But Cleveland’s suit is even more unique because the city has based its complaints on a state law that relates to public nuisances. The suit also is far more wide-reaching than Baltimore’s in that it targets the investment banking side of the industry, which feeds off the mortgage market.
Investment bankers at these companies buy subprime mortgages from lenders, then sell mortgage-backed securities to investors. It is a legal practice, known as securitization, that became increasingly popular during the housing boom earlier this decade.
Jackson and city Law Director Robert Triozzi said Cleveland should have been excluded from the frenzy. They pointed to housing prices that remained relatively flat as real estate values jumped elsewhere, as well as a manufacturing downturn and widespread poverty.
The suit claims that even though these issues were well documented, investment bankers continued to feed loans to hungry investors at the expense of borrowers buried in interest.
“Ultimately, they’re responsible,” Triozzi said of the investment banks. “They knew the economic conditions in which they were operating here. They decided that didn’t matter.”
Now I remember why I voted for Frank Jackson.
P.S. You can download the City’s actual filing here (pdf). Recommended reading!
I went to the Mayor’s press conference this morning. Not a lot was said that wasn’t in the PD story, but here are a few details:
- Jackson said explicitly that the City’s objective is cash to clean up the huge neighborhood damage left behind by foreclosures and derelict vacant houses arising from securitized subprime mortgages.
- Asked by a reporter why there are no local banks among the defendants (actually there is one “local” lender, JP Morgan Chase), Jackson and Triozzi said other institutions may well be added. Triozzi also said they’re continuing to look into the potential for additional litigation based on fair housing and racial discrimination issues, like Baltimore’s suit against Wells Fargo.
- Community Housing Solutions and the Equal Justice Foundation are involved in the City’s suit as co-counsel.
I have to say that Law Director Triozzi gave one of the clearer explanations I’ve heard of the role of securitization in making Cleveland the foreclosure crisis “epicenter”.
On the “local bank” question, there is one really obvious hole in the City’s defendant list: US Bank, which filed over 1,100 foreclosure cases and 650 sheriff’s deeds in the county last year, nearly all in its role as a trustee for securitized investment pools created by Citibank, Homecomings and other big subprime lenders.