Judge OKs Amended Lawsuit Claiming Predatory Lending By Wells Fargo
Officials in 3 Ga. counties filed the complaint claiming Wells Fargo engaged in an 'equity stripping' scheme that targeted minorities.
A federal judge ruled late last week that a predatory lending complaint filed against Wells Fargo & Co. by three counties in Georgia can proceed.
Judge Michael L. Brown of the U.S. District Court for the Northern District of Georgia, Atlanta Division, had previously dismissed the case but allowed the counties to amend and resubmit it, and last week he ruled the case can proceed.
Officials in Cobb, Dekalb, and Fulton counties filed the complaint under the Fair Housing Act, claiming Wells Fargo engaged in an “equity stripping” scheme that targeted minorities living in their counties and involved “a combination of predatory and discriminatory lending, servicing, and foreclosure practices over the life of a mortgage.”
According to the complaint, the counties claim the scheme began at loan origination, when the bank “forced borrowers to pay higher costs and improper fees (while also receiving loans with higher interest rates), continued throughout the life of the loans as borrowers paid inflated interest rates, manifested through the imposition of prepayment penalties when borrowers refinanced or paid off loans, progressed into default when (Wells Fargo) subjected borrowers to fees and costs, and culminated in foreclosure,” when the bank seized borrowers’ homes and stripped them of any remaining equity.”
The lawsuit claims Wells Fargo targeted minority borrowers in their counties because “they were easy targets for defendants to maximize mortgage originations from people most likely to accept less favorable terms and pushed minority applicants into higher cost, non-prime loans even when those applicants qualified for prime loans.”
The complaint also states that data shows Wells Fargo originated high-cost loans to minorities 2.3 times more than they did to non-minorities. The lawsuit cited 30 different loans as examples of the predatory lending practices.
The counties also provided the court with three “heat maps,” which they say show a difference in foreclosure rates between neighborhoods with mostly minority residents compared to neighborhoods with mostly white residents. The heat maps show the foreclosure rate was 3.5 times higher in high minority neighborhoods compared to mostly white neighborhoods for Fulton County; five times higher in DeKalb County; and 18% higher in Cobb County.
Wells Fargo asked the court to also dismiss the amended lawsuit, stating that the statute of limitations had run out. Judge Brown disagreed, stating that unlike the initial lawsuit, which cited seven loans that were not within the required timeframe, the current complaint cites 30 loans, 10 of which are within the proper timeframe.
“With those loans, plaintiffs sufficiently cured the problems previously identified by the court,” Brown wrote in his decision. “These allegations are enough — at least at the pleading stage — to establish the 10 loans were part of defendants’ purported discriminatory scheme and that defendants undertook a discrete action in furtherance of that scheme within the limitations period.”
Brown also said the counties point to “the adjustable-rate nature ... and/or the materially increased interest rates on” the allegedly discriminatory loans compared to national average loan rates. The lawsuit claims the interest rates on the loans at the time of foreclosure were “substantially higher than most other foreclosed loans.”
“And it is these predatory rates, plaintiffs allege, that ultimately culminate in foreclosure, when defendants take away the borrower’s home, thereby removing any remaining equity and eliminating the borrower’s ability to generate future equity,” Brown said in his ruling.
He added, “These allegations are enough at the pleading stage to plausibly raise an inference of foreclosure discrimination in violation of the FHA.”
The counties are seeking injunctive relief to remedy, and monetary damages for, Wells Fargo’s “predatory and discriminatory residential mortgage lending and servicing activities,” according to the lawsuit.