Philadelphia's lawsuit accusing giant bank Wells Fargo of neighborhood-killing predatory lending practices may be a long shot, but it's worth taking.
The Supreme Court has ruled cities can sue banks under the Fair Housing Act if they can prove harm. That shouldn't be a problem. Foreclosures have spread blight, pushed down property values, and cost the city lost revenue not just from the former homeowner but also his neighbors.
The resulting empty houses are breeding grounds for vermin and squatters. Drug dealers use them to stash their dope. Vandals break windows and, sometimes, set houses on fire. Frequently, the city must deploy police, fire, health, and inspection personnel, among others, to deal with the broken homes. The city also pays for social services, including emergency housing, that many foreclosure victims need.
The city has accused Wells Fargo of overcharging more than 1,000 black and Latino home buyers between 2004 and 2014 by offering them expensive, exotic mortgages that ultimately led to foreclosures. Those same borrowers could have qualified for lower-cost, more manageable loans. Instead, the lawsuit says, Wells Fargo approved loans regardless of whether the borrowers could repay them.
The city says Wells Fargo didn't care. It made money up front through fees and other costs, then dumped bad mortgages on secondary markets.
When borrowers inevitably couldn't pay, the bank refused to refinance them, a perk the suit says Wells Fargo offered white borrowers with similar credit ratings. The bank is also accused of moving minority borrowers into foreclosure proceedings much more quickly than it did whites who were behind in their payments.
Discriminatory lending isn't just a violation of the Fair Housing Act. It is an attack on cities like Philadelphia that had to push themselves out of the recession inch by painful inch. Neighborhoods in North, West, and Southwest Philadelphia still haven't caught up with the rejuvenation in Center City and other areas, in part because of unfair lending practices.
In fact, the city says predatory lending is still occurring, creating more pain, lost homes, and reduced revenue.
Wells Fargo's twisted corporate culture led to a campaign in which its employees opened millions of accounts without the customers' knowledge to win bonuses or hold on to their jobs. But the bank's bad deeds haven't escaped scrutiny. The Department of Justice extracted a $175 million settlement for discriminatory practices in Baltimore and Washington, D.C.
Philadelphia's lawsuit, like similar litigation in Miami, provides a way for communities to recoup losses associated with discriminatory lending and discourage banks from hustling people trying to buy a home. Other communities disproportionately smacked by the foreclosure crisis - Willingboro in South Jersey comes to mind - should consider following Philadelphia's lead.