04/17/2012 05:19 pm ET Updated Apr 17, 2012

U.S. Bank Faces Housing Discrimination Investigation in Connection with Foreclosed Homes

U.S. Bank on Tuesday joined the ranks of large financial firms facing discrimination charges for the way it maintains foreclosed homes in mostly black and Latino neighborhoods.

The National Fair Housing Alliance, a Washington, D.C.-based nonprofit, filed a formal discrimination complaint against the bank with the Department of Housing and Urban Development Tuesday. In the complaint, the organization accuses the bank of maintaining and marketing bank-owned foreclosed properties in predominantly white communities far more aggressively and consistently than it does homes in mostly black and Latino neighborhoods.

The complaint filed against U.S. Bank and its parent company, U.S. Bancorp, marks the second charge in as many weeks brought by the National Fair Housing Alliance against a major bank. The alliance conducts housing discrimination investigations and receives some funding from HUD. Last week, the alliance accused California-based Wells Fargo, the nation's largest mortgage lender, of similar civil rights violations.

Minnesota-based U.S. Bank is the fifth largest commercial bank in the United States. On Tuesday, it also faced separate allegations logged by another nonprofit group that it offers pay day loans at annual interest rates approaching 400 percent to vulnerable consumers.

Alliance investigators examined 177 U.S. Bank properties in seven cities, said Shanna Smith, the alliance’s president and CEO. Public records indicated each of the homes was owned, not simply managed, by U.S. Bank, she said.

In Dayton, Ohio, alliance investigators found that 65 percent of U.S. Bank foreclosures in communities of color had broken widows or doors, according to the alliance’s complaint. Only 15 percent of the bank’s repossessed homes in white neighborhoods were in the same condition. In the Oakland, Calif.-area, 64 percent of the bank’s foreclosed properties in black or Latino neighborhoods were littered with, “substantial” amounts of trash. But, only 17 percent of properties in predominantly white Bay Area neighborhoods had the same problem.

U.S. Bank said that the complaint filed with HUD Tuesday does not include the addresses of problem properties, which the bank needs to determine if it owns the properties or if it is simply the trustee managing administrative tasks for investors who own the home loans.

Trustees oversee securities -- in this case, mortgage securities made up of hundreds or even thousands of home loans -- on behalf of investors. The investors are often large pension funds and insurance companies. Trustees, in turn, typically hire companies known as servicers to collect mortgage payments from the home buyers whose loans are part of the security. Banks often function as servicers and are responsible for dealing with loans before and after a foreclosure. So, servicers also often hire asset managers or contractors to maintain foreclosed properties.

Nicole Sprenger, a U.S. Bank spokesperson, emailed a statement to the Huffington Post Tuesday that emphasized the complexity of these arrangements.

As you may know, U.S. Bank is one of the nation's largest corporate trustees. Accordingly, in the vast majority of cases where U.S. Bank is involved in a foreclosure, we serve as a trustee for an investment pool where the former mortgage was held, and have no role in servicing or maintaining the property. That is the responsibility of the servicer (typically another bank), and not the trustee.

When we do own a property, we have a strong and comprehensive process in place to regularly inspect and maintain properties to marketing standards where we have legal access, regardless of their location.

The bank’s argument is illegitimate, said Anne Houghtaling, executive director of HOPE Fair Housing Center in Wheaton, Ill. a city about 25 miles west of Chicago. HOPE is one of the nonprofit organizations that helped the National Fair Housing Alliance evaluate the state of foreclosed homes in cities around the country.

“U.S. Bank has a list of its own properties, (and) could go and look at them, and should be going to look at them regularly,” Houghtaling said. “They could do that now.”

There is clear evidence that U.S. Bank-owned properties in Chicago are treated differently if located in a community of color, she said.

HUD declined to comment on the complaint but confirmed that it had been filed and will lead to a federal investigation. Should HUD find evidence that the alliance's complaint against U.S. Bank 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 complaint filed Tuesday follows a nine-month probe during 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 regardless of income, Smith said.