More Than a Score Banks Being Sued In Cleveland for Foreclosures

January 14th, 2008

The eye of the foreclosure storm in USA is centered in Cleveland. The city is not taking it lying low – it has filed cases against 21 banks accusing them of having become a public nuisance by playing around with sub-prime mortgages in and around the inner city. As a result property values have plunged and the tax collections fallen.

This is a lawsuit that is the first of its kind without precedent. It was filed in Cuyahoga County – Ohio Common Pleas Court. The accused were giants like Deutsche Bank (DB0) Goldman Sachs (GS), Merrill Lynch (MER) and Wells Fargo (WFC). Hundreds of millions are being demanded as damages. These include taxes that have been lost because of rapid devaluation of properties as well as money spent on demolishing or boarding up thousands of abandoned units.

The Mayor Frank Jackson had called for a news conference to outline the city’s policy as regards foreclosures. He commented to The Plain Dealer that the activities of the bank are no better than organized crime and drug peddling. These dangerous loans were peddled to the vulnerable. The result is the same as the effect of drug trading. It has a legal façade that makes it more dangerous.

Last Tuesday the city of Baltimore sued Wells Fargo saying that the bank knowingly sold more high-interest carrying mortgages to the blacks in comparison to the whites. This is in gross violation of federal laws.

Cleveland said that its legal challenge was based on a specific state law that relates to issues of public nuisances. Mayor Jackson and Law Director Robert Triozzi said that Cleveland must be kept out of the practice of selling mortgage-backed securities to investors. This practice is known as securitization. It had become popular during the period of the housing boom during the past few years. The housing prices had remained relatively stable despite industrial unemployment. In other parts of the country prices had jumped. Knowing everything the investment bankers forced down loans on gullible borrowers creating the foreclosure crisis of today.

The ostensible purpose of the sub-prime mortgage was to enable those who could not qualify for prime traditional mortgages to avail of it and own houses of their own. This is the great American dream. But due to its wrong use the loans went awry endangering the socio-economic structure of the entire nation.