Suspect foreclosures

January 10, 2008

A spike in foreclosures can be seen across Baltimore: families moving out and houses ending up vacant and shuttered. The personal losses are devastating enough, but an investigation by the city suggests a disturbing trend - Baltimore's foreclosures are most prevalent in black neighborhoods, and it's not coincidental. The disproportionate rate, the city contends, is the result of an insidious and illegal practice, reverse redlining.

The claims are at the center of an innovative lawsuit filed this week by Mayor Sheila Dixon's administration against Wells Fargo Bank, one of the top two mortgage lenders in Baltimore in the past three years. The city's lawsuit presents a devastating assessment of the city's high rate of foreclosures, the reasons for it, and this one financial institution's alleged role in it.

The lawsuit may be the first attempt of its kind in the country to try to recoup lost property tax revenue and other costs associated with the subprime mortgage meltdown.

But its value is beyond potential monetary recompense; the lawsuit suggests convincingly that Baltimore's minority citizens remain targets of discrimination.

The predatory-lending practices, illegal or high fees and unfair rates alleged in the lawsuit underscore the difficulty faced by minorities seeking homeownership and the need for greater enforcement of predatory-lending laws. It's also a sad commentary on the lack of racial progress. African-Americans who were kept from buying into certain neighborhoods in Baltimore or were refused credit in the past are now potential victims of another kind of discrimination. Reverse redlining occurs when a lender targets people for loans on unfair terms because of their race or the ethnic makeup of an area.

Wells Fargo has denied any wrongdoing and says it doesn't discriminate. But its loans to customers in black neighborhoods resulted in foreclosure rates that were four times those in white neighborhoods. A responsible lender using accepted underwriting practices should make loans to people with a reasonably good chance of repaying them.

Public data also cited in the city's lawsuit showed that Wells Fargo made high-cost loans or charged higher fees more often to minorities than to whites. How is that fair? Perhaps even more alarming was the city's finding that a high rate of foreclosures occurred among blacks with traditional, fixed-rate mortgages, and not just the risky subprime loans.

Foreclosures put people out of their homes and scar neighborhoods with vacant houses. Baltimore may recoup some lost revenue if it wins its case, but the real payoff would be fair and unbiased treatment of city residents who seek a home of their own.

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