Report: Banks Treat Foreclosed Homes Better In Mostly White Neighborhoods

While Americans of every possible ethnic and racial group were hit by the massive foreclosures when the economy went KABOOM! a few years back, a new report claims that banks are often giving short shrift to the upkeep and marketing of foreclosed properties in areas with predominantly non-white residents.

Earlier today, the National Fair Housing Alliance released the results of its undercover investigation into how bank-owned properties are treated in nine major metro areas — Atlanta, Baltimore, Dallas, Dayton, Miami/Fort Lauderdale, Oakland, Philadelphia, Phoenix, and Washington, DC.

Foreclosed properties in each of these areas were graded on a 100-point scale. Undercover researchers would subtract points for broken windows and doors, water damage, overgrown lawns, no “for sale” sign, trash on the property, and other deficits.

In all, investigators looked at 39 aspects of the maintenance and marketing of each property.

Some of their findings:
* Foreclosed homes in non-white communities were 42% more likely to have more than 15 maintenance problems.
* Bank-owned properties in non-white communities were 82% more likely to have broken or boarded-up windows than foreclosed homes in predominantly white areas.
* A foreclosed home in a predominantly white neighborhood is 32% more likely to be marketed with the proper signage than bank-owned buildings in mostly African-American neighborhoods and 38% more likely than in Latino neighborhoods.

During the housing boom, some lenders like Countrywide pushed minority mortgage applicants into subprime mortgages even if they would have been approved for a standard loan. The NFHA sees the disparities uncovered by its study to be just an extension of this behavior.

“This report offers evidence that banks responsible for peddling unsustainable loans to communities of color and triggering our current foreclosure crisis are continuing to damage those communities by failing to properly maintain and market the properties they own,” said Shanna L. Smith, President and CEO of the National Fair Housing Alliance. “We hope that banks will heed the information in this report and take immediate action to correct the disparate treatment we have found… The proper maintenance and marketing of REO properties is a key factor in the sale of homes to families rather than to investors.”

Smith says the NFHA will be filing administrative complaints with Dept. of Housing and Urban Development, and is considering the possibility of federal lawsuits for violations of the Fair Housing Act.

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  1. FatLynn says:

    No link to the actual report?

  2. az123 says:

    Um, the big question, which may be in the actual report is if the neighborhoods are economically equivalent. Not that race is not playing a factor but too often things get called race when in reality it is a matter of economics.

    • axhandler1 says:

      Bingo. I’m thinking that the correlation between “non-white” neighborhoods and “economically depressed” neighborhoods is high.

    • ARP says:

      Agreed- in this case we may be confusing poor for black (although there is an unfortunate correlation).

    • Hi_Hello says:

      +1

    • Alan says:

      What? Your telling me a bank is going to do a better job on a 200k house than they will do on a 25k house? No way!

    • pecan 3.14159265 says:

      Exactly this. I can only speak to the Washington, DC area but I think a lot of people who wouldn’t be considered poor were forced to foreclose. We saw several foreclosed properties and for the most part, they were well-maintained. We saw one relatively new house that was in foreclosure and several very old houses in foreclosure. They weren’t equal in terms of condition prior to foreclosure, so it’s not a good idea to look at this data and say the banks made judgments based on race. The older homes were in worse condition because they were older and the people who owned them were most likely less well off than the person who owned the townhouse built in the last decade. It was economy, not race.

    • Costner says:

      This. A thousand times this. It all comes down to value, and if those “white” neighborhoods contain homes that are worth more, the banks will probably be willing to toss more money towards maintenance. On the flip side, in other “non white” neighborhoods if the home values are depressed then the bank may stand to lose money and the amount of resources put into the homes will be smaller.

      I have a hard time believing a bank would treat homes differently based upon the ethnic makeup of an area… at least not on a widespread scale. Banks are much more concerned with the bottom line.

