Magazine article American Banker

Housing Group Taps Dubious Data, HUD Ties to Demand Millions from Banks

Magazine article American Banker

Housing Group Taps Dubious Data, HUD Ties to Demand Millions from Banks

Article excerpt

Byline: Kate Berry, Jeff Horwitz

First in a series

The National Fair Housing Alliance held a pair of teleconferences over the past two months during which its president, Shanna Smith, accused two of the nation's biggest banks of a deplorable corporate crime: racial discrimination.

Bank of America (BAC) and U.S. Bancorp (USB) did a terrible job of maintaining homes they'd foreclosed on in predominately black and Hispanic neighborhoods, Smith declared, even as they were fastidious about upkeep in mostly white areas. The claims were a repeat of those the Washington, D.C.-based nonprofit has made during more than a half-dozen other teleconferences over the last year.

During its public events, the NFHA has pointed to photos of run-down properties, trash-strewn yards and even one of a dead dog, to bolster its claims that poor property management by banks is dragging down entire minority neighborhoods. The NFHA nicknamed one such property, a Florida foreclosure, "The Rat House." Not only are such homes hurting property values but they're also contributing to community health epidemics, like asthma, allergies, lead poisoning and obesity, Smith told the journalists and others assembled by phone.

"The banks have liability for the harm that they're causing. If you live next door to an REO home, you are being injured and the banks have liability for that," Smith said in an October interview. REO, or real-estate-owned, is an industry term for homes seized by banks through foreclosure.

The NFHA is seeking tens of millions of dollars from Bank of America and U.S. Bank as a result of their alleged misdeeds. In April, it finalized a $42 million settlement with Wells Fargo over similar claims that provided a financial windfall for the NFHA and its local member organizations.

A review of the NFHA's cases raises doubts about the validity of its claims, however. The group has disclosed addresses for only a fraction of the properties it alleges the banks have neglected, but a review of those it has released indicates that NFHA regularly misidentified the institution legally responsible for maintaining specific homes. In some cases, it conflated the banks responsible for maintaining properties with those that were simply serving as trustees for mortgage-bond investors. In others, it faulted banks for damage that occurred before they took possession of properties.

Not in dispute is the leverage the NFHA has gained in its dealings with banks from its close ties to supporters in the federal government. Unusual among Washington agencies, the Department of Housing and Urban Development both funds housing discrimination investigations by nonprofits, including by the NFHA, and provides the venue for them to negotiate their claims.

Sara Pratt, the HUD official responsible for investigating and resolving the NFHA's complaints, and who oversaw its settlement with Wells Fargo, is a former NFHA staffer and consultant. HUD and the NFHA dismiss the significance of Pratt's former affiliation; bank industry representatives counter that it poses a troubling conflict of interest.

"Having a senior HUD enforcement official supervising these cases who is a former NFHA employee undermines the credibility of this process," says Andrew Sandler, a Washington, D.C. attorney who chairs Buckley Sandler LLP and represents big banks but is not directly involved in the housing claims.

Testing Legal Boundaries

Sweeping, controversial civil rights cases are a stock-in-trade for the NFHA under Smith. A blunt Toledo native who worked her way from Ohio housing activist to Washington powerbroker, Smith has proven adept at marshaling the resources of scores of groups around the country to magnify the NFHA's leverage.

Founded in 1988 as a volunteer effort by five fair housing groups, NFHA was instrumental in the 1990s in bringing to the national consciousness banks' practice of redlining, or refusing to lend in minority neighborhoods. …

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