Trenton mayor eyes next steps in mortgage crisis

By Martha Graybow

NEW YORK (Reuters) - A leading U.S. mayor said on Tuesday he is working with mortgage bankers to try to alleviate the foreclosure crisis but that he would consider additional steps including legal action against lenders if necessary.

"I would not rule out our city entering into a lawsuit if we don't see movement in terms of helping people facing this crisis," said Douglas Palmer, mayor of Trenton, New Jersey, and president of the U.S. Conference of Mayors.

"That is always an option," he said at the Reuters Housing Summit in New York. "Depending on where we are, I could recommend doing that.

The city of Baltimore last month filed a federal lawsuit against Wells Fargo & Co (WFC.N), contending that the bank is liable for millions of dollars in damages under the Federal Fair Housing Act for targeting minorities with bad loans and discriminatory terms that resulted in foreclosures.

Separately, the city of Cleveland has sued 21 banks involved in the subprime mortgage market, including Goldman Sachs Group Inc (GS.N), Merrill Lynch & Co Inc MER.N and Washington Mutual Inc (WM.N), seeking monetary damages for clean-up of abandoned properties due to a jump in foreclosures. The lawsuit seeks recoveries based on the state's public nuisance law.

U.S. mayors are worried about declining tax revenue for city coffers as property values fall amid the housing crunch, as well as crime and blight in ravaged neighborhoods. Palmer said that he and other mayors will discuss the legal avenues pursued by Baltimore, Cleveland and other communities at an upcoming meeting.

"I understand the cities have to do whatever they feel is in the best interest of their citizens," he said. "Certainly that is a way to go and there have been other mayors that are looking at avenues to do that."

Palmer also said that the federal government response has so far been inadequate. He said the Hope Now alliance of mortgage lenders and servicers has not been able to help many of the borrowers who are struggling the most.

"I know hope is a good thing, but people need help now," he told Reuters. "Most of the people who are really in trouble may be one, two, three months behind. There has to be a program to deal with that."