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.