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How Racial Discrimination In The Housing Industry Lingers Long After Foreclosure

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"How Racial Discrimination In The Housing Industry Lingers Long After Foreclosure"

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The largest property management company in America systematically neglects properties in African-American and latino neighborhoods while conducting proper maintenance in white neighborhoods, according to a complaint filed with the Department of Housing and Urban Development (HUD) on Tuesday.

Investigators from the National Fair Housing Alliance (NFHA) looked at foreclosed properties managed by Safeguard Properties in Dayton, Toledo, Baton Rouge, New Orleans, and Memphis and measured the upkeep of the houses using a litany of different factors including secured doors, broken windows, mowed lawns, and both structural and cosmetic disrepair. In the Ohio towns, they found that houses in black and latino neighborhoods were three to four times as likely to exhibit three or more such deficiencies than those in white neighborhoods. In Baton Rouge, every house the NFHA looked at in communities of color was overgrown, while none of those in white neighborhoods was.

In a statement, Safeguard denied the allegations and pointed out that Tuesday’s filing is an amendment of a year-old HUD complaint rather than a wholly new charge. The company says the NFHA has refused to provide the addresses of the properties in question. “Safeguard neither condones nor tolerates acts of racism or business practices that would unfairly target or neglect certain neighborhoods based on location and demographics,” the company said. “We are outraged by the allegations made by the NFHA and we intend to dispute the claims and prove the accusations to be untrue.”

But the NFHA complaint does not accuse the company of intentional racism, and it offers substantial evidence for the organization’s claims. NFHA President and CEO Shanna L. Smith said in an email that the group tried to work with Safeguard when it filed the original claim, but “they felt these were isolated incidents rather than serious systemic issues,” which led NFHA to continue investigating. “We are hesitant to turn over any evidence to Safeguard directly” because the company was recently criticized in a government report for manipulating documents, Smith said. “If Safeguard wants to sit down and resolve these problems, we are happy to engage with them.”

The NFHA’s charges are especially incendiary because Safeguard is working on behalf of taxpayer-owned Fannie Mae. The NFHA has uncovered similar discrimination by various private companies, including America’s largest banks, but “the difference here is Safeguard is operating for the federal government, being paid with federal tax dollars,” NFHA Director of Enforcement Morgan Williams told ThinkProgress. “They should be held accountable not just for the damage that they are doing to communities of color but for wasting public dollars on the insufficient public services they’re providing.” Previous NFHA complaints against Deutsche Bank, Bank of America, and U.S. Bancorp are still pending, and Wells Fargo settled its own for $42 million nearly a year ago

For these neighborhoods, systematic neglect is only the latest link in a chain of discriminatory treatment by the housing finance industry writ large, Williams said. “Safeguard’s practices are one step in what has been a devastating experience for communities of color throughout the foreclosure crisis,” Williams said, “starting with predatory loans that were targeted at communities of color in cities across the country and continuing with the practices that we’re observing of discriminatory maintenance and marketing in these same communities.” After losing huge portions of their net worth when the housing crisis hit, those homeowners in communities of color who avoided foreclosure are now having their wealth further eroded by industry neglect. “Individuals in these communities who are trying to sell their homes are having a hard time even securing appraisals that aren’t impacted by these dilapidated structures,” Williams said.

The systematic neglect of bank-owned properties in non-white neighborhoods makes little sense as a business practice. The industry has a stake in protecting property values in neighborhoods where they own foreclosed homes regardless of their racial demographics. “We remain hopeful that lenders and servicers recognize that taking action is in their interest,” NFHA’s Williams said, “and we’ve seen servicers not only take action to reinvest in these communities…but also to refashion their practices.”

Still, it’s possible that discrimination of this sort is baked into how the foreclosure and housing finance industries operate. “You look at an outfit like Safeguard, who subcontracts, and whose subcontractors subcontract, and you have a structure that may lend itself to the discriminatory services that we’re observing,” said Williams. For a bank like Wells Fargo, the financial incentive not to discriminate is stronger than for a middle-man like Safeguard. Such intermediaries working on behalf of the ultimate owners of foreclosed properties often hire untrained and unscrupulous subcontracted individuals to do property inspections. Those people have misidentified and broken into hundreds of legally occupied homes in recent years.

There is currently no government regulatory oversight of property servicing and management companies, which makes it much harder for homeowners to protect their rights. While the NFHA hopes to persuade private-sector businesses that discrimination and neglect hurt their bottom lines, Williams also said that government agencies, including the Consumer Financial Protection Bureau and Federal Housing Finance Agency, should start shining some sunlight on an industry that is currently profiting in the dark. The group has previously called on those agencies to conduct “a major, nationwide investigation” of how the industry handles REO properties.

The history of housing discrimination in America does not reflect well on government institutions, however. Even after the passage of the Fair Housing Act in the late 1960s, racial discrimination against would-be mortgage borrowers was a matter of public policy. Overtly racist housing finance practices like “redlining” have faded over the past few decades, but that doesn’t mean housing discrimination has gone away. It’s just gotten more subtle.

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