Kia Franklin

City Sues Bank for Race-Based Predatory Lending

Baltimore Mayor Sheila Dixon sues Wells Fargo on behalf of the city for targeting black neighborhoods in predatory mortgage loans. A quote from the Baltimore Sun:

"We know there's really a very clear racial dynamic in the lending," she said. "It's ruining families' opportunity for financial opportunities and security."

More on this to come. To hear more from Sheila Dixon and other mayors about the challenges cities face every day, go to MayorTv for interviews with mayors from across the nation.

Kia Franklin: Author Bio | Other Posts
Posted at 6:23 PM, Jan 08, 2008 in Civil Justice | In the News | Racial Discrimination
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Another politico looking to grab headlines and ingratiate herself with a portion of the electorate

If you wonder why so many people find politics so distasteful, just check bogus activities such as this. THere is no such thing as predatory lending, unless it's your friendly neighborhood loan shark charging 400% interest on ten-day loans. There is such a thing as stupid borrowing

Posted by: Paul W Dennis | January 8, 2008 11:18 PM

You equate predatory loans with the bid bag wolf, saying it doesn't exist. But if you look under the bed and in the closet, you'll see wolf prints and fur.

Otherwise, I guess all of Wall Street and Washington must be getting all huffed up for no reason at all. Don't let your lack of sympathy and information get in the way of reality. This is a very real problem that has been acknowledged across political lines and industry, including in the mortgage lending industry itself.

So no Paul, these primarily black borrowers whose neighborhoods were the targets of predatory loans aren't "just stupid," and this lawsuit isn't about a "politico" seeking the spotlight.

Posted by: Kia | January 9, 2008 1:39 AM

Funny, I don't remember mentioning the "big bad wolf" at all.

I do hold people responsible for managing their own financial affairs. I did not buy my first house until I could absolutely afford to do so and when I did, I purchased less house than I could have afforded at the time. Unfortunately this age of instant gratification leads to people suckering themselves into poor financial arrangements.

The product lenders are selling isn't illegal - just an unwise purchase. I have plenty of sympathy - but none for stupidity

I don't see you going after the predatory practices of the trial bar with their excessive contingency fees and dishonest accounting, taking their fee off the gross recovery rather than the net recovery. I've seen it too often - $200K gross recovery , expenses $20K - contingency fee 40% of $200K rather than 40% of $180K

There is nobody who sticks it to the poor more than the trial bar. Let the mayor of Baltimore go after the real scoundrels of this world rather than getting into bed with them

Posted by: Paul W Dennis | January 9, 2008 6:27 AM

Banks should respond to this left wing partisan attack by ending all loans until she leaves office. Let the voters pay for homes, in full, with cash, until they vote her out.

Posted by: Supremacy Claus | January 9, 2008 6:36 AM

I'm not so much concerned with defending the "trial bar" (as litigators I'm sure they can hold their own) as I am with thinking about the fates of these homeowners and whether it's fair or factual to label them as "stupid" because they were victimized by what has now been well-established as predatory lending practices.

Dennis, by "absolutely afford to" buy a home, do you mean you had the full cash on hand to buy your first home--that you didn't have to take out a loan? If you do mean this, then while I'm super-impressed and offer my congrats I hope you know that this isn't how most people achieve the American Dream of homeownership. If you don't mean u had the cash in your bank account ready to go, then you should know that many of these people looked at their finances and it did look like they weren't getting in over their heads by taking these loans. Many people qualified based on income but when their rates changed so did their ability to stay afloat. So again it's not about stupidity--it's about exploiting people with good incomes, little opportunity, and maybe a little too much hope/faith that they were entering into a legitimate business arrangement.

