In a potentially groundbreaking lawsuit intended to stem foreclosures in Baltimore, Mayor Sheila Dixon's administration is suing a leading mortgage provider for what the city says has been a pattern of predatory lending in black neighborhoods.
The lawsuit, which the Dixon administration plans to file today in U.S. District Court, alleges that California-based Wells Fargo Bank sold higher-interest subprime mortgages to blacks more frequently than to whites and that the practice, known as reverse redlining, violates federal housing law.
Lenders are increasingly coming under legal attack from borrowers and investors stung by the subprime mortgage crisis, but Baltimore's lawsuit could be the first in the nation in which a city is attempting to recapture costs associated with foreclosed homes that wind up vacant.
If successful, the lawsuit could thrust Baltimore and the Dixon administration into the forefront of the debate over what government can do to address a problem facing cities across the country. The mayor is expected to formally announce the lawsuit this afternoon.
"They knew that the minority community was so desperate to get loans because they had been denied credit for so long," said John Relman, a partner at the Washington law firm Relman & Dane, which the city hired to help litigate the case. "They knew that people were so ready to say yes to anything that they went in there and charged them higher rates."
In a statement, Wells Fargo said race does not play a factor in its pricing.
The National Association for the Advancement of Colored People filed a lawsuit in July in U.S. District Court in Los Angeles alleging that the industry had discriminated against black borrowers. And in 2006, Ameriquest Mortgage Co. settled a lawsuit brought by 49 states that accused the company of violating consumer fraud statutes.
But the lawyers involved in Baltimore's case and several advocates could not name another city that has sued a lender under the federal Fair Housing Act to recover costs incurred from vacant properties.
Eric Halperin, director of the Washington office of the Center for Responsible Lending, said Baltimore's lawsuit is an extension of a long-standing practice in which plaintiffs have used the housing act in attempts to thwart unfair real estate practices.
