Wells Fargo must turn over electronic data on its Baltimore loans and make company officials available for depositions, a federal judge ruled Thursday at a hearing on the city's lawsuit accusing the bank of targeting minority communities with unfair lending practices that led to costly foreclosures.
Attorneys for Baltimore City said they will analyze the data for patterns of racial discrimination. They argue that bad loans by the bank led to scores of foreclosure-induced vacancies that drain millions from city coffers in lost property taxes and extra police and sanitation services.
The case was filed in January 2008 but only recently moved into the discovery phase. This spring, two former Wells Fargo employees came forward to submit affidavits that the company steered black borrowers into higher-interest subprime loans, termed "ghetto loans" by other employees. Wells Fargo has called them "disgruntled former employees" trying to further their own litigation against the company.
Although banks across the country are facing lawsuits from people who have lost their homes, Baltimore's case asserts that the city - not just individual homeowners - has paid a price for unfair lending practices. A week ago, the Illinois attorney general filed a consumer protection action claiming Wells Fargo illegally pushed blacks and Latinos into subprime mortgages even when they qualified for traditional, cheaper loans.
The Maryland attorney general's office has not filed a claim against Wells Fargo, but the chief of the office's consumer protection division observed Thursday's federal court proceeding in Baltimore.
Wells Fargo officials dispute claims of unfair lending, asserting that race is not a factor in loan rates. In the Baltimore case, company attorneys also said the city will not be able to prove financial damages, in part because vacant Wells Fargo houses represent just a fraction of the thousands of vacant buildings throughout Baltimore.
Andrew L. Sandler, an attorney for California-based Wells Fargo, said in court that he is certain the case will eventually be thrown out on the issue of damages.
Sandler sought to narrow discovery, which he said could cost the company millions, to only loans tied to foreclosed-upon properties. Wells Fargo identified 143 foreclosures on its Baltimore properties between January 2005 and December 2008. In that same period, there have been about 33,000 foreclosures in Baltimore, company lawyers said.
John P. Relman, a Washington-based fair-housing attorney working with the city solicitor's office, said he believes there are hundreds more foreclosures that the company has yet to reveal.
Relman argued that the city needs Wells Fargo's entire data set to analyze how loans in minority communities might have differed from loans in predominantly white areas.
U.S. District Judge J. Frederick Motz, who is new to the case, asked the lawyers why any bank would want to make bad loans. The city has alleged that Wells Fargo agents made huge profits from selling subprime loans to people qualified for prime rates. The bank then sold those mortgages, absolving it from the steep fees associated with foreclosures, city attorneys said.
At first, Motz seemed disinclined to grant the city's discovery request, urging Sandler to file his motion for summary judgment.
But Relman argued that U.S. District Judge Benson E. Legg had found last month that the city's case had enough merit to go to discovery. Legg recused himself yesterday morning, citing a potential conflict of interest that he did not identify.