Government LendingLegal

Fannie Mae pays $53M to settle recession-era discrimination suit

The sum is the largest settlement for REO maintenance discrimination

Amid protests set off by George Floyd’s death, Fannie Mae’s CEO issued a public statement about its commitment to racial equity.

“Fannie Mae understands the story of housing in America includes a history of systemic racism,” CEO Hugh Frater wrote in June 2020. “Our role in housing finance brings important responsibilities.”

Lisa Rice, president of the National Fair Housing Alliance, saw the statement and reached out to Frater to remind him of a related issue: a lawsuit the fair housing outfit had filed against Fannie Mae in 2016. It alleged the government-sponsored enterprise didn’t maintain foreclosed properties in communities of color as well as it did in white neighborhoods.

“I told him, ‘We have this serious racial equity issue still pending, and I hope Fannie Mae is serious about it.’” Rice said.

During a four-year investigation, plaintiffs collected 49,000 photographs of poorly maintained properties in Black and Latino communities. Photographs show boarded up windows, tall grass, and trash-littered yards, which Rice said deterred owner occupants from buying the properties. Instead, investors bought the run-down properties in bulk sales.

After the housing crisis, the GSE’s portfolio of foreclosed, or “Real Estate Owned” properties ballooned. In 2011, Fannie Mae repaired 89,800 such properties, and sold 244,000. As of 2020, Fannie Mae’s REO portfolio is 17,500.

As part of the settlement agreement, Fannie Mae will pay $53 million, $35 million of which will go toward access to credit, property rehabilitation, residential development in African American and Latino communities and fair housing education, counseling and outreach.

The settlement is one of the largest sums for fair housing violations, and the largest for discrimination in REO management discrimination. Wells Fargo settled with NFHA over similar claims in 2013, for $39 million.

“From my point of view it’s not enough,” Rice said. “We were eager to be able to close [the lawsuit] so we could get some relief for the communities.”

It’s unclear how $53 million relates to the economic harm that NFHA alleged Fannie Mae engaged in. The NFHA halted an economic study to assess the toll when it moved to settle with Fannie Mae.

But the sum barely covers the $46.7 million the NFHA, its co-plaintiffs and advocacy organizations claimed they spent to rebuild communities of color and conduct education and outreach around REO best practices.

A spokesperson for Fannie Mae said the settlement would allow the GSE and NFHA to move forward on important housing equity issues. Fannie Mae takes maintenance of its properties very seriously, the spokesperson added.

“We require the same property maintenance standards in all neighborhoods regardless of race or ethnic background, and conduct independent third-party quality control reviews of vendors hired to do this work,” the Fannie Mae spokesperson said. “Our REO maintenance standards are designed to ensure that all properties are tended to and treated equally.”

The spokesperson highlighted a number of improvements to its REO maintenance practices, including adopting mobile technology and better fair housing compliance guidance for vendors.

As part of the settlement, the GSE said it would, or already has, enhanced its REO maintenance and marketing activities. In addition to strengthening fair housing guidance for its vendors, Fannie Mae is increasing inspections of properties in majority minority areas, and “retooling” its quality control methodology.

As part of the executed settlement, Fannie Mae also said it would list, on a website, a toll-free number for members of the public to call if they have concerns about REO properties. As of publication, that website is broken.

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