L. A. Sues Three Large Banks for Predatory Lending in Black Neighborhoods
Mike Feuer, Los Angeles City Attorney, has sued three of the nation’s largest banks, charging that their mortgage-lending practices discriminated against African-Americans by steering them into high-interest subprime loans they eventually could not pay.
Feuer filed the lawsuits in U.S. District Court in California against Wells Fargo & Co. and Wells Fargo Bank, N.A., Bank of America Corporation, Bank of America, N.A., Countrywide Financial Corp., Countrywide Home Loans, Countrywide Bank FSB, Citigroup Inc., Citibank, N.A., Citimortgage, Inc., Citicorp Trust Bank, FSB, and Citi Holdings Inc.
The lawsuits charged that the wave of foreclosures in Los Angeles’ nonwhite neighborhoods diminished the city’s property tax revenues and increased the need for and the cost of, city services. In the addition, the legal action charges that complaints violate the Federal Fair Housing Act.
Feuer cited a report by the Alliance of Californians for Community Empowerment and the California Reinvestment Coalition. The two groups estimated that the mortgage crisis resulted in more than 200,000 foreclosures and an estimated $78 million in decreased home values from 2008 to 2012. Property tax revenue losses during that period were estimated at $481 million.
The report also found foreclosures increase costs for local safely inspection, police, fire, trash removal and property maintenance. In Los Angeles, the estimated cost is of these services is $1.2 billion.
Both Wells Fargo and Citigroup claimed the lawsuits lacked merit. Bank of America said it has strong ties to the community.
“We have a firm commitment and strong track record for fair lending,” a Bank of America spokesperson wrote in an email to The NorthStar News & Analysis. “We responded with urgency to rising mortgage defaults that resulted from the country’s severe economic downturn and the personal financial hardships — unemployment and underemployment, divorce, and medical disability, chief among them – that resulted for so many Americans. Our record demonstrates there is no basis for the city’s claims.”
Wells Fargo, which is based in San Francisco, frequently sends a bank official to attend the National Newspaper Publishers Association’s conventions. NNPA is an organization of black-newspaper publishers. Wells Fargo also advertises in black publications. In addition, Wells Fargo, the nation’s largest mortgage lender, frequently marketed its mortgage-lending services through minority or black churches.
In 2010, the NAACP and Wells Fargo reached an agreement over the bank’s lending practices. The agreement did not require Wells Fargo to pay monetary damages, but Wells Fargo agreed to allow the NAACP to monitor its lending practices.
Feuer’s lawsuit charges that although Wells Fargo approved mortgages in mostly white neighborhoods, a loan in a predominantly minority neighborhood was 4.982 times more likely to result in foreclosure than a loan made in a predominantly white neighborhood.
The lawsuit charges that African-American mortgage borrowers with FICO credit scores over 660 were 2.124 times more likely to receive higher interest, predatory Wells Fargo loans than a white borrower, the lawsuit claims.
At Citigroup, it was a similar story. When a borrower learned that he received a predatory loan from Citibank, he would seek to refinance it, but Citibank officials refused to allow the transaction.
“The inevitable result of the combination of issuing a predatory loan and refusing to refinance it was foreclosure,” the lawsuit charged.
Like Wells Fargo, Bank of America also marketed subprime loans through African-American churches. One former BofA employee testified in the lawsuit that she would set up kiosks in churches in West Los Angeles to promote predatory mortgage loans.
“They were all in very depressed neighborhoods,” the former BofA employee said. “We were doing this huge push, where we were targeting lower-income areas, and we actually were having seminars and expos, where we would actually go to various churches, including Faithful Central and City of Refuge. They were all in Los Angeles and were predominantly African-American.”