The Northern District of California has approved a $53 million settlement to be paid by the Federal National Mortgage Association (Fannie Mae) to resolve racial discrimination claims concerning Fannie Mae’s management and marketing of real estate-owned (REO) properties.
In 2016, multiple nonprofit housing organizations filed a complaint against Fannie Mae, alleging that the organization failed to maintain foreclosed properties in Black and Latino neighborhoods to the same quality and standards as it did in comparable white neighborhoods. The organizations further alleged that Fannie Mae’s differential treatment exacerbated the damage caused to these neighborhoods by the 2008 real estate collapse and impeded their recovery. In their 2018 amended complaint, the organizations noted that between 2011 and 2015 “[o]ver the course of four years, [they] investigated over 2,300 properties owned and maintained by [Fannie Mae], collected evidence on over 35 aspects of the maintenance of each property investigated, and accumulated over 49,000 photographs.” This evidence demonstrated Fannie Mae and its agents’ failure to “conduct routine exterior maintenance and marketing of REO properties in communities of color,” leaving these properties in a state of neglect, which, in turn, resulted in properties in predominantly white areas being in a materially better condition.
The settlement was executed and approved on February 7. Under the settlement, Fannie Mae will pay $53 million, with roughly $35 million being earmarked specifically for addressing “community needs […], including addressing home ownership, neighborhood and/or community stabilization, access to credit, property rehabilitation, residential development in African American and Latino communities, fair housing education and outreach, counseling, and other fair housing activities.” The lawsuit is also notable in that the courts confirmed for the first time that fair housing laws govern the maintenance and disposition of REO properties.
The settlement is another in a string of recent developments in the fair lending and housing discrimination space, such as the FTC’s 2021 report highlighting the disproportionate impact of consumer fraud on minority communities, the DOJ’s “Combatting Redlining Initiative,” and state regulation around fair housing, such as New York’s industry letter on preventing sexual orientation to name a few.
For creditors, the key takeaway is that fair lending continues to be a key priority for state and federal regulators in a wide array of contexts. Troutman Pepper will continue to monitor cases and other litigation centered around fair lending and other related issues.