Even staunch industry defenders concede that banks handled struggling homeowners and foreclosures poorly in the wake of the financial crisis. Five of the biggest banks and mortgage servicers tried to clear the air last year by agreeing to provide at least $25 billion in consumer relief via a national settlement with federal and state regulators. Separately, the banks continue to face charges from cities like Memphis and Cleveland that they've contributed to urban blight.

The episode has proven hugely expensive to the banks in dollars and in damage to their reputations. It has also left them anxious to avoid further trouble. That appears to have left Wells Fargo open to a deal earlier this year with the National Fair Housing Alliance and Department of Housing and Urban Development over allegations that it neglected foreclosures in minority neighborhoods.

NFHA handed over the addresses of the homes that the bank had allegedly failed to maintain only after it agreed to enter into negotiations. Although the settlement agreement explicitly states that Wells Fargo believes that it always maintained "industry-leading practices" and never discriminated, it agreed in April to pay $42 million to settle the matter.

The final 31-page deal offers little evidence to support NFHA's specific neglect claims and provides no restitution to individual homeowners. Instead, Wells agreed to: adhere to "best practices" that it already claims to follow; make minor alterations to its property management operations, such as adding a toll-free phone number to field complaints; and give prospective owner-occupants an extra week to bid on REO properties before others are given an opportunity.

Wells is also required to direct $30 million in settlement dollars to NFHA and $11 million to HUD. In exchange, it received immunity from further HUD enforcement actions for as long as it remains in place.

The NFHA has pinned claims of intentional racial bias by Wells Fargo, Bank of America and U.S. Bank on pictures of homes that it photographed, inspected and graded on a scale of its own design. Its 39 measures include factors that might hurt a home's curb appeal and value, such as broken windows, accumulated garbage and the lack of "for sale" signs.

In its original administrative complaint against U.S. Bank, which is still pending in an expanded form, NFHA claimed the lender was responsible for 171 properties that are in disrepair in minority neighborhoods. Teri Charest, a spokeswoman for the Minneapolis-based bank, says it acted as the servicer, and was thus responsible for the upkeep, of only eight of those homes. For the other 163, U.S. Bank is the trustee for securitized trusts and has neither the responsibility nor the authority to maintain or foreclose on the properties, she adds.

One home in question is a two-bedroom residence on Joyce Drive in Lakeland, Fla. After trustee U.S. Bank was notified of possible maintenance problems, it tracked down servicer Ocwen Financial, which dispatched an employee to the home on Sept. 6, U.S. Bank says.

That employee was unable to enter the premises because the former owners had left personal property inside; servicers are required by law to notify former occupants of the need to retrieve their belongings, which Ocwen did on Sept. 21. By then, however, NFHA had photographed the home and held a press conference at which its president, Shanna Smith, had blamed U.S. bank for the condition of "the rat house."

The NFHA fingered U.S. Bank for the allegedly egregious condition of two other homes for which the bank was also the trustee: a property that Smith termed the "flea house" located on Baltimore's Reverdy Road, for which Ocwen is the servicer; and another the NFHA boss dubbed the "mold house," located on Blue Holly Court in District Heights, Md., that is serviced by Bank of America. In all three cases U.S. Bank, as trustee, notified the servicers of their duties to secure and maintain the homes.

Even so, Smith dismisses the notion that her nonprofit targeted the wrong institution.

"U.S. Bank is always going to say they're just the trustee," she says. "Trustees are covered under the Fair Housing Act, which makes it crystal clear that they're liable."

Other fair housing experts and bank attorneys dispute the claim that REO properties were ever covered by the Fair Housing Act. Instead, they say that in pressing claims against the trustees for foreclosed homes the NFHA is pursuing a novel legal theory that's untested in court.

The debate over trustees' responsibilities has surfaced repeatedly since the mortgage crisis erupted. One explanation is that they're vulnerable to being named as defendants simply because their names appear on foreclosure documents.

"You cannot contract away your obligations under the Fair Housing Act," says Stephen Dane, a partner at Relman, Dane & Colfax, a Washington law firm that frequently represents the NFHA. "It is cutting edge (legal theory) and will remain so until the industry either shapes up or they start losing cases."

Trustees have consistently argued that their duties are purely administrative and limited to transmitting funds and providing performance statements to mortgage-bond investors; it is property servicers who are responsible for maintaining REO homes, they say.

It's an argument that even the NFHA and HUD gave credence to in their settlement with Wells Fargo. In it, they agreed "not to impose any legal right or obligation on Wells Fargo's Corporate Trust Services," the division of the banking company that acts as trustee for residential mortgage backed securities trusts.

Instead, Wells agreed to send a letter to all mortgage servicers of REO properties owned by the trusts for which it acts as trustee. Those letters are aimed at "reminding these servicers of their legal and contractual obligation to properly service such properties," the settlement states.

Smith acknowledges that NFHA "made some concessions to Wells Fargo," on the trustee issues "because it acted in good faith in negotiations and stepped right up to address this serious problem adversely affecting communities of color."

NFHA's claims against Bank of America are similarly open to question. A review of the homes it is accusing the bank of neglecting indicates that ownership of some had already been transferred to Fannie Mae at the time of the complaint. In other instances, the NFHA pointed to severely neglected properties before Bank of America took control of them or could have reasonably be expected to have made repairs.

The NFHA's investigation of a property at 1213 Dunbar Oaks in Capitol Heights, Md., for example, features photographs of a dilapidated property that are time-stamped "8/10/2012." Maryland State Court records provided by Bank of America, and verified by American Banker, show that the foreclosure was still tied up in court. The judge awarded Bank of America possession of the property more than two months later.

"It's hard to find a bad REO in a white middle-class neighborhood," NFHA's Smith remarked at her press conference last month.

That may be accurate, but in comparing homes in predominately minority and white neighborhoods NFHA appears to have selected properties that were originally of far different values and in vastly different conditions. In Atlanta, for example, it compared a Bank of America-owned property that sold for $669,000 in a white neighborhood to one listed for $35,000 in a minority community. The relatively poor state of REO homes in minority areas results largely from the original condition of the properties rather than from unequal treatment by banks, industry attorneys argue.

None of that got in the way of the NFHA's $42 million Wells Fargo deal. The $30 million of it slated to go to NFHA and its affiliates provides them with a big financial boost, but Smith's aggressive funding efforts have led to questionable alliances and embarrassing episodes in the past. During the housing boom, the group actively courted subprime lenders. Among the "partners and supporters" it repeatedly honored at the time were Ameriquest Mortgage and New Century Financial—two defunct subprime specialists that have been widely blamed for saddling low-income borrowers with unaffordable mortgages.

Other civil rights groups took money from subprime lenders as well, but few were as vocal in their support as NFHA. After 30 state attorneys general accused Ameriquest of predatory lending in minority communities in 2005, nonprofits like the Greenlining Institute severed ties and returned its money. Smith spoke up in Ameriquest's defense.

"I don't expect any company to be perfect," she told the Los Angeles Times. "But I do expect that when the flaws are identified, they correct them. And Ameriquest has that attitude."

After the housing market cratered and Ameriquest and New Century failed, NFHA eliminated all references to their financial support from its web site, archived versions show. The revisions now on its site include refer to them as bad actors.

"We have to wonder why the Department [of Justice] did not investigate Countrywide Financial or New Century," Smith said at a 2008 hearing, pinning the blame on the DOJ for failing to stop predatory lenders.

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