Wells Fargo wants Baltimore subprime suit dismissed

* Baltimore suit accuses Wells Fargo of discrimination

* Suit says blacks targeted for loans they could not pay

* Wells Fargo denies discrimination, seeks dismissal

By Jon Hurdle

BALTIMORE, June 29 (Reuters) - Lawyers for U.S. mortgage lender Wells Fargo & Co (WFC.N) urged a federal judge on Monday to dismiss a lawsuit by the City of Baltimore claiming the bank preyed on the city's black community with subprime loans that led to a flood of foreclosures.

U.S. District Judge Benson Legg said he would rule in coming days on whether to hold a trial on the first suit to be filed by a major American city alleging a mortgage lender violated the federal Fair Housing Act with predatory lending practices that exacerbated the U.S. housing market crash.

Separately on Monday, the U.S. Supreme Court ruled that the New York attorney general's office can investigate whether national banks discriminated against minorities seeking mortgages.

The Baltimore suit alleges that Wells Fargo discriminated against black borrowers by targeting them for high-cost subprime mortgages, even when some would have qualified for prime-rate loans.

The suit, filed in January 2008, claims Wells Fargo's policies in Baltimore led to a high rate of foreclosures in targeted neighborhoods, damaging the city's economy by reducing tax revenue and adding to police, fire and housing costs.

According to an affidavit by former Wells Fargo loan officer Tony Paschal, published in early June, the bank's loan officers promoted "derogatory stereotypes" of blacks, who were referred to as "niggers" and "mud people" who "don't pay their bills." Sworn statements by two other former employees are also being used by city attorneys to argue discrimination.

LENDER DENIES DISCRIMINATION

But Andrew Sandler, an attorney for Wells Fargo, argued there was no evidence the bank targeted black borrowers or that it steered them toward high interest rate subprime loans.

Of 143 Baltimore properties foreclosed by Wells Fargo between Jan. 1, 2005 and Dec. 31, 2008, only 73 were owned by blacks, Sandler said. The average interest rate paid by black borrowers on all loans for those properties was 8 percent, lower than the 8.5 percent paid by other ethnic groups.

Of the 143 foreclosures, 100 involved "excessive obligations" by the borrower, 43 were attributed to illness and 41 were related to job loss, Sandler told the court.

He attacked the affidavits cited by the plaintiffs as the work of "disgruntled former employees" and said foreclosures were caused by factors such as illness, divorce or job loss.

"These are the kinds of things that lead to foreclosure, and there is incontrovertible evidence that these are the problems, not some sub-prime lending that was designed to fail," he said.