NEW YORK (Reuters) - Baltimore and Memphis have filed new federal lawsuits accusing Wells Fargo & Co of steering black borrowers into expensive mortgages, only to later conduct many foreclosures that cost the cities property tax revenue and forced both to spend more on public safety.
The cities filed complaints on Wednesday, the same day Wells Fargo agreed to settle a National Association for the Advancement of Colored People lawsuit accusing it of steering blacks into subprime mortgages while giving comparable white borrowers better loan terms. As part of the accord, Wells Fargo will let the civil rights group review its lending practices.
“We stand by our fair and responsible lending practices,” Wells Fargo spokesman Oscar Suris said on Thursday. “We believe we can accomplish more for homeowners through working with communities than having to respond to litigation. It is our hope that Baltimore and Memphis make that same choice soon.”
Fourteen other lenders are still being sued by the NAACP, including Citigroup Inc, HSBC Holdings Plc and JPMorgan Chase & Co. President Benjamin Todd Jealous in a statement said the NAACP litigation is designed to change mortgage lenders’ behavior, rather than seek monetary damages.
Based in San Francisco, Wells Fargo is the largest U.S. mortgage lender and the fourth-largest U.S. bank by assets. regulatory filings show.
Baltimore and Memphis both have more than 600,000 people, nearly two-thirds of whom identify themselves as black or African-American, U.S. census data show.
When it sued Wells Fargo in 2008, Baltimore became the first major American city to accuse a mortgage lender of violating the federal Fair Housing Act with predatory lending practices that exacerbated the nation’s housing slump.
“Wells Fargo’s discriminatory practices, and the resulting unnecessary foreclosures in the city’s minority neighborhoods, have inflicted significant, direct, and continuing financial harm on Baltimore,” that city said in a 107-page complaint filed Wednesday in Baltimore federal court.
George Nilson, Baltimore’s city solicitor, said in an interview the new complaint follows unsuccessful efforts to settle the case over the last month, in talks initiated by the bank.
“I don’t doubt that the people we talk to at Wells believe they behave extraordinarily well these days,” he said. “I have a sense they really want to do better, but we are just not prepared to say: ‘Forget about what happened before.'”
Memphis’ lawsuit filed in December also alleged FHA violations. The 83-page amended complaint adds a claim that Wells Fargo also violated Tennessee consumer protection law.
Bradley Blower, a lawyer representing Memphis, said the amended complaint introduces evidence from former loan officers and branch managers about the bank’s alleged “unfair and deceptive” lending practices, and shows 50 specific properties that together illustrate how Memphis incurs more costs when the bank makes home loans and then forecloses.
“We’re hoping that Wells Fargo will do the right thing,” Blower said, “but right now we’re on the litigation track.”
Baltimore’s amended complaint came three months after U.S. District Judge J. Frederick Motz dismissed its earlier complaint as too broad. He gave the city permission to sue over specific houses and neighborhoods where it believed damages might be traceable to specific Wells Fargo lending practices.
In its amended complaint, Baltimore identified specific expenses it said it incurred because of Wells Fargo foreclosures, including costs for inspections, condemnations and boarding up homes, and increased police and fire costs.
Baltimore also said it has lost property tax revenue both from foreclosed homes and from homes whose values fell because of large concentrations of nearby Wells Fargo foreclosures.
The NAACP, whose U.S. headquarters are in Baltimore, said its agreement with Wells Fargo includes a pledge that the bank will offer the “highest quality credit vehicle” appropriate to borrowers, while guarding against racial bias in lending.
“We are going to collaborate in communities across the country that have been underserved and badly served,” NAACP General Counsel Laura Blackburne said in an interview.
Referring to other lenders that the NAACP is suing, she added: “By Wells taking this big leap forward, it may very well move a couple of others a little more quickly.”
Wells Fargo shares closed up 24 cents, or 0.8 percent, at $32.23 on the New York Stock Exchange.
The Baltimore case is Mayor & City Council of Baltimore v. Wells Fargo Bank NA et al, U.S. District Court, District of Maryland, No. 08-00062. The Memphis case is City of Memphis et al v. Wells Fargo Bank NA et al, U.S. District Court, Western District of Tennessee, No. 09-02857.
Reporting by Jonathan Stempel; editing by Dave Zimmerman, Gary Hill and Andre Grenon