Los Angeles Sues Everyone
Well, not quite. The city of Los Angeles has filed lawsuits against Wells Fargo, Citigroup, and Bank of America for discriminatory lending practices that led to a wave of foreclosures in Los Angeles. The lawsuits allege that the banks engaged in a process known as "redlining." In this instance, lenders targeted minority communities by only selling them exotic loans designed to fail. The result is that minority communities were disproportionately impacted by foreclosures when compared to predominantly white communities.
There have been similar parallels here in Chicago. The Woodstock Institute has done excellent work tracking the effect of the foreclosure crisis on Chicago's minority communities. Many of the loans issued in these communities were subprime or otherwise contained exotic terms that increased finance charges (and profits for mortgage brokers) while also increasing the chance of a default on the loan.
It is particularly interesting to see a city sue the banks for this behavior. The City of Los Angeles has a vested interest in seeing its citizens made whole when they are harmed. The City of Los Angeles also has an interest in seeing property values remain stable; a massive wave of foreclosures tends to have a negative impact on property values.
It will be interesting to see how these cases turn out. I will no doubt write more about them as they develop.