair Housing Center and Housing Opportunities Made Equal—evaluated the maintenance of bank-owned homes on a 100-point scale in communities in Ohio, Virginia, Connecticut and Maryland. Smith said the evaluation models were based on curb appeal, general maintenance and overall structure of the REO property.

“We were quite startled to drive up to a number of REO properties to find broken doors, locks that were not working, windows that were out, and other damage to the structure,” Smith said. “Would you or your real estate agent want to market this type of property?”

Between July 2009 and June 2010, there were 2,117 foreclosed properties in Montgomery County, Ohio. According to the investigation, the majority of the foreclosures occurred in predominantly African-American communities, particularly in Dayton, and most of the property maintenance scores of “D” and “F” were also in these types of neighborhoods.

“The pattern of neglect of REO properties in African-American neighborhoods in the Miami Valley, Ohio, area is unmistakable,” said Jim McCarthy, president and CEO for the Miami Valley Fair Housing Center. “The negligence of lenders in maintaining these properties not only devalues the private investment of neighboring properties but also jeopardizes public money that has been invested by the City of Dayton and Montgomery County in an attempt to stabilize these neighborhoods.”

Erin Kemple, executive director for the Connecticut Fair Housing Center, said there were similar results in Hartford and New Haven County. She said most scores that were either a “D” or “F” occurred in neighborhoods of color and scores of an “A” or “B” were in white neighborhoods. Kemple said that REO properties in white communities scored 89 out of 100, while black communities scored a 78 and Latino neighborhoods scored only a 66.

“These scores mark concerns that there are neighborhoods being decimated and cities being fledged of needed tax income by the presence of REO properties that are in really bad shape,” Kemple said. “REO property in white neighborhoods look like they are occupied with shades on the windows. Properties in black neighborhoods have curling notices on the front door, shrubs that are overgrown, and mail in the mailbox. These are all signals to vandals that this is an abandoned property, which nobody is interested in taking care of. This not only hurts the property itself, but brings down the value of the places surrounding it.”

Despite not seeing any scoring differences between minority and white neighborhoods in Richmond, Va., Amy Nelson, director of systemic investigations and enforcement for Housing Opportunities Made Equal, said African-American communities had an average rating score pertaining to maintenance issues for the REO properties.

“Failure to maintain that higher standard certainly hurts the entire neighborhood when that property is attempted to be sold,” Nelson said. “Areas of concern in our review were curb appeal and lawns not being mowed.”

For the two Maryland counties, Smith said African-American communities had lower grades than the white areas, which had no “F” scores in any of its neighborhoods. When surveying the properties, Smith said a contractor told her that the banks ordered him to work on cosmetic issues including painting and installing new carpeting and kitchen cabinets, rather than major renovations such as fixing the gutters, removing mold, or repairing a roof.

Smith said the main reason why there are so many foreclosures in African-American neighborhoods throughout the country is because banks offered subprime and predatory loans to these homeowners who were looking to refinance.

According to Smith, Fannie Mae, Freddie Mac and the Department of Housing and Urban Development are all contributing funding for this investigation because they own so many REO properties.

Smith said lenders were told about the NHFA’s findings citing a correlation between the Fair Housing Act and the maintenance of REOs and discrimination. She said the lenders, who own the property and typically hire an asset manager to drive by the home weekly to make sure they are fulfilling their contractual obligations to maintain the asset, decided not to follow the information given to them.

“We may bring action against the asset managers and possibly not the lender who owns the REO if we learn that that lender took affirmative steps to make sure the asset manager was complying with the federal law and just didn’t do it in African-American or Latino neighborhoods,” Smith said. “We’re exploring all of the legal options we have now.”