Oakland Says Wells Fargo Cost It Millions

SAN FRANCISCO (CN) - Wells Fargo steered Oakland's minority homebuyers into predatory loans that caused hundreds of foreclosures and millions of dollars in lost taxes, the city claims in Federal Court.

Oakland claims Wells Fargo's Fair Housing Act violations and unjust enrichment could have cost the city as much as $50 billion in reduced property values due to the foreclosures and the havoc they wreak on neighborhoods.

Oakland says the bank, the nation's fourth largest in assets, steered a disproportionate number of black and Hispanic borrowers into predatory loans, though they qualified for loans with better terms.

"The practices maximize Wells Fargo's profits without regard to the borrower's best interests, the borrower's ability to repay, or the financial health of underserved minority neighborhoods, resulting in an excessively high number of more expensive loans in Oakland," the 38-page complaint states.

A Wells Fargo spokesman said the city's decision to sue rather than take a "collaborative approach" is "disappointing."

"Wells Fargo has been a part of the Oakland community for more than 140 years, and we will vigorously defend our record as a fair and responsible lender," Tom Goyda told Courthouse News in an email. "We will continue to focus on helping customers in Oakland and its surrounding communities succeed financially, and on expanding homeownership in California and across the United States."

Two federal judges in July ruled for Wells Fargo in similar lawsuits against the bank, brought by the city of Los Angeles and Cook County , Ill.

Oakland claims that Wells Fargo, based across the Bay in San Francisco, gave its employees incentives to engage in racist lending. It claims the bank's misconduct has cost it lost tax revenue and mounting costs for services to tackle blight and unsafe conditions at abandoned properties.

Police and firefighters must respond to increased numbers of violent crimes, fire hazards, vagrancy and threats to public health and safety at the foreclosed properties, the city says. It also must spend money removing overgrown shrubs, hauling away debris, boarding up properties and fencing off buildings empty due to structures. And each abandoned property reduces the values of nearby homes.

"Property tax losses suffered by Oakland as a result of Wells Fargo's foreclosures are fully capable of empirical quantification," the complaint states.

It cites studies that found homes within 150 feet of an abandoned site decline in value by an average of $7,627. Another study says values of homes within an eighth of a mile drop 0.9 percent. Using that calculation, Oakland would suffer $53 billion in property devaluation.

The city said it has identified 982 costlier and higher-risk loans issued to minority borrowers from 2004 to 2013 that resulted in foreclosure. And it claims Wells Fargo continued to engage in racist lending after 2013.

Black and Hispanic borrowers in Oakland were 2.4-to-2.5 times more likely to receive predatory loans than white borrowers with similar credit histories during those nine years, according to a data analysis cited in the complaint.

The city also cites testimony from three confidential witnesses who are familiar with the bank's lending practices. One said sales quotas were set at higher levels at the bank's Fruitvale branch, which serves a large number of minority customers. The witness said she was trained not to discuss potential downsides or risks of less favorable loans.

Another witness said the bank issued adjustable-rate loans to minority borrowers at a higher rate than white borrowers, with few minority borrowers obtaining a conventional 30-year, fixed-rate mortgage.

"The witness very rarely saw conventional loans being issued to borrowers with a Hispanic name," the complaint states.

A third witness said the bank failed to provide brochures at bank locations that fully explained the loans. If loan officers wanted to offer Spanish-language loan brochures to customers, they had to foot the bill themselves, the lawsuit states.

Oakland seeks declaratory judgment, compensatory and punitive damages and a permanent injunction.

City Attorney Barbara J. Parker is assisted by Yosef Peretz of Peretz & Associates in San Francisco, and Joel Liberson of Trial & Appellate Resources of El Segundo.

Follow @NicholasIovino

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