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Congressional Hearing Looks into Wells Fargo Predatory Lending

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Headlined to H2 7/3/09

opednews.com

An epic legal showdown between Wells Fargo bank and the city of
Baltimore will occur on Monday July 6 in the courtroom of U.S. District
Judge Benson E. Legg. The city of Baltimore is suing the bank for
engaging in deliberate predatory lending practices that targeted Black
and Latino consumers. Judge Legg will decide on whether the case can go
forward.


The Baltimore Sun reports that the suit has potentially far reaching implications:

"Barbara Samuels, a fair housing attorney for the American Civil
Liberties Union of Maryland, which has been following the case, called
it 'innovative' and potentially groundbreaking. 'The city filing rather
than the individual homeowners keeps the focus on pattern and business
practices, as opposed to getting lost in the weeds of individual
transactions,' Samuels said."

The Baltimore suit is part and parcel of a growing effort by
cities, states and civil rights groups to combat conscious
discriminatory practices by the country's leading banks, and was the
subject of a congressional hearing last week by the Joint Economic
Committee chaired by New York Rep. Carolyn Maloney. Opening the
hearing, Maloney said that "today, almost 1 in 6 subprime mortgages are
in foreclosure compared to 1 in 40 prime mortgages in the United
States."

The congresswoman stressed the premeditated steering of borrowers
by the banks: "Evidence continues to come to light that many of the
subprime borrowers who had pay stubs to prove their employment - and
may have qualified for prime loans - were steered into more costly no
doc loans by some lenders."

The congressional hearing was initiated by Rep. Elijah E. Cummings
of Baltimore after the appearance of a June New York Times article
pointing to Wells Fargo's practices. Citing the suit, Cummings said,
"The city's contention is that the discriminatory lending practices
pursued by Wells Fargo promoted high-cost loan instruments which led to
foreclosures far in excess of what the rate of foreclosure might
otherwise have been."


Testimony by expert witnesses at the hearing detailed a history of
capricious practices by the nation's largest banks. Robert Strupp, of
the Community Law Center, pointed to a pattern by financial
institutions of taking advantage of programs designed by the Federal
Housing Administration to help low-income borrowers.

As early as the 1970s, Strupp explained, "blockbusting" practices
developed as FHA loans were used by banks to get owners to sell quick,
with the banks then reselling the homes to minorities at inflated
prices. This resulted in a 500 count indictment of banks involved in
7,500 homes in New York City at the time.




In the 1990s, abuse of FHA loans was repeated, according to Strupp: "As
a result of these predatory practices, neighborhoods in the 1990s began
experiencing rising foreclosures, bankruptcies and neighborhood
disintegration. The gravity of the foreclosure situation at the time is
best perhaps demonstrated by the decision of the FHA to declare a
moratorium on FHA foreclosures."




Pointing to the racist and sexist consequences of the loans, the expert
witness pointed out that research by the Chicago Reporter newspaper
found that African Americans with incomes of $100,000 were twice as
likely to receive loans than whites making less than $35,000. Half of
the loans between 2003 and 2007 were made to women and in one year -
2006 - half of those loans were subprime.

Regulating the practices of the banks, while important, is not
enough, declared Gregory Squires, a professor of sociology at George
Washington University. "The concentration of income and wealth at the
top coupled with the concentration of poverty and persisting levels of
segregation and hypersegregation have nurtured significant increases in
subprime and predatory lending among vulnerable communities," he said.
"Reforming the regulation of financial services is a necessary but
insufficient step for ameliorating the crises created by recent lending
practices."

Squires described persistent and growing inequality, centered in
but not limited to a racial wage gap. "While African Americans and
Hispanics earn approximately two-thirds of what whites earn, wealth
holdings for the typical non-white family are approximately one-tenth
that of the typical white family," he said.

His figures indicate the emergence of a growing crisis: "Between
1970 and 2000, the number of high-poverty census tracts (those where 40
percent or more of the population is poor) grew from 1,177 to 2,510,
and the number of people living in those tracts grew from 4.1 million
to 7.9 million." Middle-income working class families, it seems, are
being increasingly driven into the ranks of the urban poor, who in turn
become targets of predatory lending.

Squires proposed several remedies including indexing the minimum
wage to increases in the cost of living and "enacting the Employee Free
Choice Act, which allows workers to form a union when more than 50% of
workers sign a card indicating their desire to do so in lieu of secret
elections, [which] would strengthen the role of unions in the U.S. and
their positive impact on wage inequality."

Sarah Bloom Raskin, commissioner for financial regulation in
Maryland, told lawmakers of the pitched battle between states and
national mega-banks, a struggle in which "state actions have been
hamstrung by the dual forces of preemption of state authority and lack
of federal oversight." In recent years the Bush White House
successfully lobbied the Supreme Court to reject state oversight of
banks.




Despite her state's best efforts, Raskin said, there has been a growing
epidemic of foreclosures, overwhelming remedial efforts. "In the past
12 months, over 100,000 Notices of Intent to Foreclose have been sent
to Maryland borrowers and to our office," she said.

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