Banks' Reverse Redlining Cost It $1 Billion, Los Angeles Claims
LOS ANGELES (CN) - Wells Fargo, Citigroup and Bank of America targeted minority neighborhoods for predatory mortgage loans, leaving city taxpayers on the hook for more than $1 billion when properties went underwater, the city claims in court.
City Attorney Mike Feuer sued Wells Fargo, Citigroup and Bank of America, in separate federal lawsuits.
Alleging violations of federal housing laws, Feuer claims the three lenders still extend loans on worse terms than they offer in white neighborhoods.
"It is axiomatic that banks should not make discriminatory loans. Banks must extend credit to minorities on equal terms as they do to other similarly situated borrowers," the lawsuit against Wells Fargo states. "Banks should not target minority neighborhoods for loans that discriminate nor make loans to minorities on terms that are worse than those offered to whites with similar credit characteristics."
The city seeks hundreds of millions of dollars in damages for lost property taxes and its expenses to repair and maintain foreclosed properties.
Los Angeles claims Wells Fargo, Citigroup and Bank of America have targeted minority borrowers for bad loans since 2004, through reverse redlining.
In old-style redlining, banks denied loans to people in a redlined area, often because of race.
"Reverse redlining is the practice of flooding a minority community with exploitative loan products," the city says a footnote in its 76-page lawsuit against Wells Fargo, from which citations in this article are taken.
Wells Fargo has deluged minority neighborhoods in Los Angeles with such mortgage loans since the 1990s, Los Angeles says.
While such loans often sink borrowers and their homes, the banks insulate themselves from risk by selling the loans to the secondary market.
From the mid-1990s to the burst of the housing bubble burst, the nationwide market for subprime loans grew from $97 billion to a staggering $640 billion, the city says.
"These loans were frequently targeted to minorities," according to the complaint.
In the aftermath of the housing crisis, the banks inflicted more pain on communities they helped ravage by cutting off credit to struggling borrowers. "This combination of reverse redlining and redlining represents a continuing and unbroken pattern and practice of mortgage lending discrimination in Los Angeles that still exists today," the lawsuit states.
The banks decimated minority communities in Los Angeles hit by a flood of foreclosures: "Foreclosures on loans originated by Wells Fargo are concentrated in these neighborhoods even though the bulk of Wells Fargo's lending in Los Angeles is in white neighborhoods," the complaint states. "A loan in a predominantly minority neighborhood is 4.982 times more likely to result in foreclosure than is a loan in a predominantly white neighborhood."
Citing an examination of Wells Fargo loans, the city says that an African-American Wells Fargo borrower was more than 2 times as likely to receive a bad loan than his white counterpart. Latino borrowers were more than 1.5 times as likely to receive a predatory loan than whites, the city claims.
While the poorest in the city have suffered, Wells Fargo's profits have soared. Wells Fargo posted $18.9 billion in profits in 2012: more than twice the profits it reported from 2002 until 2007, the lawsuit states.
"During the crisis years of 2009-2012, Wells Fargo reported a combined $59 billion in profits, while millions lost their homes," the city attorney says.
While Wells Fargo filled its coffers, its borrowers and their communities suffered. The Alliance of Californians for Community Empowerment and the California Reinvestment Coalition estimate that home values plummeted by $78.8 billion in that time; the city lost $481 million in tax revenue, and spent $1.2 billion on maintaining and repairing foreclosed homes.
In filing the lawsuits on Friday, Feuer said: "Today we begin to address the devastating consequences of the foreclosure crisis in America's second largest city." He said the lawsuits should send "the firm message that we will use every tool at our disposal to fight for all Los Angeles taxpayers and neighborhoods."
In emailed statements to Courthouse News the banks said Feuer's lawsuits are without merit.
"The accusations made by the city attorney are baseless, do not in any way reflect our values as a company, and we will vigorously defend ourselves," Wells Fargo spokesman Tom Godya wrote.
Citigroup spokesman Mark Rodgers expressed disappointment that the city did "not recognize our deep commitment to fair lending."
"Citi considers each applicant by the same objective criteria, which are blind to race, ethnicity, gender and any other prohibited basis," Rodgers wrote.
Bank of America's Jumana Bauwens, meanwhile, touted the bank's "firm commitment and strong track record for fair lending."