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Fannie Mae sued by Housing Alliance

POSTED: December 08, 2016, 7:00 am

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A drive through any inner city in America and you will see abandoned homes, boarded up, with lawns often overrun with tall grass and weeds. Unbeknownst to many, including homeowners on the block, is that these properties are often real estate owed – REOs – foreclosed and in the possession of Fannie Mae. Formally the Federal National Mortgage Association, Fannie Mae is a government sponsored enterprise that operates as a publicly traded company. It secures mortgages with mortgage backed securities that allow lenders to expand the mortgage market.

The National Fair Housing Alliance (NFHA) and 20 local housing organizations across the country have filed a federal lawsuit against Fannie Mae in federal court in San Francisco alleging housing discrimination. At the heart of the lawsuit is the complaint that Fannie Mae fails to maintain its foreclosed properties in middle and working class African-American and Latino neighborhoods as opposed to its properties in white neighborhoods. NFHA points to this practice as destabilizing neighborhoods, lowering property values and causing a number of health ailments in residents living in proximity to these foreclosed properties.

Initially, the housing alliance and two local organizations initiated a study of four metropolitan areas in 2009. NFHA and its affiliated organizations ultimately conducted a multi-year study from 2011 through 2015 of Fannie Mae properties, collecting data in 212 cities in 38 metropolitan areas. The lawsuit is based upon information from more than 2,300 foreclosed properties owned and maintained by Fannie Mae. Investigators took and reviewed over 49,000 photographs of foreclosed Fannie Mae properties as part of the study.

NFHA points out that Fannie Mae’s mission statement for the maintenance of its properties “is to ensure the quality of our REO property maintenance services, consistently producing best-in-class, market-ready properties and maintaining them until removal from our inventory." Shanna L. Smith, President and CEO of NFHA, notes, "Fannie Mae's mission statement contradicts the findings of the multi-city, multi-year investigation. She alleges, "Fannie Mae executes its mission in predominantly white neighborhoods, but certainly the evidence in the complaint and the photographs illustrates that its foreclosures in middle- and working-class neighborhoods of color are not maintained as 'best-in-class' and they are not even close to 'market-ready.'"

There is no denying that the blight of foreclosed properties is apparent in communities of color. Many of the conditions cited by NFHA are not present in suburban, mostly white communities. The organization charges, “Fannie Mae-owned properties in predominantly white working- and middle-class neighborhoods are far more likely to have the lawns mowed and edged regularly, invasive weeds and vines cleared, windows and doors secured or repaired, litter and trash removed, leaves raked, and graffiti erased from the property. Conversely, Fannie Mae-owned properties in predominantly African American and Latino neighborhoods are more likely to be left neglected with debris and trash on the property, overgrown grass, and invasive plants. The windows and doors are often unsecured, left wide open, or boarded. The poor appearance of the Fannie Mae-owned properties in middle- and working-class neighborhoods of color destroys the homes' curb appeal for prospective homebuyers and invites vandalism because the homes appear to be abandoned. Additionally, the blight created by Fannie Mae results in a decline in home value for the predominantly African American and Latino families who live nearby, deepening the racial wealth gap and inequality in America.”

The plaintiffs also make the case that these foreclosed properties breed health problems as many photographs taken as part of the investigation reveal water damage that has led to the growth of mold. In addition, as these foreclosed properties sit abandoned and not maintained they attract rodents, ants, mosquitoes and termites, and these conditions spread to nearby occupied houses. A number of Fannie Mae foreclosed properties were infested with rodents upon inspection according to the NFHA.

These properties can also pose physical dangers as siding can become dislodged and airborne during inclement weather, broken glass litters walkways and concrete sidewalks begin to deteriorate. The properties also pose a fire threat and can become a refuge for criminals or those seeking shelter. In short order these properties begin to affect the value of owner-occupied houses in the neighborhood and pose a threat to the security of residents nearby.


Owner occupied home in a middle-class Black neighborhood in New Orleans (Figure 1)



Fannie Mae foreclosed property that sits next to property in photo above.



Fannie Mae foreclosed property that sits next to owner-occupied home in Figure 1.


Among the findings in the study, 52.8 percent of the Fannie Mae foreclosures in white neighborhoods had fewer than 5 deficiencies, while only 23.6 percent of the Fannie Mae foreclosures in neighborhoods of color had fewer than 5 deficiencies. Also, 23.8 percent of the Fannie Mae foreclosures in neighborhoods of color had 10 or more deficiencies, while only 6.5 percent of the REO properties in predominantly white neighborhoods had 10 or more deficiencies.

Smith stated, "Fannie Mae continued to neglect its foreclosures in middle- and working-class communities of color, even after we provided them with photographic evidence from 2009 through 2011. The evidence shared with Fannie Mae demonstrated differing maintenance and marketing practices between similar foreclosures in white neighborhoods and those in African American and Latino neighborhoods in Washington, DC; Prince George's County and Montgomery County, MD; and the metropolitan areas of Atlanta, Oakland, Philadelphia, Dayton, Baltimore, Dallas, and Phoenix. Fannie Mae's intentional failure to correct its discriminatory treatment in African American and Latino neighborhoods—the same communities hardest hit by the foreclosure crisis—can only be seen as institutional racism. This systematic and intentional neglect of foreclosed homes in communities of color devalues not only the property but the very lives of the families living in these neighborhoods. Fannie Mae also creates blight that contributes to health and safety hazards for families living near Fannie Mae's poorly-maintained homes."

The study’s key findings of racial disparities include:

• 41.5 percent of the REO properties in neighborhoods of color had a broken, boarded, or unsecured window, while only 19.1 percent of the REO properties in white neighborhoods had the same problem.
• 39.0 percent of the REO properties in neighborhoods of color had trash or debris on the premises, while only 14.9 percent of the REO properties in white neighborhoods had the same problem.
• 30.3 percent of the REO properties in neighborhoods of color had holes in the structure of the home, while only 12.7 percent of the REO properties in white neighborhoods had the same problem.
• 26.3 percent of the REO properties in neighborhoods of color had wood rot, while only 16.6 percent of the REO properties in white neighborhoods had the same problem.
• 24.9 percent of the REO properties in neighborhoods of color had unsecured, broken, or boarded doors, while only 11.1 percent of the REO properties in white neighborhoods had the same problem.
• 21.8 percent of the REO properties in neighborhoods of color had exposed or tampered-with utilities, while only 9.3 percent of the REO properties in white neighborhoods had the same problem.
• 18.3 percent of REO properties in neighborhoods of color had damaged steps or handrails, while only 8.9 percent of the REO properties in white neighborhoods had the same problem.

"If Fannie Mae can adequately maintain real estate in white communities of Baton Rouge and New Orleans, it is only fair that homes in African American communities in those cities are maintained just as well," said Cashauna Hill, Executive Director of the Greater New Orleans Fair Housing Action Center. "Fannie Mae's failure to maintain foreclosed properties in African American communities in New Orleans and Baton Rouge has contributed to, rather than mitigated, the losses experienced during the foreclosure crisis and has disproportionately harmed people of color."


Fannie Mae foreclosed property in Evanston Illinois



Rear view of Fannie Mae foreclosed property in Capitol Heights Maryland

Photo Credits: National Fair Housing Alliance

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