Posted by: Kia | January 9, 2008 2:58 PM

No - I paid about 35% cash and took a fixed rate loan - not an adjustable rate loan. I looked into those and decided that the risk was too great because, as anyone who reads a newspaper or watches TV news knows (or should know), interest rates can flucuate in either direction. If you take out a variable rate loan, you must be able to afford what the payments could become, or you really can't afford the loan

It seems that the suit alleges that:

1. Wells Fargo allowed subprime loans in Baltimore;
2. Subsequently, many of these loans have defaulted ;
3. The defaults resulted in foreclosures, lowered property values and a lessened tax base for the city government to tax

Of course critics, especially on the left, have been screaming for banks and lending institutions to make these subprime loans. The end result is what might have been reasonably expected. As for Baltimore losing tax base, I didn't see the City complaining when increased home ownership caused the tax base to rise.

Quite frankly, this is a law suit that should be dismissed on summary judgment as a matter of law. Political grandstanding through the court system should never be tolerated

Posted by: Paul W Dennis | January 10, 2008 5:57 AM

If banks refused to lend to low-income people, they would be accused of illegal discrimination. If they offered low-income people conventional motgages, those people could not afford them. If they offered low-income people exotic loans, they are accused of predatory lending.

So, Kia, what should lenders in Baltimore have done?

Posted by: Dr. Caligari | January 10, 2008 1:58 PM

It's astounding to me to hear some of these arguments after so much evidence has shown that this is not a problem of borrower "stupidity", but of industry abuse. One out of 5, in some areas one out of 4, subprime loans are going into foreclosure as we speak. That doesn't even include people who are in financial distress, but have managed to hold off foreclosure. Does that mean one out of 4/5 mortgage borrowers is stupid, or does it mean that there is something wrong with industry product and practice?

There are many people around the country, including the chairman of the Federal reserve for instance, who have started to advocate for making it illegal for lenders to make a loan that they know the borrower can't afford. Making loans that are unaffordable may not be illegal yet, but it's still unconsciounable and abusive.

What is illegal is targeting an area with predatory loans based on race, which is what research around the country points to. Studies done by the Wall Street Journal and the Center for Responsible Lending have shown that black borrowers, even accounting for credit ratings and income, are disproportionately receiving and being steered to subprime loans, even when they qualify for prime loans.

Borrowers are responsible for "managing their own financial affairs," however they are not responsible for underwriting their own loans. That is the responsibility of the lender. I know people, white, black and brown alike , with law and business degrees, who didn't fully understand the terms or the costs associated with their loans.

Obviously there are borrowers who could and should have know better, but this is the exception more than the rule. No matter what your particular experience has been, Mr. Dennis, I have talked to countless borrowers and foreclosure prevention counselors whose experience tells another story.

Dr. Caligari, the backwards logic of subprime is that "conventional", fixed rate, prime loans are much far more affordable than subprime loans. Subprime loans don't account for and are not priced for risk, they create the risk itself.

If these lenders had just made fair and affordable loans to the same supposedly high risk borrowers, they would have ultimately made much more money and contributed to the cause of homeownership. But because the name of the game in the financial services industry is gouge the low-income and "high risk" borrower, they chose to exploit people instead. Now, more homes are being lost than gained.

So in response to your question, Dr. Caligari, the lenders should have used sound underwriting criteria and only made loans that their borrowers could afford, AFTER their rate reset. They should have offered quality products to EVERYONE. They should have given people prime options when they qualified. They should not have selectively marketed their products. Is that too much to ask?

Posted by: Mark Winston Griffith | January 11, 2008 1:26 PM

There is a galaxy of difference between being "targeted" for a subprime loan and "accepting" a subprime loan.

I don't doubt,Mr. Griffith, that you have spoken to a lot of enablers and hand-wringers that have given you the desired song & dance but one fact remains: no one can compel a potential customer to take one of these subprime loans

Posted by: Paul W Dennis | January 13, 2008 9:27 AM

MWG says: "It's astounding to me to hear some of these arguments after so much evidence has shown that this is not a problem of borrower "stupidity", but of industry abuse."

Which is why 70% of foreclosures involve borrowers who have committed fraud on their loan applications.

Posted by: Ted | January 13, 2008 1:05 PM