Los Angeles has filed suit against Wells Fargo and Citigroup, alleging the companies engaged in mortgage discrimination that led to a wave of foreclosures in minority communities during the housing crash. The two lawsuits, each filed in federal court, are the latest fallout from the 2008 collapse of the subprime mortgage industry. As you will recall the collapse brought about a number of actions against various lenders by federal agencies and city governments. The Los Angeles suits allege a “continuing pattern of discriminatory mortgage lending practices” in Los Angeles that violate the federal Fair Housing Act. They claim Wells Fargo & Co. and Citigroup Inc. at first refused to grant mortgages in minority neighborhoods — a practice known as redlining — but later targeted black and Hispanic neighborhoods for predatory loans, known as reverse redlining.
The lawsuits contend that “vulnerable, underserved borrowers” denied by years of redlining jumped at the chance to obtain subprime home loans they couldn’t afford, then were hit by a swarm of foreclosures when the housing bubble burst and they were denied refinancing. It’s alleged in the lawsuit against Wells Fargo:
Since 2008, banks have foreclosed on approximately 1.7 million homes in California, and Wells Fargo is responsible for nearly one in five of these foreclosures. A loan in a predominantly minority neighborhood of Los Angeles is nearly five times more likely to result in foreclosure that one in a predominantly white neighborhood. These foreclosures often occur when a minority borrower who previously received a predatory loan sought to refinance the loan, only to discover that Wells Fargo refused to extend credit at all, or on equal terms as when refinancing similar loans issued to white borrowers. The foreclosures caused property values to tumble, costing the city tax revenue, and leaving it holding the bag for the cost of cleaning up and policing vacant properties.
Each of these two lawsuits seek unspecified reparations and damages. They cite a report by the Alliance of Californians for Community Empowerment and the California Reinvestment Coalition that estimated the mortgage crisis resulted in more than 200,000 foreclosures from 2008 to 2012, with $481 million in lost property tax revenue to the city, and $1.2 billion in Los Angeles for “increased costs of safety inspections, police and fire calls, trash removal and property maintenance.” The Los Angeles city attorney’s office filed these two lawsuits. They have previously gone after other mortgage lenders in state court, blaming them for urban blight sparked by the housing market collapse. Wells Fargo and Citigroup deny all of the allegations against them and claim the suits are without merit. We will see how this litigation turns out.
Source: ABC News
