Sunday, January 13, 2008

Cleveland Sues Countrywide, Wells Fargo.... Over Subprime Mess

by Amy Lillard

Some of the cities hit hardest by the subprime mess may have a new option available if they follow the example of Cleveland.

The city, the home to over 7,000 foreclosures in 2007, announced on Thursday it is suing 21 major banks and mortgage companies for their part in the subprime mortgage crisis. The suit says these companies created a "public nuisance" in violation of state law by pushing subprime mortgages in the city.

Cleveland hopes to recover lost property tax revenue that numbers in the hundreds of millions. Homes left abandoned have been demolished, and neighborhoods hit hard by thousands of foreclosures have seen drastic increases in crime and have needed extra policing efforts. Overall, the city's tax base has been depleted, and entire neighborhoods are in ruin.

The lawsuit alleges that the subprime model used in the city was completely inappropriate for the residents, and the lenders didn't care. Companies sued include Deutsche Bank Trust, Ameriquest Mortgage, Bank of America, Bear Stearns, Citigroup, Countrywide Financial, Credit Suisse (USA), Fremont General, GMAC-RFC, Goldman Sachs, Greenwich Capital Markets, HSBC Holdings, Indymac Bancorp, J.P. Morgan Chase, Lehman Brothers, Merrill Lynch, Morgan Stanley, Novastar Financial, Option One Mortgage, Washington Mutual and Wells Fargo Bank.

Cleveland Mayor Frank Jackson said the activities by these investment banks and lenders amounted to a legal form of organized crime. He likens the end result of organized crime and drugs on neighborhoods and individuals as siphoning the equity and quality away. The same could be said for the subprime activities conducted by the lenders named in the suit.

Cleveland is the first city to launch a lawsuit on this scale. Earlier this week, the city of Baltimore sued Wells Fargo, alleging they intentionally sold high-interest mortgages to African-American borrowers more than white borrowers, in violation of federal law.

The suit launched by Cleveland is unique in its scope, and its targets: the investment side of the industry that feeds off the secondary mortgage market and encourages continued subprime lending. The suit states that although Cleveland had flat housing prices, along with widespread poverty and struggling manufacturing, investment bankers continued their activities at the expense of borrowers.

More on this subject at Washington Post

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