Numerous lenders have been accused of systematically steering minority loan applicants into subprime mortgages — even if they could qualify for standard loans — in the year leading up to the financial meltdown that led to the closing of several large banks.
But it’s only recently that municipalities have been able to assess the long-term damage done to their coffers by the collapse of the housing bubble, and some are starting to take action in hopes of recovering the money.
That’s why Georgia’s Cobb, DeKalb and Fulton counties all sued HSBC in a U.S. District Court in Atlanta.
According to the complaint, the predatory lending resulted in too many people with unaffordable mortgages, leading homeowners to default on their loans. The economic crash that ensued “has caused tremendous tangible and intangible damage” to the tax bases in Cobb, DeKalb and Fulton.
These counties have had to cope with the costs and problems associated with vacant properties “and many other injuries to the fabric of plaintiffs’ communities and residents arising from the resulting urban blight.”
Since empty homes don’t exactly generate piles of tax revenue, these counties have been strapped for cash and have had to cut back on staff and services while also increasing the tax burden on those who haven’t walked away from their homes.
The counties allege that HSBC had to have known that approving so many of these subprime loans would eventually lead to disaster, but that the bank didn’t care because those mortgages were just going to packaged up and sold off to investors and the bank was also making money tacking on fees, and upselling things like credit cards to mortgage customers.
Wells Fargo recently settled suits involving similar allegations with municipalities in Baltimore and Tennessee.
Earlier this week, borrowers in Detroit sued investment bank Morgan Stanley, accusing it of directing the now-defunct New Century Financial Corp to place a disproportionate number of black borrowers into subprime, adustable-rate mortgages.
Counties file suit in housing crisis [AJC.com]