City to make case against Wells Fargo

Originaly by Julie Bykowicz: Lawsuit claims Baltimore harmed by predatory lending practices

Baltimore City will attempt to show a federal judge on Monday that it has lost millions of dollars because of what it contends were racially biased predatory lending practices by Wells Fargo.

In what will amount to a mini-trial before U.S. District Judge Benson E. Legg, attorneys for Baltimore and Wells Fargo will present evidence and call witnesses, as the city fights the California-based bank’s motion to dismiss its lawsuit.

It is a critical juncture in the city’s suit against the lender, because if Legg allows the case to continue, Baltimore could gain access to Wells Fargo documents and subpoena its employees. That potentially could shine a light on the practices of one of the largest mortgage providers in the region.

Barbara Samuels, a fair housing attorney for the American Civil Liberties Union of Maryland, which has been following the case, called it “innovative” and potentially groundbreaking.

“The city filing rather than the individual homeowners keeps the focus on pattern and business practices, as opposed to getting lost in the weeds of individual transactions,” Samuels said. “It’s very difficult, almost impossible, for individual consumers to see and understand that they have been treated in a way that is unfair, discriminatory or illegal. That can only be shown in the buffer context of the business practices. We could be about to learn a lot here.”

Representatives for Wells Fargo have said the lawsuit, filed in January 2008, “absolutely lacks merit” and is a wrongheaded reaction by a city that is “thirsty for revenue.”

City officials are making a two-part argument in their assertion that Wells Fargo violated the federal Fair Housing Act. They allege in court documents that Wells Fargo disproportionately gave its black customers “abusive subprime loans that are, in effect, designed to fail.” And those bad mortgages, the lawyers say, left the city with a glut of foreclosed homes that have cost tens of millions in lost property taxes and in city services such as public safety and sanitation.

Two former Wells Fargo employees have claimed in depositions that the company’s prime loan officers reaped rewards for steering customers who qualified for regular lending to subprime loans. Tony Pachal, a loan officer from 1997 to 2007, also said employees used racial slurs to describe minority customers and referred to subprime loans as “ghetto loans.”

More than half of foreclosures between 2005 and 2008 on homes that had Wells Fargo loans remain vacant, with 71 percent of those vacancies in predominantly black neighborhoods, according to documents filed in court by the city’s attorneys.

Wells Fargo insists its lending was based on credit risk alone, not race. They also say only a tiny fraction of the city’s 33,000 foreclosures are connected to Wells Fargo loans.

Legal experts say that what is likely to be the dominant issue Monday is how Baltimore demonstrates that it was harmed by Wells Fargo’s alleged misdeeds.

In paperwork filed last week, city lawyers say they will call experts to describe the methods used to calculate the damages caused by Wells Fargo.

The city expects Wells Fargo to raise a recently dismissed lawsuit in Cleveland. The Ohio city had sought damages against Ameriquest Mortgage Securities on the theory that it had violated state public nuisance laws by providing secondary market funding for subprime loans. The judge who granted Ameriquest’s motion to dismiss in May said Cleveland would not be able to prove direct harm.

Baltimore attorneys said their claim is more narrowly focused than the one in Cleveland.

In the aftermath of the housing downturn, other civil suits against lenders have emerged. The NAACP sued dozens of banks in March, alleging “reverse redlining,” the practice of flooding black communities with expensive and burdensome loan products.

Baltimore officials hired John P. Relman, a Washington attorney who has spent the past decade litigating fair housing claims, to handle the case with City Solicitor George Nilson. Wells Fargo’s attorneys are Washington-based Andrew L. Sandler, Benjamin B. Klubes and Jonice Gray Tucker.

Legg has said he could rule immediately after the hearing.