Bankruptcy

Forget the "Foreclosure Investigator"--File a Lawsuit!

By Katie Porter

Elizabeth Warren's recent post asked "What Can a City Do?" about subprime lending. The post prompted many thoughtful comments, both on Credit Slips and on the Calculated Risk blog. While readers were discussing the merits of various ideas, including a city-appointed "Foreclosure Investigator," the city of Baltimore took a much more aggressive tact--it sued Wells Fargo on January 8th. Calling the city a "second victim" after the homeowners, Baltimore filed suit in U.S. District Court alleging that Wells Fargo engaged in predatory and discrimatory subprime mortgage lending. Wells Fargo denies the allegations, which focus on purported steering of black homeowners into high cost loans. The Associated Press reports that "two-thirds of Wells Fargo's foreclosures occurred in neighborhoods that are more than 60 percent black." The city attorneys apparently analyzed foreclosure data, finding that while most lenders had higher foreclosure rates in majority-black communities, that according to the AP, "Wells Fargo stood out having the most glarity racial disparity."

I believe this is the first lawsuit filed by a city as plaintiff to grow out of the current subprime loan crisis, and it seems sure to be controversial. Past Credit Slips guestblogger and law professor, Kathleen Engel, has an article on SSRN for free download entitled "Do Cities Have Standing? Redressing the Externalities of Predatory Lending?" that addresses many of issues that the Baltimore v. Wells Fargo suit will raise.

Full post as published by Credit Slips on January 09, 2008 (boomark / email).