Posted by
Andrews on Sunday, January 13, 2008 6:54:11 PM
The city of Baltimore, in my home state of Maryland is suing Wells Fargo over supposed "racist" schemes to defraud the poor through their lending and foreclosure practices, practices the state claims deprive it of tax incomes by leaving properties empty.
Now, let me see if I get this straight:
1. Wells Fargo made loans to poor black people based on the inflated property prices of a few years back, supposedly charging "excessive" fees in order to inflate the prices paid by minority borrowers.
2. The borrowers missed payments.
3. Wells Fargo, unable to get payments on these loans foreclosed.
4. As per the city's pleading, the houses sat empty, meaning Wells Fargo could not resell the properties they had seized.
And somehow this is supposed to make Wells Fargo rich? Lending out money which is not repaid, leaving them holding a number of overvalued properties? I don't see how this "sinister corporate greed" is going to make any money for Wells Fargo. In fact, being saddled with a lot of empty properties seems to suggest that Wells Fargo is actually in distress, not profiting.
Of course, the city is alleging that this is all racially motivated as well. But that makes little sense as well. Baltimore is largely black. The white and black middle class fled a while ago. The wealthy (mostly white) remain, as do the poor (mostly black). The poor whites have always been more prominent in the county than the city, while the city poor have been largely black
So, of course, the defaults are almost entirely black. The rich do not default regularly. Default on loans is usually the province of the poor, and, to a lesser degree, the middle class. As Baltimore lacks much of a middle class, the defaults are mostly among the poor, and thus, mostly blacks. I don't see how the city can argue that this shows some sort of "racist scheme."
Yet, somehow, I think this suit will still succeed. Just like the tobacco suits, as soon as the government (federal, state or local) gets involved, and alleges some sort of scheme to harm the common man, it is almost inevitable that the industry in question will be gutted. Of course it is just extortion by the state to supplement their tax revenues. No one believes that the tobacco suits did anything to improve health, it just gave a windfall to the states. Likewise, there will be no real change in mortgage practices from this (or at least no change for the better), cities and states will just plunder the lenders to put a few more dollars in their coffers.
Then again, why should the mortgage lenders change, or, to be more precise, why should the government force them to change? I mean, yes, they made bad loans, and should probably change to give fewer loans to bad risks, but that is not what this suit says (and that sort of change they will make anyway, as their own self interest says they need tighter checks on their borrowers). This suit isn't about giving fewer loans to bad credit risks --states and cities love lenders who give loans to "underprivileged borrowers", they even force companies to give such loans. Instead, the government wants the lenders to foreclose on even fewer. In other words, while that lenders are losing money on bad loans, these suits will serve only to make lenders keep bad loans out there even longer, losing even more money, leading to even lower profits, higher mortgage rates, higher fees, and a generally less friendly climate for mortgage borrowers, especially those "subprimes" this suit alleges to help.
I don't see how making the lenders lose even more money is going to benefit anyone but the grasping politicians.
UPDATED 01/15/2008I just discovered this same topic was covered on
Overlawyered.com. Their treatment doesn't sound too much different than mine, thought they concentrate more on the NAACP argument of targeting minorities for sub-prime loans. Still, you can see someone else's take on things by following the link.
They also brought up a topic I mentioned tangentially, that the same companies are accused of discrimination for
failing to offer loans to minorities and are then charged with discrimination for
offering too many sub-prime loans to minorities.
In short, it appears to be dangerous to do business with minorities at all. Except, of course, that refusing to do business with minorities is also a prosecutable offense.
Have to love government logic.