Some might argue that Los Angeles City Attorney Mike Feuer has become the first public official to answer Ta-Nehisi Coates’ call for reparations for African-Americans, due from centuries of slavery and sanctioned racism.
Late last week, Feuer sued JP Morgan Chase for a decade of steering minority borrowers into dicey subprime mortgages, with financial terms that led the homeowners to default.
Timely? Actually, this was just the latest in a series of housing discrimination lawsuits that Feuer has filed since getting elected as City Attorney last year. JP Morgan joins Citigroup, Wells Fargo and Bank of America, all of whom Feuer sued under similar charges back in December.
So the four largest US banks all stand accused by Los Angeles of discriminatory lending, a practice that stripped wealth from minority communities and led to debilitating foreclosures. The city, in an echo of policies of segregation that pre-date the civil rights era, accused these banks of “reverse redlining,” explicitly targeting people of color with unfair terms of credit, in violation of the Fair Housing Act of 1968.
The breadth of the allegations suggests that such practices were systemic to the run-up in lending during the housing bubble, and data backs that up.
In their new book House of Debt, academics Amir Sufi and Atif Mian detail aggressive lending to borrowers in minority communities with low credit scores in the bubble years, even as their averages incomes fell. Families who could never get a mortgage from big banks suddenly had loan officers knocking on their doors.
In other words, communities of color became marks for predatory lending.
The question is whether Los Angeles can get further than other cities that tried to do something about this after the fact.
In their complaint, the city attorney’s office alleges that JP Morgan pursued communities of color for abusive subprime lending – even if the borrowers qualified for regular prime-rate loans – before the housing bubble collapsed.
These loans ended up over twice as likely to end in foreclosure than loans in white neighborhoods.
The discriminatory practices continue to this day, Feuer alleges, claiming that now, borrowers of color cannot get access to mortgages from JP Morgan and its counterparts.
Feuer includes in his complaint testimonials from former JP Morgan employees, who allege that “the people who didn’t understand English” tended to receive higher interest rates, and that deceptive products with a low “teaser” rate that rose over time were “tailored for minorities.” Employees were paid bonuses to steer minority borrowers into higher-cost loans, according to the ex-employees.
The city seeks damages from property tax losses that resulted from the wave of foreclosures, as well as increased costs to city services for repairing and maintaining foreclosed properties. “LA continues to suffer from the foreclosure crisis,” Feuer said in a statement. “We’re fighting back to hold those we allege are responsible to account and to help bring back every community in our city.”
Other cities have attempted such claims, and they have typically ended in relatively small settlements. Lawsuits against Wells Fargo in Baltimore and Illinois led to a $175m national fair-lending settlement in 2012, but just $11m of that went to direct homeowner assistance for minority victims in those areas. The bulk of the rest went to commitments to make prime-rate loans to low- and moderate-income borrowers, which after all are mortgage contracts designed to make Wells Fargo money. A 2012 Wells Fargo settlement with the city of Memphis over housing discrimination also provided benefits in terms of promises to make future loans. This does little for victims who already lost their homes to foreclosure.
Similarly, the Justice Department settled a fair-lending case with Bank of America in 2011 for $335m, which included conduct that took place in Los Angeles. Two years later, Bank of America mailed checks to over 200,000 borrowers, giving them an average of $1,675 each. Some payouts were as low as $200.
The LA city attorney isn’t even looking to compensate borrowers who lost their homes.
Instead, the city seeks to recoup lost tax revenue and property maintenance costs – so individual victims of lending discrimination won’t see any direct relief.
In recent years, Los Angeles has repeatedly attempted to hold banks to account for their practices, but has yet to follow through.
For example, in 2010, responding to persistent problems with abandoned, blighted properties owned by banks after foreclosure, the city passed legislation to set up a registry for building inspectors to identify the banks who owned these properties, and fine them up to $1,000 a day for letting them fall into disrepair.
But four years later, the city never imposed the penalty, nor have they sanctioned any bank for failing to list a foreclosed property on the registry. Building inspectors claim they don’t have enough resources to inspect foreclosures and enforce the law.
In 2011, the previous city attorney, Carmen Trutanich, sued Deutsche Bank to much fanfare, charging them with creating blighted properties when they took them over after foreclosure. Trutanich wanted to force Deutsche Bank to clean up all their properties, and pay a $2,500 fine for each day of code violations.
But two years later, Trutanich settled out of court with Deutsche Bank for a paltry $10m, which the bank just passed on to investors in the foreclosed loans. The news came just a couple weeks before Trutanich left office, having lost the city attorney election to Feuer.
In short, Los Angeles has not shown much will to force banks to maintain their foreclosed properties, with the costs instead falling on the city. So it’s hard to get excited about yet another promise, released with much excitement, which could end with the same unsatisfying result.
Feuer has been more aggressive than his predecessor, hitting the four largest banks with these fair-lending charges. And the city notched a victory in court last week when Wells Fargo lost their bid to throw out the case.
But even success in prosecuting these cases will not bring back someone’s foreclosed home or compensate them for their suffering. And in seeking justice from banks, Los Angeles has had many more failures than successes.
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