A Fair Housing Act lawsuit filed by the city of Baltimore against lender Wells Fargo & Co. could be the first of its kind, but it may not be the last.
City Solicitor George A. Nilson said Tuesday that at least one other “significant” lender in the Baltimore market is “under evaluation” as a potential target for a similar suit, in which the city seeks to recover its own losses from foreclosures in Baltimore’s black neighborhoods.
“There could be more,” Nilson said.
The city alleges Wells Fargo targeted minority neighborhoods and borrowers for high-rate subprime loans. That practice, known as reverse red-lining, is illegal under the federal Fair Housing Act, the suit states.
San Francisco-based Wells Fargo and one of its divisions named in the suit denied any impropriety.
“Our loan pricing is based on credit risk,” Debora K. Blume, a spokesman for defendant Wells Fargo Financial Leasing Inc., of Des Moines, Iowa, said in a statement.
Nilson said the suit was the product of a year-long collaboration with Baltimore Housing Commissioner Paul T. Graziano and attorneys at Washington D.C. civil rights law firm Relman & Dane PLLC.
The city split the “less than $25,000” pre-suit investigation bill with the Baltimore-based Goldseker Foundation, which gives grants to city nonprofits for community development, education or human services programs, Nilson said.
The city will shoulder the costs of what will likely be a “relatively lengthy” litigation from this point forward, he said, while the proceeds of any settlement or verdict would likely go into a series of programs designed to help aspiring homeowners and those with loans beyond their means.
A spokesman for Prince George’s County, which has been hit hard by the subprime crisis, said he had not heard of similar plans there but would watch Baltimore’s suit’s progress “with interest.”
‘Damaging for consumers’
David Pulford, Jr., president of the Maryland Mortgage Bankers Association, said the city’s action could have unintended consequences. (A representative from Wells Fargo Home Mortgage sits on the association’s Board of Governors.)
“I think it’s potentially damaging for all consumers because if we find as lenders that the cities or municipalities will find us responsible for losses after a foreclosure happens, we may be less likely to make loans in that particular area or it may become more expensive for the consumer,” he said.
Nilson, though, said that is a desired outcome of the suit, and that if some marginal borrowers do not get the benefit of the doubt they might have previous received, that is a societal good.
“If the result is to avoid getting them into a foreclosure jackpot two years later, then they should be pleased,” Nilson said.
Referring to how proud she was when she bought her first home and how she had to resist attractive mortgages she could not afford, Mayor Sheila Dixon condemned practices that she alleges have left “a whole new set of people who are homeless.”
“People are vulnerable,” Dixon said at a news conference yesterday afternoon. “We have a responsibility as government to work through this.”
Mapping foreclosures
The 39-page complaint filed in U.S. District Court in Baltimore alleges that Wells Fargo’s foreclosure rate for loans in African-American neighborhoods “is nearly double the overall City average, while the rate for its loans in white neighborhoods is less than half the average.”
The suit includes a color-coded map of the city, showing neighborhoods by racial makeup, with overlays for foreclosure filings, Wells Fargo foreclosures, and high-cost refinancings.
According to the suit, Wells Fargo is the largest or second-largest provider of mortgage credit to homeowners in Baltimore since 2004. From 2004 to 2006, it made at least 1,285 loans a year to Baltimore homeowners with a collective value of more than $600 million.
In 2005 and 2006, the city alleges, there were at least 135 Wells Fargo foreclosures in Baltimore, and “two thirds of Wells Fargo’s foreclosures were in Baltimore City census tracts that are more than 60% African-American, while only 15.6% were in tracts that are less than 20% African-American,” the suit states.
Anne B. Norton, director of the foreclosure prevention division at Baltimore’s St. Ambrose Housing Aid Center Inc., said the allegations fall in line with a recent study by a Philadelphia-based research group.
“When we look at The Reinvestment Fund study in the state of Maryland, you can see that subprime loans or higher-cost loans are disproportionately concentrated in minority communities,” said Norton, who had not heard of the suit until yesterday. “It looks like the city is using Wells Fargo … and proceeding with the theory that they targeted minorities and steered them into loans.”
Graziano said agencies like St. Ambrose would be among those receiving funds to better educate potential homebuyers and help those already in loan trouble.
Peter Holland, an Annapolis attorney and adjunct professor at the University of Maryland School of Law, said the specifics of the suit shocked him.
“If the statistics hold up, in my opinion this proves that it’s predatory lending at its absolute worst,” said Holland. “We’re not talking about the improvident loan … we’re talking about targeting and creating and gouging a subprime class of people, the vast majority of whom are black.”
If Wells Fargo is indeed pricing its loans based on credit risk, Holland said, “It would appear that being black is a credit risk in Baltimore city.”
The MMBA’s Pulford, though, had “a hard time believing [Wells Fargo] would willfully violate anybody’s rights.”
“Wells Fargo is doing everything they can for the community to keep people in their homes,” he said, “and it would be a discouraging blow … for the city to come and say, ‘We like what you’ve done but we don’t like what you did, and we’re going to slap you real hard.’”
Pulford, who also is president of Adamstown-based Worthington Overlook Mortgage Consultants LLC, said it would not be in Wells Fargo’s financial self-interest to act in the manner alleged in the suit.
“It costs Wells Fargo to go to foreclosure,” he said. “They don’t arrange loans to go to foreclosure. No lender in their right mind would do that.”