Housing advocacy groups investigate lenders, asset managers
The National Fair Housing Alliance may bring suit against a number of mortgage lenders, following an investigation into maintenance of bank-owned properties in minority neighborhoods. The Washington-based trade group and three partnering agencies said lawsuits against eight lenders and asset managers could be filed if the investigation into the upkeep of REO homes in minority neighborhoods suggests those properties are receiving inadequate care when compared to REOs in predominantly white neighborhoods. Shanna Smith, president and CEO of the alliance, didn't identify the lenders and asset managers under investigation, during a media phone conference Monday, but said the probe continues and any legal action would hinge on who is responsible if they find disparate treatment. Steve Dane, an attorney with Relman, Dane & Colfax, joined a press conference held by the NFHA, the Miami Valley Fair Housing Center, the Connecticut Fair Housing Center and Housing Opportunities Made Equal (HOME), saying inadequate care of REO properties can turn into a legal issue ripe for inclusion in a lawsuit under the Fair Housing Act. "HUD has issued regulations saying the failure and delay of maintenance or repairs on REO properties because of racial composition of a neighborhood" is an actionable offense under the Federal Housing Act, Dane said. As part of their study, the agencies compared REO properties in predominantly minority and predominantly white neighborhoods in parts of Connecticut, Maryland, Ohio and Virginia. The organizations created a scoring system that rated REO properties on upkeep, maintenance and general curb appeal. Jim McCarthy, president and CEO of the Miami Valley Fair Housing Center in Ohio said a letter grade was assigned to REO properties in minority and white neighborhoods. "The overwhelming number of D's and F's are identified in the primarily African-American areas of Dayton," he said. Erin Kemple, executive director of the Connecticut Fair Housing Center, reported similar disparate results, saying the average score for REO properties in white neighborhoods was 89 out of 100, compared to an average score of 78 in minority communities. Amy Nelson, director of Systemic Investigations and Enforcement for HOME in Richmond, Va., did not find substantial differences in servicing scoring. She did add that when it came to maintenance, the properties in minority areas received a "somewhat average rating, not an excellent rating." Shanna Smith with NFHA said in the Maryland counties of Montgomery and Prince George, she recorded no "F" grades for REOs in the all white neighborhoods. But when she reviewed data from African-American communities the scores went lower. Thus far, no legal action has been filed against lenders, servicers or asset managers, but the agency heads say they've met with the Federal Housing Administration and HUD officials. "I think it would be premature to say what the government agencies are doing," Smith said. "HUD has encouraged us to continue with these investigations." She added that if a lawsuit is filed, it's still unknown who would be named a defendant. If the lender or servicer is solely responsible then they may be named, but if they can show an asset manager was in charge of the property maintenance and they relied on them to do that, then asset management firms would likely become default defendants in lawsuits. When asked if crime in certain neighborhoods and realistic turn around times on maintenance work were considered in the findings, the housing officials said most contracts with asset managers require home visits or drive-bys at least one a week or once every two weeks. "We have been told by numerous people we spoke to that they require a drive-by each week or every two weeks," said Jim McCarthy with Miami Valley Fair Housing. "That is clearly not occurring." The team included several recommendations for lenders and servicers, including their belief that the selection of REO brokers and asset managers should be handled efficiently to ensure the parties chosen to handle the properties know how to maintain the assets. "When pricing the values of REO homes that they bring into the inventory, they need to do that in a nondiscriminatory way not basing it on the racial compensation of the neighborhood," said Smith. Write to Kerri Panchuk.