Judge Blocks Wells Fargo Mortgage Lending Case
Rules that city must wait to get bank’s white-borrower loan records
Published: October 19, 2011
A Federal District Judge has again ruled against the city in its long-running lawsuit against Wells Fargo Bank. In a decision and opinion filed on Sept. 28, Judge J. Frederick Motz denied the city’s motion for reconsideration of a previous decision that denies, or at least delays, a key evidence-finding procedure.
The city filed the suit in 2008, part of a group of cities that filed similar “reverse redlining” cases after the real-estate bubble popped and crashed the financial systems in the United States and Europe. Baltimore claims that Wells Fargo targeted African-Americans for high-interest subprime loans, paying its loan officers to steer borrowers who qualified for low-interest loans into higher-interest mortgages. The Wells Fargo policy, the city says, led to many foreclosures that, in turn, cost the city and its taxpayers money to board up vacant buildings and police the social ills that come with vacant properties. The Baltimore suit was dismissed in 2010, but the complaint was amended three times to narrow its reach. The Sept. 28 ruling and opinion come amid a dispute over the scope of discovery—how much and what kind of information Wells Fargo will have to release to its adversaries in the case.
“By virtue of an earlier ruling I have made on a dismissal motion, this case is no longer a ‘macro’ one, focusing upon systemic issues, but a ‘micro’ one, focusing upon specific borrowers and properties,” Motz wrote in his opinion. “As a result, to quote Isaiah Berlin, it is time for counsel and the parties to be ‘foxes,’ rather than ‘hedgehogs,’ viewing the litigation not through the lens of a single defining idea but by considering the variety of facts surrounding the individual borrowers and properties at issue.”
As City Paper discovered in 2009 when it took a close look at some of the properties the city featured in its original complaint, a substantial percentage of those individual borrowers were investors, not people seeking homes to live in. A large subset of those investors were likely involved in mortgage fraud (“The Victim Who Wasn’t There,” Mobtown Beat, July 15, 2009).
Baltimore City Solicitor George Nilson says Motz’s colorful language was not unexpected, but that the concerns at issue have always been “micro.”
“The question that was posed to Judge Motz was whether we were entitled to obtain from Wells [information about] loans to Caucasian borrowers and the terms under which those loans were made,” Nilson says. “We needed those loans to white borrowers in order to quantify the discrimination [against similar African-American borrowers]. So to keep it simple, if an African-American borrower paid $1,000 a month [for a given mortgage loan], and a Caucasian paid $500 a month, that’s $500-a-month discrimination. You can’t possibly determine whether discrimination caused a foreclosure without knowing the dollar magnitude of the discrimination. So that was the whole point of what we were asking for from Judge Motz.”
Wells Fargo has claimed that the city’s damages—the boarded abandoned buildings, the drug use and the fires in them—are substantially self-inflicted or, at least, not attributable to Wells Fargo’s lending practices. The 130 foreclosures at issue, the bank maintains, would have probably occurred in the normal course of business as borrowers became sick or injured or suffered other financial misfortune.
Quantifying this alleged discrimination is called “regression analysis.” It is complicated, but not exotic, Nilson says. Motz doesn’t much like the term, apparently—or the city’s theory of the case, noting in his decision that the city “has chosen to proceed with this litigation on a property-specific basis after I had ruled that its systemic claim seeking more generalized damages was not plausible. [It] has not changed its litigation strategy although my rulings against it have substantially changed the rules of engagement.”
Nilson says the city’s legal team now must search the lives of the individual borrowers for financial shocks, and then go back to the judge to make the case that the shocks it found can’t account for all the foreclosures.
“He’s telling us to go find out what other cosmic and big-money problems happened to these people,” Nilson says. “We’ll see that [some borrowers got sick or injured], but not in every loan, we think.”
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