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Baltimore Sues Wells Fargo for Predatory Lending Practices

New America Media, Q&A, Audio, James Wright Posted: Jan 24, 2008

Citigroup announced a fourth quarter loss of almost $10 billion last week, as the foreclosure crisis continues to reach havoc in the economy. But its gravest, most immediate impact has been felt by the thousands of people who are losing their homes across the country. Those hit hardest are homeowners in minority heavy neighborhoods, and the losses affect all taxpayers, as we have to pick up the pieces of houses abandoned and neighborhoods emptied. But the city of Baltimore doesn't think they should have to pay for it. They have filed a suit against the biggest lender in the area: the Wells Fargo Bank. They allege a pattern of predatory lending practices in Baltimore's poorest neighborhoods. James Wright is political reporter for the Afro American and has been reporting on the foreclosure crisis in Baltimore. He spoke to Sandip Roy on the New America Media radio show UpFront.

James on what grounds is Baltimore suing Wells Fargo?

The city of Baltimore is filing a lawsuit in U.S. District Court, in terms of, Wells Fargo targeting black neighborhoods for high risk and unfair priced loans. In other words, Wells Fargo targeted black neighborhoods for these subprime loans that they knew were going to go bad, so they could pick up the interest and make money off of that - knowing very well that [the people in these neighborhoods] would not be able to pay for the homes, therefore they would lose them and they can probably resell them for another price.

Wouldn't it be fair to say that some of these people were hoping things would get better and they would be able to afford the loans and they shouldn't have been taking the loans in the first place, and it's not Well Fargo's fault that they took them?

It's interesting, the argument you made, because it's so difficult to get a home in the first place. Many people will take them particularly many African Americans - because they are traditionally denied, at a higher rate than whites, Asians and even to a certain level Latinos, traditional home-loans, because of credit issues and to a lesser extent - racial issues. So, when they see a chance to get into a nice looking home with a reasonable loan package, that's what they jump into. Unfortunately, like many instances, they don't read the fine line. When they don't do that, they get into a lot of foreclosure problems.

Now the city of Baltimore has put a cost to these foreclosures. How much do they say it is costing the city?

According to the Baltimore Sun, as well as The Examiner and The Afro, Baltimore is expected to lose $1.6 billion in economic output. We are looking at that over a number of years. It is about that number, it could get worse. We're looking at $1.6 billion in economic output and in terms of tax revenue, tens of millions of dollars.

And if you break that down how much is that costing the city, or how much does it cost to foreclose a home anyway?

In Baltimore City, I would say it would cost about a good $100,000 to foreclose, because you have to go through the process. Now, $100,000 is a median figure, not an average figure. If you are talking about an average figure, it would depend on the jurisdiction. This is really a problem, because not only do you have a loss in the revenue, in terms of a city like Baltimore, which really needs as much tax revenue as possible, because the General Assembly is getting ready to cut more aid to cities. It also decreases the home value. Last year $4,300 was a decrease in home value because of these foreclosures.

How is the city arriving at the number of how much it is costing it in terms of lost tax revenue and things like that?

More than 33,000 homes in Baltimore have been subjected to foreclosure, since 2000. Before this crisis here, which was about 2004/2005, I would say that out of 33,000 homes, about 80 percent of those - the lion's share - have come through in the last three or four years and Wells Fargo is one of the two largest mortgage providers in the city since 2004. They made 1,285 loans a year, which means $600 million, between that time and 2007. This is important because Wells Fargo really made a push in black media, showing up at black events to try to get black business, period.

That raises an interesting problem for ethnic media and ethnic people who support ethnic communities, because at one level you would commend someone like Wells Fargo for being a good corporate citizen in doing outreach to black neighborhoods and black media, and at the same time we're accusing them of targeting the neighborhoods for bad loans.

This is a quandary that black media has faced before. For example, for a long time many black news papers accepted liquor ads from liquor stores, and yet it is liquor that is really hurting our community, healthwise and as well as destabilizing many black neighborhoods, some would say. So many black newspapers, including the Afro do not accept liquor ads. Anytime you say, "I don't accept a particular stream of revenue," that cuts back on advertising potential, and advertising growth. So, it hurts in that way.

Will you run ads from Wells Fargo?

That is not my decision to make. A man by the name of Jake Oliver, who is the Chairman of the Board, he would make that decision. I wouldn't begin to dictate what he is going to say, but let me say, he is very sensitive to the subprime lending crisis. He would take that into consideration if Wells Fargo wants to advertise with the Afro.

Give us an idea of what these neighborhoods that have been so affected by the subprime crisis, what do they look like now? Who's left, where are the people going?

I don't know if you remember this, in 1980, Ronald Reagan, when he was running for president, toured Bedford-Stuyvesant in New York City. He walked around and said, "Good Lord, this neighborhood looks like bombed-out London! Now, I'm not one to quote Ronald Reagan, but that is precisely my point. If you go into many of these neighborhoods in Baltimore and look at the houses that have been foreclosed and the neighborhoods that have been foreclosed, they are in really bad shape. They were probably getting there before this foreclosure crisis hit, because of the crack cocaine epidemic. But they are really bad now. People have to understand that when you have a house that is foreclosed, it affects the property values of the neighborhood. When you don't have that kind of revenue coming into the neighborhood that means that it will go down. You have a boarded-up house that is being unproductive, it cannot be taxed. So, therefore, you don't have the revenue coming in, in order to have social programs to solve those problems. To directly answer your question: Many of the neighborhoods in Baltimore that are affected by this foreclosure crisis look like bombed out London in the forties.

What is Wells Fargo saying about all of this?

Wells Fargo released a statement that basically says: "We do not tolerate illegal discrimination or any unfair treatment of any consumer. Our loan pricing is based on credit risk, we are committed to serving our customers fairly, our continued growth depends on it." This is what they have been saying, and the payday lenders say the same thing, that we are assessing people who are credit risks. We are taking a chance on people who have credit issues, but we are giving them a chance to own a home. It is the onus on them, in order to make the payments and meet the requirements. And yet, they are doing this to wholesale neighborhoods and they know why they are doing it: to make more money in a very insidious way.

Listen to James Wright speak on UpFront here:


Related Stories:

Subprime Crisis Causing Huge Loss of African-American Wealth

New Legislation Targets Sub-Prime Loans

A Silver Lining in the Subprime Meltdown

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