      Besides, when it comes to trash on the property or broken windows, those are symptoms of the neighborhood itself. If I had a home next to me that was foreclosed I would likely be picking up trash if it blew onto the property and if their weeds got out of control I would probably mow their lawn. That isn’t something that would happen in some lower priced neighborhoods.

      It is all proportional. Reports like this are worthless without context and it smells a bit like race-baiting.

    • Jawaka says:

      Besides, in a well to do neighborhood neighbors would be complaining if a bank let a house fall apart next to them. In many urban neighborhoods the houses already are falling apart. There’s also not as many homeless crack heads in affluent neighborhoods looking to break into an abandoned home to do their drugs and sleep in.

    • Awesome McAwesomeness says:

      This. My guess is that they take the best care of their most expensive inventory. Generally, minority neighborhoods tend to have homes that are worth less than mostly white neighborhoods. So, it probably has nothing to do with color and everything to do with the value of the home.

    • Mrs. w/1 child says:

      Plus a million to what everyone else has said.

      Also, homes in more affluent areas are less likely to be vandalized in the first place making the banks look like they are taking better care of them when in reality the houses are just not having the windows broken and the copper stripped out in the middle of the night.

    • Yomiko says:

      I would agree with everyone below, unless the report controlled for property values or some other economic indicator (which would be tricky, no doubt). If the economic factors were eliminated and this is still the result, then it is unfortunate indeed.

  3. TuxthePenguin says:

    Did they perhaps look into the accessed value of the homes? Perhaps that is a better indicator of how well the homes were maintained than the demographics around the house. It’d make sense that a business would treat its high-dollar inventory much more carefully than its low-value inventory.

    And I’ve always wondered – what do they mean by “subprime” mortgages? Do they include ARMs and other non-traditional loans? Or are they merely speaking about higher interest rates (what would really mean sub-Prime rates)? I’ve heard similar reports where you could almost interchange those words…

    • waitetr says:

      subprime meaning loans typicaly designed/given to borrowers with poor credit resulting in higher interest rates/fees thus generating more money for the perceived risk. In this case they are stating Countrywide pushed people who did not fall into the subprime category (had good credit) to take on a loan meant for subprime borrowers.

      I believe as a general rule a credit score of 620 or lower means subprime.

      • bhr says:

        More like about 680. While there were “prime” loans available all the way down to 500 (FHA didnt officially use credit scores) once you dropped below around 680 you could often find a better rate in the subprime market.

  4. jeblis says:

    Is it because they’re white neighborhoods or because they treat homes better in more affluent neighborhoods?

  5. Nigerian prince looking for business partner says:

    I imagine this is more socio-economic than racial discrimination. Banks are going to spend the most money in neighborhoods that they’re most likely to recoup money. They’re also going to spend money in neighborhoods where the residents will aggressively go after them if they fail to abide by ordinances.

    My neighborhood is about 60/40 and although we have a lot of problems with banks not maintaining properties, it’s less of an issue than in an adjoining neighborhood which is virtually all white.

    The primary difference in neighborhoods is economic (ours is working class, the other is poor) and organization (we have an active neighborhood association, the other doesn’t).

    • rugman11 says:

      This. I found this quotation especially illuminating: “* Bank-owned properties in non-white communities were 82% more likely to have broken or boarded-up windows than foreclosed homes in predominantly white areas.”

      How likely is a person buy a house in a neighborhood where windows are regularly broken or boarded up? Those houses are going to be worth significantly less than houses in good neighborhoods.

  6. Applekid ┬──┬ ノ( ゜-゜ノ) says:

    What I’d like to know is the condition they were in when they foreclosed. Is there really an expectation that a bank, already taken a huge bath on the loan and the new, much lower home value, invest thousands of dollars fixing things up that were left to go to pot?

    The low hanging fruit is to focus on those properties with smaller repairs and market them properly to stop the bleeding, since they can deliver a better bang for the buck.

  7. HowardRoarksTSquare says:

    It couldn’t have to do with the fact that the mostly white neighborhoods were comprised of better economical surroundings thus wanting to keep all property value high for potential resale.

