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The National Fair Housing Alliance (‘NHFA’) and five of its member organizations have filed a complaint which accuses Bank of America Corporation (BAC - Analyst Report) of bias in the maintenance and marketing of foreclosed homes in the minority neighborhoods. The complaint is filed with the U.S. Department of Housing and Urban Development (HUD).

The group filed the complaint after a thorough evaluation of nearly 373 properties, pertaining to BofA across eight U.S. cities. The observation revealed that properties in predominantly white neighborhoods were in far better conditions than the properties in minority neighborhoods in sheer violation of the Fair Housing Act, as per the NHFA and its affiliates.

NHFA cited that the most foreclosed homes in minority areas were in dire need of maintenance. As per the officials at NHFA, the properties were deliberately not looked after to ensure that homes remain vacant. This would eventually lead to a drop in prices of the adjacent properties. Such disparities do affect home values and have the capacity to bring about economic distress.

Further, NHFA has alleged that that BofA had been notified about such discriminatory practices in 2009. There were discussions held regarding this matter, but these had completely failed. Moreover, NHFA has highlighted the fact that BofA had the opportunity to borrow money at the Federal Reserve discount window at almost zero percent interest and along with the profits it has made in the last couple of years, it has still failed to ‘fix up’ the foreclosed properties.

However, the alliance is of the idea that a solution can be worked out if BofA is willing to cooperate with the HUD investigation. It will be up to HUD to look into the claims and either arrive at a settlement agreement with the bank, dismiss the complaint or issue a charge of discrimination. The Department of Justice can then take up the case before a federal court.

This is not the first time BofA has been accused of racial discrimination. Earlier, in December 2011, the company shelled out nearly $335 million to settle civil charges against its Countrywide Financial unit. The unit was accused of using discriminating lending practices against qualified African-American and Hispanic borrowers on home loans.  

Earlier in April this year, NFHA had lodged a similar complaint against Wells Fargo & Company (WFC - Analyst Report) and U.S. Bancorp (USB - Analyst Report). Though, there has been official update on the status of the investigation by the HUD, the banks have denied any sort of foul play. Wells Fargo maintains that all its lending-related activities were fair without racial disparity. U.S. Bancorp, in its defense has said that the maintenance of the foreclosed properties is the responsibility of the trustee for an investment pool of mortgages and not that of the servicer.

We believe that such discriminatory practices dent the image of a company and the resultant legal settlements add to the expenses. Further, such practices are in contrast to the social responsibilities that big banks like BofA should execute.

Shares of BofA currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. However, considering the fundamentals, we maintain a long-term ‘Neutral’ recommendation on the stock.

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