Five years on from the nadir of the housing crisis and the lawsuits against the few remaining big banks continue to be filed. This time, it’s Wells Fargo being sued by prosecutors in Cook County, IL (home to Chicago), alleging that the bank deliberately issued “predatory” high-interest, subprime loans to borrowers — primarily minority — who may not have been able to pay back those loans.
In the 152-page complaint [PDF] filed last Friday in a U.S. District Court in Illinois, Cook County authorities claim that “The ongoing foreclosure crisis” in the Chicago area and elsewhere around the nation, “was the foreseeable and inevitable result” of Wells Fargo’s alleged practice of “equity stripping,” in which the lender maximizes its profits on a mortgaged property by putting the borrower into an expensive subprime mortgage even if that loan applicant could not reasonably be expected to repay.
Prosecutors claim that Wells targeted borrowers seeking loans backed by the Federal Housing Authority in predominantly minority neighborhoods “in order to maximize the income and assets Defendants could generate by originating or acquiring as many ‘high cost,’ higher cost, near prime, ‘subprime,” ALT-A and certain other conforming and non-conforming first and second lien home purchase and refinance mortgage loans as possible.”
The complaint alleges that Wells not only gave mortgage brokers the discretion to set loan pricing above published rates, but that the bank also “compensat[ed] employees and brokers to do so.” Additionally, prosecutors say the bank facilitated this process by “systematically lowering or waiving published underwriting standards and guidelines.”
And so, according to the lawsuit, Wells made money off the fees from loan origination, the higher interest rates, the servicing of the loan, and from the selling of mortgage-backed securities created from these potentially worthless loans. Meanwhile, many homeowners were unable to keep up with payments, losing their homes in foreclosure.
“Such activities stripped and continue to strip borrower home equity,” reads the complaint, “increasing the risk of default and foreclosure, and actually resulting in foreclosure on minority borrowers’ homes.”
As a result, Cook County alleges that Wells’ actions have resulted in a reduction in the rate of minority homeownership in the area, along with doing damage to the county, which says it has had to reallocate “limited financial and human resources to address the harms Defendants’ actions have caused.”
From the complaint:
“The intentional predatory, equity stripping lending activity at issue — targeting minority borrowers and/or steering them into higher cost loans, approving minority borrowers for loans that they are not otherwise qualified to obtain, inflating the loan costs and amounts to minority borrowers, and the application of willfully lax underwriting standards — in and of itself dramatically increased the likelihood of mortgage loan delinquencies, defaults, foreclosures and/or home vacancies because those factors undermined the ability of the borrower to repay the loan in the first place, creating a self-destructive lending cycle concentrated in Plaintiff’s minority communities.”
Prosecutors further allege more direct damage to the county in the forms of erosion of its tax base, lost property tax revenue, and the upkeep of abandoned or vacant homes.
The suit points to a previously settled federal lawsuit in which the Justice Dept. accused Wells of steering minority homeowners into subprime loans even when they posed no additional risk for default.
In a statement to the Chicago Tribune, a rep for Wells calls the county’s accusations “baseless” and says that the bank will vigorously defend its practices.
“[I]t’s disappointing they chose to pursue a lawsuit against Wells Fargo rather than collaborate together to help borrowers and homeowners in the County,” writes the rep. “Wells Fargo’s team members live and work in the Chicago area and we stand behind our record as a fair and responsible lender, which includes an $8.2 million down payment assistance grant program that helped create 547 new homeowners in Chicago and the Cook County suburbs over the past two years.”
by Chris Morran via Consumerist
No hay comentarios:
Publicar un comentario