Cities consider going after lenders

City leaders in Minneapolis and St. Paul are exploring legal action against the subprime lenders who financed the cities' explosion of foreclosed properties.

While the Minneapolis Civil Rights Department is weighing action that alleges racially discriminatory lending patterns, the city attorney's office is researching lawsuits that other cities have filed against subprime lenders. St. Paul also is exploring its legal options for dealing with boarded-up housing.

Cleveland and Baltimore last month sued lenders, setting off what could be a wave of such actions. Baltimore alleged that Wells Fargo made predatory loans in black neighborhoods, which the lender denied.

Cleveland's lawsuit targeted a broader array of lenders to recover the mounting costs of managing boarded properties and lost taxes.

St. Paul spent a record $100,000 boarding up vacant buildings last year and has budgeted more than $600,000 to monitor them this year.

"There are some unique legal efforts going on throughout the country that are focused on holding lenders accountable for the mess they have created in our neighborhoods," St. Paul City Attorney John Choi said.

"If the legal process is a viable option and it's in the city's best interests, we will aggressively take on this issue."

Minneapolis civil rights director Michael Jordan has been exploring that option since October at the suggestion of Council Member Cam Gordon, who was troubled by lender-generated data indicating a higher incidence of subprime loans among black and Latino borrowers. The Minneapolis civil rights ordinance forbids discrimination in real estate transactions.

"We're looking at that with some intensity," Jordan said.

A spokesman said that Minneapolis Mayor R.T. Rybak supports exploring the option of civil rights action but that it's too early to decide whether the matter should go ahead.

Hard to ignore problem now

Researchers at the University of Minnesota and elsewhere for years have found that higher cost loans are concentrated in minority communities, but that hasn't prompted city action. It has taken neighborhoods full of boarded houses to gain the attention of public officials. Foreclosures tripled between 2005 and 2007 in Minneapolis.

Not everyone is enthusiastic about targeting subprime lenders. That includes Council President Barbara Johnson, one of the Minneapolis City Council's most outspoken activists on mortgage fraud issues.

"I just think it's premature. It's not helpful," she said. Wells Fargo has been working with the city on foreclosure issues in Minneapolis, she said.

The request to the Minneapolis city attorney's office came from Council Member Gary Schiff, who asked that the Cleveland and Baltimore approaches be examined for potential action against Wells Fargo and other lenders.

Schiff also has proposed tripling the annual fees charged against boarded buildings that draw housing orders. That fee is now $2,000, and city inspection officials are studying the per-house cost of city attention to unshoveled walks, unmowed grass, graffiti cleanup, police and fire calls, and other problems created by vacant houses. The council is expected to consider the fee increase later in the month.

ACORN's mortgage analysis

The 2006 data indicate again that minority borrowers in a 12-county area including the Twin Cities are more likely to buy or refinance homes with subprime loans. That's true even when they're compared to white borrowers with similar incomes.

That pattern is even worse here than most of the 172 large metro areas examined by ACORN.

Jordan is particularly troubled by ACORN's finding that the Twin Cities area is in the top 10 nationally for the subprime/prime disparity between whites and blacks. Blacks here are nearly four times more likely to rely on subprime loans as whites, ACORN found.

At Jordan's request, a research arm of the University of Minnesota expanded the ACORN analysis of credit data. "I get essentially the same patterns," said researcher Eric Myott of the Institute on Race and Poverty.