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Banks accused of neglect

Housing group charges banks with uneven treatment of foreclosures in minority neighborhoods.

By MSN Money Partner Apr 16, 2012 12:56PM

This post comes from Marilyn Lewis at MSN Money.


Banks are doing a better job maintaining foreclosed homes they own in white neighborhoods than in minority neighborhoods, says the National Fair Housing Alliance.


"The nation’s financial institutions are failing to maintain and market real-estate owned, or REO, properties in African-American and Latino neighborhoods," the alliance said in a statement (.pdf file).


The alliance, a consortium of 220 nonprofits, works to end discrimination in housing. It says it reached its conclusions after an undercover investigation of 1,000 homes in nine cities.


Metros studied include Atlanta; Baltimore; Dallas; Dayton, Ohio; Miami-Fort Lauderdale; Oakland-Richmond-Concord, Calif.; Philadelphia; Phoenix; and Washington, D.C.


The results are in a report, "The Banks Are Back, Our Neighborhoods Are Not: Discrimination in the Maintenance and Marketing of REO Properties."


Writes HousingWire: "The NFHA said its report 'offers disturbing evidence that the same banks that peddled unsustainable loans to communities of color and triggered the current foreclosure crisis are now exacerbating damage to those communities.'"


Wells Fargo singled out

Wells Fargo was singled out for particular criticism. The alliance filed a complaint (.pdf file) with the Department of Housing and Urban Development last week, alleging that the bank's behavior is a violation of the Fair Housing Act. The act (Title VIII of the Civil Rights Act of 1968, as amended in 1988) forbids sellers, real-estate agents, landlords and others from discriminating against buyers or renters on the basis of race, color, national origin, religion, sex, disability or family status.


Reuters reports on the HUD complaint:

"We found that with Wells Fargo, there was a neglect of simple things -- a lack of routine maintenance and security of the property -- that just didn't happen in African American and Latino neighborhoods across the board," said Shanna Smith, president of the National Fair Housing Alliance.

HUD declined to comment to Reuters about the complaint.


Tom Goyda, of Wells Fargo, said in a statement to Reuters that the bank "conducts all lending-related activities in a fair and consistent manner without regard to race, and this includes maintenance and marketing standards for all foreclosed properties." (Post continues below.)

Goyda said that the alliance's complaint didn't include specific information that would let the bank investigate further. He pointed to a department that does monthly inspections and maintains, secures and winterizes homes. On some of these properties, Reuters said, it is possible that investor-owners are responsible for upkeep, not Wells Fargo. 


Wells Fargo defended itself to HousingWire:

A Wells Fargo spokeswoman pointed out recent programs from the bank, including Neighborhood Lift, which targets millions of dollars in financing new mortgages and rehabilitating older properties in some of the very cities the NFHA conducted the investigation, such as Atlanta and Phoenix.
"We also take steps to help consumers and nonprofits purchase REO properties in order to advance neighborhood stabilization," the spokeswoman said.

The Washington, D.C.-based alliance used census population data to identify the racial composition of a neighborhood.


Investigators used a 100-point scale, taking points off for problems like overgrown grass, water damage, broken doors or windows, trash and the lack of "for sale" signs. They evaluated curb appeal, the presence of water damage, the condition of the structure, paint, siding and gutters and assessed whether a home was occupied.


Among allegations in the alliance's complain to HUD:

  • Bank-owned homes in communities of color were 42% more likely to have more than 15 maintenance problems;
  • Bank-owned properties in communities of color were 82% more likely to have broken or boarded windows than properties in white communities;
  • 45% (31 of 69) of REO properties in white communities had fewer than five maintenance or marketing problems, compared with 24% (36 of 149) in communities of color;
  • Newer homes generally fared better, "but racial and ethnic disparities persisted with nonstructural factors such as curb appeal and signage."

HUD complaints can take up to a year for resolution, HousingWire says. HUD may conduct an independent investigation, collecting interviews and documentation. Responses after that could include mediation or a lawsuit before a HUD administrative judge.


Cities wrestle with vacancies
Communities around the country have complained of banks' failure to maintain seized properties since foreclosures began mounting in 2007.


Reports the Richmond (Va.) Times-Dispatch:

The costs of dealing with blight are staggering. The U.S. Fire Administration says that more than 12,000 fires in vacant structures are reported annually, resulting in $73 million in property damages. An estimated 6,000 firefighters are injured every year fighting fires in vacant buildings.
Disturbingly, more than 70% of fires in vacant buildings are the result of arson or suspected arson.

Empty homes, more than any other factor, are correlated with crime in Richmond. And in Philadelphia, a study found "houses on blocks containing an abandoned property sold for $6,815 less than houses on blocks with no abandoned properties."

Cities have struggled to find ways to hold institutional property owners responsible.


Communities and states struggling to manage the problem are trying various solutions, passing ordinances or laws, for example, to create registers of vacant properties and fines for owners' failure to maintain them. When fines fail, municipalities may go to court to put liens on buildings' titles. Some recent examples include efforts by Cincinnati, Las Vegas and Boston (.pdf file).


More from MSN Money:


Apr 16, 2012 8:26PM
Sorry don't believe their comment. If anyone gets more education before they buy a house it is the inner city folks. Banks provide numerous classes on a consistent basis to educate this metropolitan population. Not buying their complaints...and I am not in banking....
Jul 17, 2012 1:39PM
Not buying their comments? I travel alot. It's apparent and very obvious that what they are saying is true. Try getting to some inner city neighborhoods and seeing for yourself. It's no big secret and banks don't attempt to hide their foul practices. I myself have learned to read the fine print and ask 100s of questions and to listen for what they are NOT telling you.
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