Wells Fargo has been accused of targeting minorities with predatory high-cost home loans that pushed them into default and foreclosure.
Cook County, Illinois, which is home to the city of Chicago, filed a lawsuit in federal court on Friday against the nation’s largest mortgage lender. The suit alleges that Wells Fargo contributed to the housing crisis, which the county claims has cost it millions of dollars in lost property tax and the cost of having to deal with abandoned buildings, among other issues. The lawsuit says damages could exceed $300 million.
Wells Fargo deliberately issued home loans with high interest rates and inflated or improper fees to black and Hispanic borrowers, many of whom would not have qualified for a traditional loan, the suit alleges. The lawsuit also charges that the bank did so even when it was clear the borrowers wouldn’t be able to keep up with the costly payment plans.
Such practices are known as “equity stripping,” the suit says, because they “stripped and continue to strip borrower home equity.” As a result, the chances that minority borrowers would fall behind on payments or be forced to submit to foreclosures were increased, it said.
Between 2000 and August 2014, Wells Fargo allegedly made about 55,000 loans to minority homeowners in Cook County that are suspected of being predatory and discriminatory, according to a statement released by Cook County Board President Toni Preckwinkle and Cook County State Attorney Anita Alvarez.
Wells Fargo vehemently denies the allegations, calling them “baseless.” “It’s disappointing they chose to pursue a lawsuit against Wells Fargo rather than collaborate together to help borrowers and home owners in the County,” company spokesman Tom Goyda told HuffPost in a prepared statement.
“Wells Fargo’s team members live and work in the Chicago area and we stand behind our record as a fair and responsible lender,” Goyda said, adding that the company has an $8.2 million down payment assistance grant program that “helped create 547 new homeowners” in Cook County over the past two years.
“We will vigorously defend ourselves and continue to focus on helping customers succeed financially and expanding homeownership in Illinois and across the United States,” he added.
The suit alleges that Wells Fargo violated the Fair Housing Act, a federal law that prohibits race-based discrimination by mortgage lenders.
Cook County has walked this path before: Preckwinkle and Alvarez filed very similar suits earlier this year against HSBC and Bank Of America. Bank Of America spokesman Richard Simon said there “is no basis” for the claims the lawsuit makes. HSBC did not return a request for comment to HuffPost.
In the past, cities including Baltimore and Miami have also sued Wells Fargo and other banks on allegations of discriminatory home lending practices. A lawsuit brought by Baltimore against Wells Fargo charging that the bank steered minority homeowners into costly loan agreements and also charged minorities higher interest rates and fees than white borrowers with the same credit scores was ultimately settled in 2012 for $175 million.
More recently, though, a judge dismissed a suit from the city of Miami against the bank, saying there was no standing to sue under the Fair Housing Act and that the suit had been brought too late, according to Bloomberg News.
(Hat tip Consumerist)