    Nah, that can’t be it. I’m sure the other areas were beacons of their community as well and void of crime and violence and drug usage.

    • Squeezer99 says:

      Or that possibly people in white neighborhoods would mow the grass of foreclosed homes to make the neighborhood look better? tell me this isn’t so!

  8. jsweitz says:

    How about comparing foreclosed homes to not foreclosed homes in the same area. I bet if you compared not foreclosed homes between the same so called “white” neighborhoods and “non-white” neighborhoods, there would be a similar connection to the upkeep of the homes.

    This is why scientific experiments have to have a control scenario.

  9. Torchwood says:

    May we see the report for ourselves?

  10. TheMansfieldMauler says:

    Foreclosed homes in non-white communities were 42% more likely to have more than 15 maintenance problems.

    So…the non-whites didn’t keep their houses maintained before they were foreclosed? Is that what they’re saying?

    This “investigation” should be studied in college Philosophy 101 classes to teach logical fallacies.

    • pecan 3.14159265 says:

      It’s also kind of bizarre because the Washington DC area is chock full of immigrants. Lots and lots of different ethnicities live here, in pretty big numbers. It’s a little unfair to come to racial conclusions when there are huge populations of ethnicities and races that apparently were not considered.

  11. pecan 3.14159265 says:

    Btw, here’s the report: http://www.nationalfairhousing.org/Portals/33/the_banks_are_back_web.pdf

    I got through the Executive Summary and found a number of things I found a little troubling. First, the headline on the NFHA website is “Civil rights organizations uncover Discrimination by banks in treatment of foreclosed properties” which automatically speaks of non-partisan study. The NFHA doesn’t really focus on ending discrimination in housing so much as focuses on (apparently) black and hispanic discrimination in housing. Then when you get to the Executive Summary, it uses words like “communities of color” and “White” – well people of Asian, Middle Eastern, and African descent are…what?

    • pecan 3.14159265 says:

      The NFHA only looked at “Metro Washington, D.C., including Prince George‚Äôs County, Montgomery County, the District of Columbia, and Falls Church, Virginia”

      The NFHA seemed to ignore the two largest counties in the Metro DC area, which are Fairfax and Loudoun and coincidentally, are the two wealthiest. Why focus on Falls Church, Virginia (which is a small unincorporated city right in the middle of Fairfax County) but not examine the entire county around it?

  12. Bsamm09 says:

    Hmmm…the title of the “Report” is: “THE BANKS ARE BACK ‚Äì
    OUR NEIGHBORHOODS ARE NOT” This seems to me that since the “white” neighborhoods are treated better in this report and the others are not, the author of this report is calling these “non-white” communities “our” communities and would indicate the bias of the author in the title alone.

    Like other have said, this is about economics not race. Bank is going to keep up a $100k property more than a $10k and not as much as a $1m property. If you wanted to protect an investment which one would you work harder on? More to lose=more effort not to lose it.

  13. LightningUsagi says:

    Banks spend the minimum amount possible in repairs on foreclosed home. If it was in crap condition when they went in, it’ll be in slightly less crap condition when they begin marketing it.

    Also, in areas where there is a high amount of vandalism and theft, banks do not always put up signs to show that the house is empty. That’s basically putting out the welcome mat for taggers and bums.

  14. Villnius says:

    It’s not about black or white. It’s about green. If the house is in a neighborhood where the property is likely to sell easier and at a higher price, they’re going to put more money into upkeep. You can’t expect them to throw money into fixing up a place that’s probably going to take months to sell, and potentially sell for less than it costs to repair it (given the real estate values in the USA, this is a real possibility).

    I doubt they’d really give a crap what ethnicity the previous residents were.

  15. exconsumer says:

    “This is about economics, not race”

    Two things:

    1. That’s an easy explanation for anyone who lives in a neighborhood that reaps the benefits of these ‘economic’ decisions . . that is, white neighborhoods. If I were to live on the wrong side of the tracks, I’m not sure I’d care that the banks were letting my neighborhood go to hell for the sake of expediency. I’d just care that the banks were letting my neighborhood go to hell.

