9th June 2015

Fannie Mae accused of widespread racial discrimination

posted in Appraiser News |

The National Fair Housing Alliance and 19 local fair housing organizations are accusing Fannie Mae of widespread racial discrimination, claiming that the GSE maintains and markets its foreclosures in white neighborhoods “consistently better” than in middle- and working-class African American and Latino neighborhoods.

The groups filed a complaint with the Department of Housing and Urban Development, alleging that Fannie Mae’s neglect of foreclosures in minority neighborhoods in 34 metro areas is a violation of the federal Fair Housing Act.

The NFHA said that the complaint is the result of a five-year investigation into the property preservation methods used by Fannie Mae. In a release, the NFHA said that evidence gathered from 2010 through April 2015 shows an “ongoing pattern and practice of discrimination” by Fannie Mae and its asset management contractors.

“Fannie Mae is wreaking havoc on middle- and working-class communities of color nationwide through a pattern of neglect that is frankly appalling,” said Shanna Smith, president and CEO of NFHA.

“Fannie Mae’s failure to take care of its massive foreclosure inventory in African American and Latino neighborhoods further destabilizes the communities hardest hit by the foreclosure crisis, in clear contradiction of its congressional charter, federal fair housing laws, and its obligation to affirmatively further fair housing,” Smith continued. “This systematic failure also creates health and safety hazards, contributes to blight, and places an unfair burden on neighbors and city governments to clean up the problem.”

The complaintant groups (see below for full list) say they investigated 2,106 foreclosures owned by Fannie Mae in 34 metro areas that include 129 cities and found that properties in communities of color had broken doors and windows, unlocked doors and windows allowing access to the home, excessive litter, dead or overgrown lawns, dead animals or live animals on the property, and other major deficiencies.

When contacted about the allegations, Fannie Mae said that it believes the charges are without merit.

“We strongly disagree with these allegations and firmly believe they have no merit,” Fannie Mae said in a statement to HousingWire. “We are confident that our standards ensure that properties in all neighborhoods are treated equally, and we perform rigorous quality control to make sure that is the case. We remain dedicated to neighborhood stabilization efforts across the nation, including with respect to our maintenance of foreclosed properties.”

In the release, the NFHA said that since 2009 it made efforts to work with the GSEs to correct their property preservation practices.

Freddie Mac looked into its practices and made good faith efforts to correct its business model, but Fannie Mae refused to take responsibility for its neglect in communities of color,” Smith said. “The difference between Freddie and Fannie properties is striking. We now rarely find disparities in Freddie Mac’s inventory. Fannie has to take responsibility.”

The groups said that they investigated foreclosed properties for “deficiencies” that would affect the properties’ marketability and visual appeal. Among those deficiencies are broken, boarded or damaged windows and doors; unlocked doors and windows; damaged and obstructed gutters and downspouts; safety hazards; accumulated trash; overgrown lawns and shrubs; lack of “for sale” signs; and others.

According to the result of the groups’ investigation, 49.5% of the foreclosed properties in White communities had fewer than 5 deficiencies, while only 24.4% of the foreclosed properties in communities of color had fewer than 5 deficiencies.

The groups also said that 22.1% of the REO properties in communities of color had 10 or more deficiencies, while only 8% of the REO properties in predominantly White communities had 10 or more deficiencies.

The groups say there neglected properties in the following cities: Hartford, Connecticut; Indianapolis; Greater Palm Beaches, Florida; Grand Rapids and Muskegon, Michigan; Orlando; Vallejo, Richmond and Oakland, California; New Orleans and Baton Rouge, Louisiana; Chicago; Miami; Richmond, Virginia; Atlanta; Milwaukee; Baltimore; Charleston, South Carolina; Kansas City; Las Vegas; Memphis; Minneapolis; Philadelphia; Phoenix; San Diego; Tucson, Arizona; Washington D.C.; Prince George’s County, Maryland; Dallas and Fort Worth, Texas; Gary, Indiana; and Cleveland, Dayton; Toledo and Columbus, Ohio.

“Fannie Mae has not only ignored the problem but has continued to award millions of dollars in new contracts to the same asset management companies that engaged in this discriminatory behavior,” Smith said. “We have filed this complaint after having exhausted every possible means we could think of to get Fannie Mae to abide by the law and work with us to re-stabilize the damaged communities.”

This isn’t the first time that the NFHA has levied serious complaints against Fannie Mae and its contractors.

In July 2014, the NFHA, Housing Opportunities Made Equal, and Fair Housing Continuum filed a discrimination complaint with HUD, alleging that Cyprexx Services, a Fannie Mae contractor, failed to properly maintain real estate owned properties in African American and Latino neighborhoods in Baltimore, Maryland; Kansas City, Missouri; Orlando, Florida; and Richmond, Virginia.

At the time, a Cyprexx source told HousingWire that the company was not made aware of any complaints and the NFHA, to his knowledge, never reached out.

Cyprexx, for its part, said that it was “extremely disappointed” that the NFHA did not contact it to discuss their concerns before filing the complaint. Cyprexx also said the appeared to be “frivolous, and without reasonable merit.”

After HousingWire posted its first article about the NFHA accusing Cyprexx, more than a dozen commenters responded to the article, with varying degrees of support for Cyprexx or the NFHA’s claims. One commenter said, “Cyprexx (at least in my areas) doesn’t do jack squat with their properties, regardless of what “color” neighborhood it’s in. It’s all the same idea: maintain/pay out as minimal as you can on services, unless it’s an emergency.”

While another said, “This is tantamount to a witch hunt. Anyone in the business knows that maintaining properties in densely populated areas with high percentage of crime/vandalism and often times serious deferred maintenance is a huge challenge. I can assure readers from my first hand experience that banks, vendors and everyone involved does their best to get -0- deficiencies – there is not a higher tolerance for properties in one area getting a higher percentage of deficiencies than another based on neighborhood makeup. The idea that it is racially motivated is nauseating. Our government should get a little more progressive and ask questions instead of blaming.”

The alliance has also targeted big lenders, such as Bank of America, and online real estate market places, such as Zillow and Trulia in the past as well.


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