The Drum Major Institute for Public Policy yesterday released its 2008 Year In Review. report It includes some of the best urban policies of the year, and my favorite entry is Cleveland's going after predatory lenders to account for the damage that foreclosures and equity stripping have done to the city.
Cleveland Mayor Frank Jackson has a reputation for being soft-spoken and understated. So it came as a bit of a surprise when he and Law Director Robert Triozzi took aim at 21 of Wall Street's largest and most powerful banks. Influential firms - from Deutsche Bank to Bank of America and Goldman Sachs - were put on notice: the City of Cleveland was suing them for instigating and perpetuating its housing crisis.
When the Mayor announced the lawsuit at the beginning of 2008, the housing picture in Cleveland was grim. Foreclosures had risen by 112% in the metro area in 2007 and the average home in Cuyahoga County, which includes Cleveland, had declined in value by $1,309.
The housing crisis left homes abandoned and vacant. Newspapers tell of squatters, drug dealers, and looters who have occupied entire neighborhoods of foreclosed homes. While the city copes with increased costs from patrolling and fixing up the neglected areas, Cleveland is at the same time losing tax revenue. The Center for Responsible Lending estimates that Cuyahoga County lost $450 million because of subprime foreclosures in 2005 and 2006.
Cleveland's suit alleges that the investment banks created a public nuisance through the reckless securitization of subprime loans. Greedy for profit, the banks disregarded lending standards and pushed abusive loans in Cleveland's already depressed housing market. The spike in foreclosures in Cleveland was, according to the lawsuit, "a foreseeable and inevitable result."
The city hopes to recover hundreds of millions of dollars from the banks for taxes lost on devalued property and funds spent demolishing and boarding up abandoned houses. While the outcome of the case is uncertain, Mayor Jackson remains fired up about his David-and-Goliath endeavor. When asked what he expects from the lawsuits, Mayor Jackson responded succinctly, "I expect to win."