Judge’s ruling in mortgage-lending case is days away

Originaly by Julie Bykowicz: City’s lawsuit advancing against Wells Fargo at stake

Having heard what he called a “test run” of Baltimore’s discriminatory lending claim against Wells Fargo on Monday, a federal judge said he will rule within days on whether the civil case can proceed to discovery - a process that could reveal the inner workings of one of the region’s largest mortgage lenders.

Baltimore’s lawsuit against Wells Fargo, filed in January last year, alleges that the company violated the federal Fair Housing Act by disproportionately pushing black borrowers into oppressive subprime loans that were “destined to fail.” Many of those homeowners, the lawyers say, went into foreclosure, which cost the city millions in lost property tax revenue and expenses related to the upkeep of vacant houses.

U.S. District Judge Benson E. Legg listened to more than four hours of testimony and depositions Monday and said he could decide as soon as Tuesday whether the city’s allegations are plausible enough that the case should continue. Baltimore is arguing that it suffered financial losses separate from the borrowers.

Lawyers and witnesses for Wells Fargo argued in a motion-to-dismiss hearing that it would be difficult, if not impossible, for the city to show that it was harmed by the company’s lending practices. They also called the bank’s lending practices “unremarkable” and produced data that they said shows it did not give subprime loans to black borrowers with greater frequency than it did to white borrowers.

Of the 143 Wells Fargo loans that went into foreclosure between 2005 and 2008, the company said, about half involved black borrowers, many of whom were property investors rather than homeowners.

Quoting Legg’s concern from a previous hearing, Andrew L. Sandler, an attorney for California-based Wells Fargo, repeatedly called the city’s allegations “a theory in search of a lawsuit.” Sandler said it would be onerous to produce the documents the case would require and said it should be dismissed because the city won’t be able to link Wells Fargo’s actions - even if they are proven to be illegal - to financial losses.

Sandler said Wells Fargo-owned or -managed vacant houses account for fewer than 1 percent of the 33,000 vacancies spread throughout Baltimore. By contrast, Sandler said, the city owns about 9,000 vacant properties. Such statistics, Sandler said, lend credence to Wells Fargo’s assertion that parsing out responsibility for financial losses incurred because of vacancies is an exercise in futility.

John P. Relman, working with the City Solicitor’s office, said he can produce reports and experts showing the cost of each vacant home in question, isolating for variables such as falling home prices and vacancies unrelated to Wells Fargo. Three such witnesses testified Monday.

Relman also said the city is handicapped by the absence of discovery. He said two former Wells Fargo employees who came forward on their own said the company targeted minority communities for subprime lending, which some of them referred to as “ghetto loans.”