By Leslie Proll, Director of the NAACP Legal Defense & Educational Fund’s Washington Office
The current foreclosure crisis constitutes a monumental civil rights issue. Communities of color were targeted for risky mortgage loans, have experienced disproportionately high foreclosure rates, and have been stripped of vast amounts of wealth because of discriminatory lending practices. From 2005 to 2009, median wealth fell by 66 percent among Latino households and 53 percent among African-American households, compared with just 16 percent among white households, largely due to declining home values. From 2009 through 2012, African Americans are projected to lose an estimated $194 billion in housing equity, and Latinos are expected to lose $177 billion.
Unfortunately, there is reason to believe that the destructive effects of the foreclosure crisis on communities of color have yet to be fully realized. They face another devastating blow caused by further discriminatory treatment towards homes and neighborhoods by the very lenders who initiated the foreclosures.
The civil rights problems that permeate the foreclosure crisis are unfolding in stages. First, lenders targeted communities of color with subprime and other risky loan products that led to foreclosure. Last year, the U.S. Department of Justice (DOJ) announced the largest residential fair lending settlement in history, in which Bank of America agreed to pay $335 million to settle allegations that Countrywide Financial discriminated against African-American and Latino borrowers during the housing boom. DOJ found that Countrywide loan officers and brokers charged higher fees and interest rates to 200,000 African-American and Latino borrowers than to white borrowers who posed the same credit risk. Countrywide also steered borrowers of color into costly subprime mortgages when white borrowers with similar credit profiles received prime loans. Countrywide was not an isolated example. Other research has found that African-American and Latino borrowers were much more likely to receive subprime loans than white borrowers, even after controlling for income level or credit risk.
Now, it turns out, lenders are failing to properly maintain or market the foreclosed properties they own, and leaving these properties in a state of disrepair. According to a recent investigation by fair housing organizations, this stage of the crisis is not affecting all communities equally. Due to the discriminatory maintenance and marketing of foreclosed properties, African-American and Latino communities and cities with high minority populations risk losing many billions more in wealth through reduced neighborhood property values and increased expenses incurred by local jurisdictions. Importantly, these practices affect not those families who already lost their homes, but their neighbors living next door or down the street from the vacant foreclosed property.
This month, the National Fair Housing Alliance (“NFHA”) and four of its member organizations released a report, entitled “The Banks Are Back, Our Neighborhoods Are Not: Discrimination in the Maintenance and Marketing of REO Properties,” which examines ongoing discrimination in the maintenance and marketing of bank-owned foreclosed properties known as real estate owned (REO) properties. The study evaluated over 1,000 REO properties in cities across the county. The findings are extremely troubling: banks have engaged in substandard maintenance and marketing of foreclosed properties in communities of color, while properly maintaining and marketing foreclosed properties in predominantly white communities. In other words, properties in white neighborhoods “were more likely to have neatly manicured lawns, securely locked doors and attractive ‘for sale’ signs out front,” while homes in communities of color “were more likely to have overgrown yards littered with trash, unsecured doors, broken windows and indications of marketing as a distressed sale.”
The fair housing groups evaluated the maintenance and marketing of REO properties on a 100-point scale, subtracting points for such deficits as broken windows, water damage and overgrown lawns. The evaluations took into account 39 different aspects of the maintenance and marketing of each property.
Overall, REO properties in communities of color were 42 percent more likely to have more than a dozen maintenance problems than properties in white neighborhoods. Other trends revealed by the investigation include:
- REO properties in communities of color were 82 percent more likely than REO properties in white communities to have broken or boarded windows;
- REO properties in white neighborhoods were 32 percent more likely to be marketed with the proper signage than African-American neighborhoods and 38 percent more likely than in Latino neighborhoods; and
- Newer homes generally scored higher than older homes, but racial and ethnic disparities persisted with non-structural factors such as curb appeal and signage.
Since releasing the report, NFHA and several of its member organizations have filed housing discrimination complaints with the U.S. Department of Housing and Urban Development (HUD) against Wells Fargo, et al. and U.S. Bank, et al.
The Fair Housing Act of 1968 requires banks, investors, servicers or any other responsible party to maintain and market properties that are for sale or rent without regard to the race or national origin of the residents of a neighborhood. It is illegal to treat a neighborhood differently because of the race or national origin of the residents, and banks are obligated to monitor the actions of the companies they hire to perform housing-related transactions to ensure that those third-party entities comply with fair housing laws.
The Fair Housing Act has two goals: to eliminate housing discrimination and to promote residential integration.HUD’s regulations interpreting the Fair Housing Act state:
It shall be unlawful because of race, color, religion, national origin, sex, familial status or disability to restrict or attempt to restrict the choices of a person by word or conduct in seeking, negotiating for, buying or renting a dwelling so as to perpetuate segregated housing patterns, or to discourage or obstruct choices in a community, neighborhood or development.
Differences in the maintenance of foreclosed properties based on the racial composition of neighborhoods can certainly violate the Fair Housing Act.
- HUD’s regulations clearly state that “failing or delaying maintenance or repairs of sale or rental dwellings because of race” is a prohibited action under the Fair Housing Act.
- Steering by real estate agents based on neighborhood racial composition is illegal and other behavior in the housing sale or rental market that operates to discourage potential buyers from purchasing or renting homes in neighborhoods of color, such as by failing adequately to maintain properties in minority neighborhoods, can also violate the Act.
- In addition, the Fair Housing Act makes it unlawful to “make unavailable or deny” housing to any person because of race.If the poor maintenance of a foreclosed property in a neighborhood of color makes it difficult for a potential purchaser to obtain a mortgage loan for the property, the poor maintenance has made the housing “unavailable” within the meaning of the Act.
To date, more than four million families have lost their homes to foreclosure, and nearly three times as many families are seriously delinquent on their mortgages and face a real threat of foreclosure.Efforts are underway to reform mortgage lending and servicing practices to prevent another foreclosure crisis. These are much needed and long overdue, but they are not enough to address the harm that has been done to minority borrowers and communities of color. More must be done to stabilize these communities and help these families rebuild their lost wealth. Establishing effective quality controls on foreclosed properties, and providing remedies to the African-American and Latino neighborhoods affected by the discriminatory maintenance and marketing of foreclosed homes are two crucial steps. Making sure they happen is an urgent civil rights issue facing our federal government, our nation’s financial institutions, and communities across the country.
[image via Seattle Municipal Archives]