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EDITOR’S ANALYSIS: Even in the most unlikely places where consumers are generally treated as deadbeats, when an institution sues alleging much the same facts as individual borrowers, Judges take it more seriously. Part of the securitization scam that fueled the appearance of a successful strategy for homeowners, investors and Wall Street, was the practice of redlining poor neighborhoods consisting of poorly educated unsophisticated people who could easily be bamboozled into investing a home that had had been in their family for generations. It’s called predatory lending and fraud.
They sent sale people with no training other than a script to the doors of people who didn’t need or want a loan, offered them tons of money and used inflated appraisals that were completely false to convince people that their houses were worth far more than they thought (wrong) and to sign up for loan products that lacked any semblance of viability.
In a short period of time, the teaser rates and other inducements all failed and the loan, based upon false premises, failed. The people were right when they thought their houses were worth less but they relied upon appraisers and so-called lenders because a lender obviously would not offer money on the house unless the property was worth more than the loan product and the loan was viable. It didn’t make sense to any of the homeowners but they were assured by people in suits that everything was on the up and up.
It was all part of a scam on investor-lenders using the homeowners as pawns. None of it was true, and the people lost their homes, neighborhoods were emptied, and cities and counties lost millions in revenue and now face default on their municipal obligations and the possibility of some sort of receivership or bankruptcy. It took a while, but city administrators and city attorneys finally “get it.” None of this was real and all of it was a scheme to deplete the meager resources of cities unacquainted with the high finance tactics of Wall Street. Now they are suing, saying what the borrowers said when they objected to the foreclosures. When the little guy says it, the Judge pays no attention — but when the City of another institution says it, then it is taken more seriously. We’ll see plenty more suits just like this one. Follow them. Get the discovery requests and see if you can get hold of the answers.
Judge Allows Redlining Suits to Proceed
By ANDREW MARTIN
Two lawsuits accusing Wells Fargo of discriminatory lending practices have been allowed to move forward, a victory for plaintiffs that have accused the bank of steering African-Americans toward predatory loans.
In one lawsuit, brought by the city of Memphis and Shelby County, Tenn., Judge S. Thomas Anderson of Federal District Court for the Western District of Tennessee on Wednesday denied a motion from Wells Fargo to dismiss, partly on the grounds that the suit was too broadly drawn. Both jurisdictions accused the lender of improperly steering African-Americans toward loan products that ultimately led to foreclosures, vacancies and increased government costs.
“The City of Memphis and Shelby County have not alleged that Wells Fargo lending practices resulted in a host of social and political ills plaguing entire sections of the community,” Judge Anderson wrote in a 32-page order. “Rather plaintiffs contend that defendants have targeted individual property owners with specific lending practices (reverse redlining), resulting in specific effects (foreclosures and vacancies) at specific properties, which in turn created specific costs (services and tax revenue) for local government.”
Judge Anderson’s ruling came two weeks after Judge J. Frederick Motz, of Federal District Court in Maryland denied Wells Fargo’s attempt to dismiss a similar lawsuit brought by the mayor and city council of Baltimore. Two previous versions of that lawsuit, claiming reverse redlining, in which the bank steered African-Americans toward more predatory loans, had been dismissed by the court.
But this time, Judge Motz said city officials had narrowed the allegations enough to show a plausible link between Well Fargo’s actions and its impact on the city. The issue, he said, was whether “the city has plausibly alleged that the properties in question would not have become vacant but for the allegedly improper loans made by Wells Fargo.”
He said the city provided the link by claiming that Wells Fargo deliberately steered African-American borrowers who qualified for prime mortgages into subprime loans. As a result, the plaintiffs claim, borrowers who could have kept up with payments on a prime loan defaulted because of the more expensive subprime payments.
The city also contends that Wells Fargo approved mortgage refinancing or home equity loans for African-American borrowers even though it knew or should have known that the borrowers couldn’t afford the payments.
Decades of economic gains by African-Americans in many of the nation’s cities have been reversed by unemployment and foreclosures. While many factors have contributed to the decline, some have accused the nation’s largest banks of pushing blacks toward predatory loans that ultimately led to more foreclosures and vacancies. Asked about the two recent rulings, a Wells Fargo spokeswoman, Teri Schrettenbrunner, said: “We disagree with these rulings, and we will present the facts which we believe will ultimately win these cases. Our team members make loan pricing decisions based on credit and transaction risks, consistently treating our customers fairly.”
In its legal responses to the lawsuit, Wells Fargo had also maintained that Baltimore’s housing woes were caused by “a complex weave of social and economic factors” rather than its own lending practices.
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