One of the advantages of having a series of big banks allegedly plunder your city by making discriminatory loans to minority groups is that the same set of facts can be re-used to sue each of them separately in federal court.
In a lawsuit similar to those recently filed against Citibank, Bank of America and Wells Fargo, Los Angeles City Attorney Mike Feuer filed a legal complaint (pdf) in U.S. District Court last week against JPMorgan Chase & Co. alleging its predatory foreclosure practices cost the city more than $1 billion and deprived its victims of their civil rights.
L.A. says that JPMorgan should be on the hook for the behavior of Washington Mutual Inc., the bank it bought in September 2008 when the federal Office of Thrift Supervision seized the floundering institution’s assets during the heart of the economic meltdown and put them into receivership.
But it also made a case that JPMorgan’s own practices in the L.A. market caused significant harm and continue to the present day. The complaint says:
“JPMorgan has induced foreclosures since 2009 by failing to extend branch support to minority neighborhoods, pulling existing Bank support from minority neighborhoods, declining to offer refinancings or loan modifications to minority customers on fair terms, and otherwise denying minority borrowers equal access to fair credit.”
The city built part of its case on the statements of five anonymous former bank employees detailing the predatory practices they observed and participated in. One described how borrowers who had initially gotten unfavorable loans they didn’t understand without providing any documentation of income or assets, were shocked to learn they couldn’t refinance under the same loosy-goosy standards when the market turned. She said:
“That was really heartbreaking. Seeing people sitting there crying. . . . Those were kind of hard.”
The lawsuit doesn’t seek a specific amount of restitution, but cites studies that show 200,000 foreclosures in the L.A. area between 2008 and 2012 cost the city $1.2 billion for “maintenance, inspections, trash removal, increased public safety calls and other code enforcement services.” The city also claims it lost $481 million in property tax revenues.
The lawsuit alleges that JPMorgan, like the other banks, redlined minority-heavy areas of the city, making it difficult for residents there to get conventional home loans, but made risky subprime loans far more available than in white areas. The result was that a loan made in a predominantly black or Latino neighborhood between 2004 and 2011 was 2.19 times more likely to end in default than one in a white area.
Between 2009 and 2011, the suit said, “A Latino borrower was 2.857 times more likely to receive a higher risk government loan (FHA/VA) than was a white borrower possessing similar borrower and underwriting characteristics.”
African-American borrowers with a FICO credit score above 660 were 2.026 times more likely to get predatory loans than white borrowers with similar scores. Latinos got off easier. They were only 1.796 times more likely to end up with the dangerous loan.
And dangerous they were.
Banks have foreclosed on 1.7 million homes in California since 2008. Home values have declined $78.8 billion in Los Angeles, according to a study cited in the lawsuit. More than 79,000 Los Angeles homeowners are underwater on loans worth $7.3 billion. If banks wrote down those loans, it would pump $780 million into the local economy and add 11,353 jobs.