Baltimore and Cleveland Sue Banks Due to Foreclosure Crisis

Baltimore, Maryland is suing Wells Fargo Bank, alleging that the lender engaged in “irresponsible subprime lending practices.” And Cleveland, Ohio sued 21 lenders under the Ohio’s public nuisance law, accusing the banks of violating the fare-housing laws.

According to the lawsuit filed by Baltimore, Black neighborhoods in the city were disproportionately affected by the rise of subprime mortgages, leading to rates nearly double the citywide average that cost Baltimore millions of dollars. The lawsuit alleges that Wells Fargo targeted Black neighborhoods for high-risk and unfairly priced loans – a practice known as reverse redlining, which is prohibited under the federal Fair Housing Act.

“Foreclosures reduce home values in whole neighborhoods, driving tax revenues down and costs for fire and police services up. These foreclosures are destabilizing neighborhoods that taxpayers have invested in…Wells Fargo has left every person in Baltimore holding the bag,” said Baltimore’s Mayor Sheila Dixon. “We’re not going to stand by and accept that.”

Cleveland sued 21 of the largest Wall Street investment banks claiming that these lenders created a “public nuisance” by issuing bad loans, which caused the foreclosure crisis in its city. Foreclosure sales have more that quadrupled in Cleveland and Cuyahoga County since 2000.

According to an independent study 8.8 percent of residential properties in Cleveland were involved in foreclosure sales during the past seven year. According to Mayor Frank Jackson, there were over 7,000 foreclosures in 2006 and 2007. He says crime has skyrocketed in the areas where boarded up houses are a common site.

Some of the banks named in the suit are Deutsche Bank, Goldman Sachs, Merrill Lynch and Wells Fargo. The mayor contends the companies irresponsibly bought and sold high-interest home loans. The result: widespread defaults that depleted the city’s tax base and left entire neighborhoods abandoned.

A report commissioned by the U.S. Conference of Mayors projected that 361 metropolitan areas would take an economic hit of $166 billion in 2008 because of the foreclosure crisis.

What Is A Subprime Loan? Typically, subprime loans are for persons with blemished or limited credit histories. The loans carry a higher rate of interest than prime loans to compensate for increased credit risk. About 80 percent of subprime borrowers have adjustable rate mortgages (ARM). ARMs start out with an interest rate that is lower than the rate on a fixed-rate mortgage. But after two or three years, the interest rate increases on a subprime ARM loan, and the monthly payments increase by hundreds or thousands of dollars per month. People who can’t afford the sudden monthly increases eventually go into foreclosure and lose their homes.

Earlier the banks were making a killing selling these foreclosures to investment buyers, now there are so many houses in foreclosure that it has backfired on them. As in the case with most problems (drugs, crime, etc), as long as it only affect Black and or Brown people, no problem. Now that it is spreading to suburbia, major problem.