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Los Angeles sues JPMorgan, alleges discriminatory lending

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05/30/2014 | 04:02pm EDT
JP Morgan Chase & Co sign outside headquarters in New York

(Reuters) - The City of Los Angeles has sued JPMorgan Chase & Co (>> JPMorgan Chase & Co.), accusing the largest U.S. bank of engaging in discriminatory mortgage lending practices that drove up foreclosures among minority borrowers.

(Reuters) - The City of Los Angeles has sued JPMorgan Chase & Co (>> JPMorgan Chase & Co.), accusing the largest U.S. bank of engaging in discriminatory mortgage lending practices that drove up foreclosures among minority borrowers.

The lawsuit on Friday is part of the second most populous U.S. city's effort to hold mortgage lenders liable for lost property tax revenue caused by falling home values, and the cost to maintain vacant foreclosed properties.

"LA continues to suffer from the foreclosure crisis - from blight in our neighborhoods to diminished revenue for basic city services," City Attorney Mike Feuer said in a statement. "We're fighting to hold those we allege are responsible to account."

The complaint filed in Los Angeles federal court accused JPMorgan of engaging in a "continuous pattern and practice of mortgage discrimination" in the city since 2004.

It said the New York-based bank's practices included redlining, where minority borrowers are denied credit on the same terms as other borrowers, and reverse redlining, where borrowers in minority neighborhoods are flooded with subprime loans they cannot afford despite qualifying for better terms.

"We are disappointed the L.A. City Attorney is pursuing an adversarial approach to address city finances impacted by the recent economic downturn," JPMorgan spokesman Jason Lobo said in a statement, in which the bank pledged to defend against the lawsuit. "The downturn was beyond our control."

Los Angeles in December filed similar lawsuits against Bank of America Corp (>> Bank of America Corp), Citigroup Inc (>> Citigroup Inc) and Wells Fargo & Co (>> Wells Fargo & Co), the next three largest U.S. banks. Wells Fargo on Wednesday lost its bid to dismiss its lawsuit.

Counties encompassing Chicago and the Atlanta area have filed similar cases against Bank of America and HSBC Holdings Plc (>> HSBC Holdings plc), while Providence, Rhode Island on Thursday sued a unit of Spain's Banco Santander SA (>> Banco Santander, S.A.).

Los Angeles said JPMorgan loans made from 2004 to 2011 in predominantly black or Latino neighborhoods were 2.19 times more likely to go into foreclosure than loans in mainly white neighborhoods. It also said loans to minority borrowers went into foreclosure faster.

Part of the case was based on confidential statements from former JPMorgan employees.

One, a former mortgage loan officer, accused the bank of refusing to help struggling borrowers, and instead often "just waiting for the sheriff to come around" and foreclose.

There were about 200,000 foreclosures in Los Angeles from 2008 to 2012, causing the loss of $78.8 billion in home values, the complaint said.

Last June, Deutsche Bank AG (>> Deutsche Bank AG) settled a lawsuit in which Los Angeles accused it of letting hundreds of foreclosed properties deteriorate into slum conditions.

The case is City of Los Angeles v. JPMorgan Chase & Co et al, U.S. District Court, Central District of California, No. 14-04168.

(Reporting by Jonathan Stempel in New York; Editing by Grant McCool)

By Jonathan Stempel

Stocks mentioned in the article
ChangeLast1st jan.
BANCO SANTANDER, SA 3.19% 3.5855 End-of-day quote.-9.75%
BANK OF AMERICA 2.97% 27.03 Delayed Quote.6.53%
CITIGROUP INC. 3.52% 63.48 Delayed Quote.21.94%
WELLS FARGO & COMPANY 2.33% 44.39 Delayed Quote.-3.67%
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