Wells Fargo & Co., the nation's largest mortgage lender, is facing the second of at least two federal probes into how it treats minority borrowers and the properties it owns in minority neighborhoods. Department of Housing and Urban Development officials confirmed this week that the agency will investigate allegations lodged against the bank Tuesday by the National Fair Housing Alliance. The alliance complaint accused Wells Fargo of working to maintain and market bank-owned foreclosed properties in predominantly white communities far more aggressively than it does in mostly black and Latino neighborhoods.
Alliance investigators found that only about 7 percent of homes repossessed by Wells Fargo in mostly white communities had 10 or more maintenance problems, such as detached gutters, broken windows or doors, which can damage the property or the likelihood that it will sell. By comparison, 20 percent of homes reclaimed by Wells Fargo in predominantly Latino neighborhoods were in similarly poor condition. This disproportionate neglect not only deepens and extends the nation's housing crisis but further batters the very communities hardest hit by the foreclosure crisis, said Shanna Smith, president and CEO of the Washington, D.C.-based alliance.
The complaint follows a nine-month investigation in which the National Fair Housing Alliance evaluated the state of 1,000 bank-owned foreclosed homes in nine metro areas from California to Washington, D.C. Investigators found "overwhelming" and "troubling" evidence that six of the nation's major banks market and maintain foreclosed homes in predominantly white neighborhoods differently than they do in others, according to a report issued by the agency last week. The pattern was pronounced in communities up and down the income scale.
During the investigation, alliance investigators evaluated 218 properties reclaimed by Wells Fargo.
"Wells Fargo conducts all lending-related activities in a fair and consistent manner without regard to race, and this includes maintenance and marketing standards for all foreclosed properties for which we are responsible," said Tom Goyda, a Wells Fargo spokesman in an emailed statement.
Among the many properties the alliance evaluated, bank-owned homes in communities of color were 42 percent more likely to have visible maintenance problems, such as overgrown grass, hanging gutters and damaged eaves or siding than those in comparable white neighborhoods. Foreclosed homes in mostly black and Latino neighborhoods were 34 percent more likely to be littered with trash and debris, and 82 percent more likely than bank-owned properties in white communities to have broken or boarded-up windows.
Anyone who assumes that the bank may have a legitimate business reason for neglecting homes in communities of color has made a series of inappropriate and inaccurate assumptions, Smith said. Most of the homes the alliance evaluated were in lower middle to upper middle income neighborhoods.
"It ultimately does not matter if a home is in a wealthy neighborhood or not. It doesn't matter the condition at possession by the lender," said Smith. "We were looking at what is routine maintenance and is required [at minimum] to maintain the home. We are talking about mowing the lawn, raking the leaves, shoveling the snow away, locking doors and fixing broken widows either by repair or boarding them up and removing trash. None of those issues have anything to do with the actual condition of the property at [the time the bank took] possession."
When it came to evaluating what the banks were doing to market the homes, the alliance investigators looked for a "for sale" sign. And here again, there were dramatic differences.
Vacant and foreclosed bank-owned homes in white neighborhoods were 33 percent more likely to be designated with professional real estate signs that were visible from the street. Homes in black and Latino neighborhoods had signs made of construction paper or cardboard, or had no sign at all.
Failing to maintain a foreclosed home makes life harder for the neighbors of the problem property, and it can also drag down median home prices and sales activity in entire cities, said David Blitzer, managing director and chairman of the index committee at S&P Indices, which includes the S&P/Case-Shiller Home Price Index.
Many people are afraid to buy homes in neighborhoods studded with neglected properties, Blitzer said. And those who are brave enough to do so will almost never pay asking price. They want to bargain hard, which by extension shapes the national housing outlook, said Blitzer.
"What seems like one neighborhood's problem really does affect the broader market," said Blitzer, who had not seen the complaint filed Tuesday.
Should HUD find evidence that the alliance's complaint against Wells Fargo is accurate, the federal agency can attempt to negotiate a settlement with the bank. If the parties are unable to reach an agreement, the Justice Department could file suit against the bank.
The Justice Department is already probing the bank's lending activities in the period before the housing bubble burst in 2007. Wells Fargo has been accused of steering black borrowers into higher-cost and higher-risk subprime loans that made foreclosure more likely, Bloomberg News reported in July.
That month, the Federal Reserve also forced Wells Fargo to pay an $85 million fine in connection with the bank's practice of steering buyers who could have qualified for better loans into subprime mortgages and falsifying information on key documents.
"We will not hesitate to hold financial institutions accountable, including one of the nation's largest," Attorney General Eric Holder said in a statement issued by the Justice Department after the federal law enforcement agency reached a record-setting $335 million settlement with Wells Fargo competitor Bank of America for engaging in similar activities. "These institutions should make judgments based on applicants' creditworthiness, not on the color of their skin."
CORRECTION: This report has been updated to include an emailed statement from Tom Goyda, a Wells Fargo spokesman, that had indeed arrived by press time. An earlier version indicated that Wells Fargo spokeswoman Vickee Adams had not responded to several requests for comment.