Monday, June 21, 2010

Losing Game: Blaming Wells Fargo and Reverse Redlining

Posted By on Mon, Jun 21, 2010 at 11:20 AM

The Memphis Flyer is an exhibit.

News articles from The Flyer, Memphis Business Journal, and The Commercial Appeal are included in a defense motion filed this month in the federal lawsuit against Wells Fargo by the city of Memphis and Shelby County.

The lawsuit blames Wells Fargo and alleged "reverse redlining" for predatory lending that devastated personal, family, and community wealth. It was the subject of an article in The New York Times two weeks ago that painted a grim picture of Memphis at a time when Mayor A C Wharton and business groups are trying to sell Memphis as a "City of Choice."

Redlining is the practice of refusing to make conventional mortgage loans in majority-black neighborhoods. Reverse redlining is targeting majority-black areas for risky and exploitative loans.

The lawsuit looks like a long shot. As the newspaper articles show, poverty, bankruptcy, and foreclosures are nothing new in Memphis. Similar suits have been dismissed by federal judges in Baltimore and Birmingham. But win or lose, the lawsuit, which has already attracted national publicity, will be a public relations disaster, especially if it goes to trial. To win it, Memphis will have to put its worst foot forward and look like a place nobody would want to live.

A case in point was the slide show that accompanied the New York Times story. They showed blighted properties in Whitehaven, a large area that boasts many attractive neighborhoods.

The article lumped Cordova and Orange Mound and "Hickory Ridge" together, and focused on a homeowner standing in front of what appeared to be an attractive two-story brick house with three cars in the driveway — a picture some might consider more emblematic of the American Dream than a foreclosure crisis.

In a motion filed earlier this month, Wells Fargo attorneys including Jeff Feibelman and Jennifer Hagerman of the Memphis law firm Burch Porter and Johnson argue that Memphis and Shelby County “seeks to hold Wells Fargo responsible for immense socio-economic problems and resulting urban deterioration in Memphis and Shelby County which predated the origination of the small number of Wells Fargo loans at issue in this action by decades.”

The motion says there were 93,000 foreclosures from 2000 to 2009 and are currently 40,000 vacant properties in Memphis and Shelby County. At issue in the lawsuit are 50 Wells Fargo notices of foreclosure, or .05 percent of the total.

In addition to news stories from the last 12 years about poverty in Memphis, the defense includes as an exhibit the "City of Choice" presentation, including the “abyss” of poverty and crime.

Memphis, they say, “has been plagued by myriad significant social and economic problems for decades.”

The city and county sued Wells Fargo in December of 2009 under provisions of the Fair Housing Act. It was announced at a press conference at the National Civil Rights Museum.

"Our holding this press conference announcement at the National Civil Rights Museum underscores our assertion that the predatory lending issue is one of basic fairness," said Wharton at the press conference. "We will officially go on record today affirming our belief that the unfair lending practices that have wrecked havoc on individuals and families have also impacted us all as a larger community."

"The most tragic aspect of this crisis is that it has hit minority communities the hardest," said Shelby County Mayor Joe Ford. "Because of redlining practices, minority communities were excluded from prime lending and became vulnerable to reverse redlining, an illegal practice which targets these neighborhoods for risky and exploitative loans."

In January, a federal judge in Maryland dismissed a similar lawsuit filed against Wells Fargo by the City of Baltimore.

"Using the city's own figures, Wells Fargo is responsible for only a negligible portion of the city's vacant housing stock," the judge wrote. "This fact alone demonstrates the implausibility of any alleged causal connection between Wells Fargo's alleged reverse redlining activities and the generalized type of damages claimed by the city."

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