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Cook County suits allege predatory lending by HSBC, Bank of America

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Updated: May 2, 2014 6:28AM

Cook County has launched a pair lawsuits against two major banks, alleging that they helped cause the Chicago region’s foreclosure crisis by deliberately marketing predatory loans to black and Latino borrowers.

HSBC, Bank of America and its subsidiaries including Countrywide and Merrill Lynch all badly hurt black and Latino neighborhoods when they disproportionately targeted minority homebuyers for subprime loans with higher interest rates and fees, the county claims.

Black and Latino homeowners in many cases lost their homes when they ended up paying “hundreds of dollars more each month in mortgage payments” than they otherwise would have, according to the lawsuits, which are similar to those brought in other cities, including Baltimore, Cleveland and Memphis.

“This predatory lending crisis caused tremendous tangible and intangible damage, particularly to African American and Latino communities,” Cook County Board President Toni Preckwinkle, who filed the federal complaints with Cook County State’s Attorney Anita Alvarez, said in a news release Monday.

“These practices led to the erosion of the tax base, the loss of property tax revenue, out-of-pocket costs relating to abandoned or vacant properties, and other damages to the fabric of the communities and residents arising from the resulting urban blight,” Preckwinkle continued in the release. Apart from that release, Preckwinkle and the state’s attorney’s office did not comment on the lawsuits.

In some cases, the suits allege, HSBC approved loans to Chicago area borrowers who worked as gardeners or worked at McDonald’s but reported $90,000 in annual income.

In others, brokers of a Bank of America subsidiary used computer programs to search phone records for Hispanic names, then took advantage of borrowers’ poor English language skills to sell loans, safe in the knowledge that their bonuses were based on the number of mortgages they sold, not the likelihood that the loan would be repaid, it’s alleged.

Abuses in the subprime loans by housing lenders have long been held responsible for the 2007 credit market crash, and Illinois Attorney General Lisa Madigan in 2011 won a $335 million settlement from Countrywide after she teamed up with the Department of Justice and attorneys general in other states in a similar suit.

But Cook County — which is being represented by law firms Harris Penn Lowry and James D. Montgomery & Associates — has been given heart by recent rulings against banks in Georgia, and officials think it has a good chance of winning a claim of its own.

A Federal Reserve report previously found that on average African-American borrowers were 3.1 times more likely than white borrowers to receive a higher-rate home loan and Latino borrowers were 1.9 times more likely to receive a higher rate. Even once credit scores and other factors were taken into account, minorities paid far more, the report found.

Cook County’s lawsuits say those patterns were mirrored in and around Chicago.

Though less than a quarter of the county’s homes were owned and occupied by minorities between 2004 and 2007, the lawsuits allege, nearly half of the loans Countrywide issued there during those years were to minorities. Nearly two-thirds of the most expensive subprime loans were sold to minorities, it’s alleged.

Statistics at some Bank of America subsidiaries were even starker. At First Franklin, which worked with Merrill Lynch, 99 percent of the priciest Chicago area loans were given to minorities, the lawsuit states.

“Empirical data demonstrates that Defendants made a substantially greater percentage of their total mortgage loans and of their high cost, subprime . . . mortgage loans to minority borrowers beyond what the racial makeup of Plaintiff’s communities and neighborhoods would otherwise indicate was appropriate on a non-discriminatory basis,” the lawsuit states. “These differences cannot be explained by differences in borrower credit score or other objective criteria.”

The lawsuit alleges Bank of America “effectively conceded their liability” by settling prior cases, though the settlements contained no admissions of wrongdoing. In an emailed statement Monday evening, a Bank of America spokesman said: “We have not had an opportunity to fully analyze this complaint, but based on similar suits that have been filed against multiple lenders in Cook County and other municipalities, we believe our record will demonstrate there is no basis for the claims.”

HSBC could not be reached for comment.


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