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| The city of Baltimore last week filed a lawsuit against Wells Fargo in federal trial court, charging the ubiquitous lender with targeting Baltimore’s minority neighborhoods with mortgage loans that are unfair and discriminatory. But the company denied the charges, saying that it prices loans based on risk, not race.“Race is not a factor in our pricing,” Debora K. Blume, assistant vice president of communications for Wells Fargo Home Mortgage, said in a statement e-mailed to MortgageDaily.com. “We do not tolerate illegal discrimination against or unfair treatment of any consumer. Our loan pricing is based on credit risk. We are committed to serving all customers fairly — our continued growth depends on it.”
The lawsuit was filed in the U.S. District Court for the District of Maryland by Baltimore Mayor Sheila Dixon and the city council of Baltimore against Wells Fargo Bank, N.A. and Wells Fargo Financial Leasing, Inc. It’s the first time that a municipality has taken a lender to court for what suit papers term “reverse redlining.” Redlining is the practice of denying credit to specific geographic areas due to the income, race or ethnicity of its residents. The term is derived from the practice of drawing a red line around certain areas in which credit would be denied. Reverse redlining is the practice of extending credit on unfair terms to those same communities. Charm City officials claim that the San Francisco-based company, one of the two top mortgage lenders in Baltimore, made high-cost loans to minorities during the heyday of the housing boom. For example, in 2006 Wells made subprime loans to 65 percent of its African-American mortgage customers in Baltimore but in the same year only 15 percent of Wells’ Caucasian borrowers in Baltimore received high-interest loans, they allege. “Wells Fargo has been and continues to be engaged in a pattern or practice of unfair, deceptive and discriminatory lending activity in Baltimore’s minority neighborhoods,” the city leaders charged in the 39-page complaint. The financial conglomerate made about 1,285 mortgage loans collectively valued at $600 million in Baltimore in each of the last three years. The plaintiffs claim Wells’ foreclosure rate of 8.2 percent for home loans in Baltimore’s African-American neighborhoods is nearly double that of the city average of 4.5 percent, while Wells’ home loans in Caucasian neighborhoods stands at only 2.1 percent. Thus, they say, a Wells Fargo loan in a predominantly black neighborhood is nearly four times as likely to result in foreclosure as a Wells Fargo loan in a predominantly white neighborhood. “Wells Fargo’s disproportionately high foreclosure rate in Baltimore’s African-American neighborhoods is the result of reverse redlining,” the city officials said. Foreclosures zoomed upward in Baltimore in 2007. From the first quarter to the second quarter of 2007, foreclosures increased five-fold. City officials indicated in the filing that the dramatic uptick in foreclosures has caused the city “severe economic damage” because of lost revenue from property taxes and real estate transfer taxes and the additional costs in social services and police and fire protection it has incurred to look after vacant properties. The city has asked for compensatory and punitive damages in amounts yet to be determined, for an injunction and for attorneys’ fees and costs. The city officials told the trial court that other federal jurisdictions that have ruled on the issue have repeatedly held that reverse redlining violates the federal Fair Housing Act. Indeed, reverse redlining is a newly recognized form of housing discrimination in many jurisdictions. In 2006, a Pennsylvania state appellate court for the first time declared the practice to be illegal. The appellate court’s decision, which the state’s top court declined to disturb, stemmed from the activities of an African American-owned mortgage brokerage accused of using ads to target Philadelphia’s black community for predatory loans. |
