A Tough Case To Prove

Our View: Baltimore's Claim Of Damages Because Of Wells Fargo's Lending Practices May Be Difficult To Quantify, But The City Deserves More Time To Present Its Evidence

December 16, 2009

Baltimore City has uncovered some disturbing evidence in its lawsuit against Wells Fargo. The city alleges that the California-based lender steered African-American mortgage applicants into subprime loans, even when they qualified for cheaper mortgages, and it has depositions from former company employees describing what they say was a pervasive practice of discrimination. They claim their former company encouraged them to give loans to black borrowers at rates they knew they couldn't afford, leading to widespread default.

Where things get complicated is in the city's claim for damages as a result. The private law firm representing the city is arguing that those alleged discriminatory practices led to an increase in foreclosures that destabilized neighborhoods, reduced property values - and, hence, property taxes - and led to increased service calls for police and firefighters. They believe the damages could run into the tens of millions of dollars.

Wells Fargo denies the allegations of discrimination and the city's basis for calculating damages. The judge hearing the case, U.S. District Judge J. Frederick Motz, appeared inclined to side with the bank, at least as far as the question of damages goes. The city has identified a total of 401 Wells Fargo foreclosures in Baltimore over a three-year period, and only 230 of them were vacant at some point as a result. Just half of them are vacant now. Judge Motz pointed out that there are about 30,000 vacant houses in Baltimore, so teasing out the broader impact of 100 or so would be problematic at best.

The judge has a point. This case would be much easier if it were being brought by aggrieved homeowners who were seeking damages based on the impact of foreclosure on their personal finances. It would be easier if it were coming from the U.S. Department of Housing and Urban Development in an effort to stop alleged discriminatory practices. But the city has a heavy burden to prove that it was wronged in a meaningful, direct and quantifiable way by the alleged actions. Similar lawsuits have been thrown out in other cities.

Judge Motz is right that it would be hard to quantify the effect of one abandoned property in a devastated inner-city block with nine other vacant houses. But if the foreclosures occurred in previously stable neighborhoods, the case might be different. Judge Motz is deciding now whether to pare down the city's case or throw it out entirely, noting that going farther with the matter could "cost a lot of people a lot of money, including the taxpayers." Fortunately for the citizens of Baltimore, the lawyers handling the case are doing so on a contingency basis; according to City Solicitor George A. Nilson, Baltimore's total outlays so far have amounted to less than $50,000 to cover the costs of expert witnesses and other expenses. Judge Motz should give city lawyers at least one more opportunity to make their case by presenting data about the economic impact of the Wells Fargo foreclosures.

In a sense, the question of money has always clouded the important issues in this case. Wells Fargo says the lawsuit is nothing more than an attempt by a money-hungry Baltimore to solve its budget problems. Certainly Baltimore is right that vacant homes are a burden on the city and that the foreclosure crisis has made the problem worse. But regardless of whether Baltimore is able to assign a specific portion of that burden to Wells Fargo, this lawsuit will be worthwhile if the city is able to identify and stop housing discrimination. Readers respond

Why is Baltimore always looking for a scapegoat for its problems?

Wells Fargo was stuck in a classic damned if they do, damned if they don't conundrum. How many lawsuits would they be facing if they hadn't made the mortgage loans in question? So long as Democrats run on and get elected on platforms that insist that our lives are the responsibility of someone else, we'll continue to see lots and lots of these types of stories.

Politicians are as shameless and ignorant as the Wells Fargo loan officer who joked in his deposition about the reverse redline practice being like "riding the stagecoach to hell." All he did was climb on board the coach that Democrats designed, built and mandated he ride.

Bill Hopkins

This lawsuit begs the question, are African-Americans incapable of reading the terms and conditions of a mortgage loan? This lawsuit is frivolous at best - even the judge said so.

Tim Richards

There are several indisputable facts regarding the real estate meltdown.

One is that no one forced Wells Fargo or any other bank to make loans without regard to the buyers' ability to repay them. Another is that no one forced home buyers to lie about their income or to take on loans they had no realistic way of repaying.

The one common denominator they both share is greed. Those who are delinquent in paying their mortgages suffer by losing their homes. How have the banks suffered? They haven't. The taxpayers bailed them out. I think it is time that Wells Fargo face the music for their very bad and possibly illegal decisions.

Sean Tully

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