CLEVELAND (CN) – The City of Cleveland demands hundreds of millions of dollars from 21 major lenders “and the monied interests that support them,” claiming they saturated the city with sub-prime loans to unqualified borrowers, resulting in a flood of foreclosures, deteriorating neighborhoods, fire hazards, criminal opportunities and immense economic damage to Cleveland. The complaint describes the ‘securitization’ of sub-prime mortgages as a giant Ponzi scheme.
“The City of Cleveland sits at the epicenter of a mortgage foreclosure crisis triggered by sub-prime lenders and the monied interests that support them,” the complaint states. “Over the course of several years, financial institutions routinely made money available to unqualified borrowers who had no realistic means of keeping up with their loan payments over the long term. A rash of defaults inevitably followed, and the ensuing foreclosures have left homes abandoned and boarded p, transforming them into eyesores, possible fire hazards, and targets for both looters and criminals.
“This phenomenon claimed entire streets, blocks, and neighborhoods in Cleveland, displacing both homeowners and tenants of absentee landlords who had acquired their property with sub-prime loans. Seemingly overnight, the spate of foreclosures reversed the successes that had established Cleveland as a national leader in neighborhood revitalization.
“The epidemic of foreclosures has devalued not only the homes directly affected but surrounding properties as well, depleting Cleveland’s tax base. The City has also strained to cover the more immediate, tangible costs imposed upon it by the crisis, including increased fire and police expenditures associated with vacant properties, demolition costs, and the like.
“Sub-prime lending abuses have inflicted this same kind of damage upon cities across the United States. Cleveland’s predicament, however, remains distinctive and unique – and not only because its foreclosure rate surpasses those experienced elsewhere by a significant margin. Cleveland’s economy and housing situation differed significantly from the rest of the country’s at the time sub-prime lending reached its peak. The disparities made mass foreclosures the only possible result of flooding the local market with sub-prime mortgages, even if doing likewise in other cities created no such apparent risk.
“Simply put, with respect to Cleveland, the purveyors of sub-prime mortgages could have and should have foreseen – and in all likelihood actually did foresee – a foreclosure crisis and the inescapable consequence of their conduct. Forced to clean up the resulting mess, the City has sustained hundreds of million of dollars in damages, in the manner described above.
“Responsibility for Cleveland’s plight rests principally with sub-prime’s so-called ‘securitizers’ – investment bank firms from Wall Street and elsewhere that actually provided the cash used to make loans, regardless of the lender or broker nominally involved in the transaction. The ‘securitizers’ accomplished this largely by buying the sub-prime mortgages procured from borrowers – lenders would make sub-prime loans with proceeds received from the sale of mortgage from earlier deals. Through this cycle, Wall Street financed the sub-prime boom that took place in Cleveland and across the country.
“‘Securitizers’ typically paid themselves astronomical fees in putting together new offerings of mortgage-backed securities. Their appetite for mortgage-backed securities became so voracious that ‘securitizers’ explicitly countenanced loans made to borrowers either on financially irrational terms or without any information to corroborate the borrowers’ wherewithal to pay – anything to keep new mortgages coming for the creation of still more mortgage-backed securities.
“The propagation of sub-prime mortgages in Cleveland and the corresponding foreclosures constitute a public nuisance as defined by Ohio common law. The City has filed suit to redress this misconduct and recoup the losses it has suffered as a result. The Defendants include the predominant ‘securitizers’ of sub-prime mortgages, several of which also made loans directly to consumers.”
Here are the defendants in Cuyahoga County Court: Deutsche Bank Trust Co., Ameriquest Mortgage Co., Bank of America Corp., The Bear Stearns Companies, Citigroup Inc., Countrywide Financial Corp., Credit Suisse (USA), Fremont General Corp., GMAC-RFC, Goldman Sachs Group, Greenwich Capital Markets Inc., HSBC Holdings Plc, IndyMac Bancorp, J.P. Morgan Chase Co., Lehman Brothers Holdings, Merrill Lynch & Co., Morgan Stanley, Novastar Financial, Option One Mortgage Corp., Washington Mutual, and Wells Fargo & Co.