Wells Fargo Can’t Shake L.A. Lawsuit Over Predatory LoansEdvard Pettersson
Wells Fargo & Co. lost a bid to throw out a lawsuit by Los Angeles in the city’s renewed effort to hold mortgage lenders liable for record foreclosures during the collapse of the U.S. housing market.
U.S. District Judge Otis Wright II in Los Angeles, without ruling on the merits of the claims, today said the city’s allegations that the bank targeted minority lenders with “predatory loans” were legally sufficient at this stage to proceed with the case.
The second-largest U.S. city separately sued Wells Fargo, Citigroup Inc. and Bank of America Corp. last year, saying the three mortgage lenders engaged in discriminatory practices since at least 2004, placing minority borrowers in loans they couldn’t afford and driving up the number of foreclosures in their neighborhoods.
Los Angeles, which previously sued Deutsche Bank AG as owner of foreclosed properties, and other cities have explored legal means to hold banks accountable for urban blight in the wake of the 2008 collapse of the U.S. housing market and financial crisis.
Homeowners in Los Angeles lost about $78.8 billion in home value as the result of 200,000 foreclosures from 2008 through 2012, the city said last year, citing a report by Alliance of Californians for Community Empowerment and the California Reinvestment Coalition. The lost property tax revenue to the city has been $481 million, according to the complaints.
“The city’s allegations are extremely detailed and specific to defendants’ lending practices,” Wright said in his ruling.
The city seeks to hold the banks liable for lost tax revenue and increased municipal services stemming from the foreclosures. Today’s ruling only relates to the lawsuit against Wells Fargo, the largest home lender in the U.S.
“The court’s decision to allow the city attorney’s lawsuit to proceed, while disappointing, in no way suggests that the claims ultimately will prevail,” Tom Goyda, a spokesman for San Francisco-based Wells Fargo, said in a statement.
“We are prepared to defend our record as a responsible lender as well as our longstanding efforts to work with customers, credit counselors, non-profit organizations and government agencies to expand homeownership and revitalize distressed neighborhoods in Los Angeles.”
Los Angeles settled its case against Deutsche Bank, with the Frankfurt-based lender saying in June 2013 that servicers and securitization trusts would pay the city $10 million.
Wells Fargo and Bank of America agreed to pay a combined total of more than $500 million in 2011 and 2012 in what the U.S. called the two biggest residential cases in the history of the Fair Housing Act and the Equal Credit Opportunity Act. The government alleged borrowers with loans from Wells Fargo and Countrywide, the biggest U.S. mortgage lender when it was acquired by Bank of America in 2008, were more likely to be put in subprime loans if they were black or Hispanic, even when they qualified for lower-cost mortgages.
Cook County, the second most-populous county in the U.S. after Los Angeles County, sued HSBC Holdings Plc in March for allegedly targeting Chicago-area minority borrowers with high-cost home loans.
The case is City of Los Angeles v. Wells Fargo & Co., 13-cv-9007, U.S. District Court, Central District of California (Los Angeles).