    2. Why does ‘affluent neighborhood’ mean ‘white neighborhood’? Why does ‘poor neighborhood’ mean ‘black or latino neighborhood’? Why are we (the author of the study, we as commenters) able to use these terms interchangeably?

    • pecan 3.14159265 says:

      Regarding point #1: what constitutes a “white” neighborhood? I’m not white. If there are 30 people in my neighborhood and 27 of them are white, does that make it a “white” neighborhood? Of course, white people are a majority there but isn’t the common link between everyone their home ownership within the same community (and to an extent, socioeconomic status) rather than their race or ethnicity?

      Regarding point #2: Generally, low income and poor neighborhoods tend to be disproprotionately black and hispanic. From my observations, while this still holds true, I can name several areas around me which I consider to be low income to poor that are strong areas for other ethnicities. To me, I don’t use them interchangably, though I do notice where a lot of the low income and poor live.

    • ARP says:

      More black people are poor. Sad but true, but that sometimes leads to those concepts be being used interchangably when they should not. For example, in Chicago, there are a few wealthy “black” neighborhoods as I imagine they exist in other areas. If you look above, there are a number of comments that take issue with the fact that it’s probably less about race and more a about the wealth of the neighborhood.

    • Mrs. w/1 child says:

      Two things:

      1. No one forces anyone to live on “the wrong side of the tracks”. Everyone has the option so pay a lot more for a house and live in a “white”/affluent neighborhood. It is called being “house poor” – instead of spending money of video game systems and nikes get a huge mortgage.

      2. “Why does ‘affluent neighborhood’ mean ‘white neighborhood’? Why does ‘poor neighborhood’ mean ‘black or latino neighborhood’?”

      Now THAT is the million dollar question. Maybe the authors of the study had a predetermined point to “prove” and the study used cherry picked data to support the conclusion the authors wanted.

      • exconsumer says:

        You’ve said below that ‘no one forces you to get a big subprime mortgage’. Yet here you suggest that people who want to get out of the neighborhood should ‘get a huge mortgage’.

        That’s one heck of a shell game.

        And as a general response to everyone else who responded, I understand that you’d like to define things in terms of economics, but I don’t think that’s very helpful. I’m against policies that end up targeting minorities, even if they do so cleverly, obliquely, or even unintentionally. Often, that means I am against policies that target the poor. And I just don’t think I’m wrong about that.

        Swapping the word ‘race’ with ‘economics’ doesn’t change the policy, and so, does not change my attitude.

  16. Extended-Warranty says:

    Economics regarded as racism. Nothing new to see here.

  17. Commissar Yarrrrrrr says:

    As someone who grew up in a very non-white area (Compton), I can tell you for a fact that when a house was empty for more than a week (bank owned or not) it became a hell hole. Do I blame a specific race? No. I blame the lower income families who could not (or would not) control their families.

    I bet that if you had a foreclosed house in a low income white area, the results would be the same.

  18. evilpete says:

    … or banks are investing their resources in maintaining houses with the best resale value….

  19. Mrs. w/1 child says:

    Also just for the record – no one “forced” anyone to take out a risky subprime mortgage. That is a steaming pile. Banks and mortgage brokers and realtors and home inspectors and anyone else who could ripped off people who didn’t do their due diligence and were so eager for the american dream they signed on the line without reading first. It isn’t right, but it isn’t racism.

    I have been ripped off at times when I skipped due diligence and I understand wanting something so badly that you don’t pay attention to the red flags – but at some point adults have to stop screaming “racism” every time they screw up.

    Doesn’t anyone remember the story about the boy who cried wolf?

  20. Mrs. w/1 child says:

    Who is to say the poorly maintained homes in bad areas didn’t have 13 maintenance issues BEFORE the banks took possession?

    It isn’t rocket science to figure out that rich people have lots of money to fix things immediately and poor people don’t.