A federal judge dismissed a city of Los Angeles lawsuit accusing Wells Fargo & Co. of violating the federal Fair Housing Act by engaging in predatory mortgage lending practices targeting minority borrowers.
In a 28-page ruling Friday, U.S. District Judge Otis Wright II said the "undisputed facts" show that Wells Fargo, the nation's largest mortgage lender, did not violate the law during the two years in which the statute of limitations applied.
Part of the city's suit focused on minority borrowers winding up more frequently than whites in Federal Housing Administration loans, which are aimed at first-time and marginal borrowers.
The FHA loans carry low down payments and are easier to qualify for. But they are often more expensive than conventional mortgages because they require higher mortgage insurance costs.
Wright said FHA loans were intended to overcome precisely the barriers to ownership often experienced by minorities.
"The city is not a champion of minority rights as it declared in the complaint," Wright said. "While this case began with allegations that Wells Fargo trampled the rights of minorities, it ends with the city's failed attempt to engage in the exact same conduct."
A suit filed by Cook County, Ill., over similar issues in Chicago also was dismissed Friday.
Los Angeles City Atty. Michael N. Feuer sued the San Francisco bank in December 2013, alleging a "continuous pattern and practice" of mortgage discrimination that led to a wave of foreclosures, reduced property tax revenue and increased costs for city services.
The city cited a report from low-income advocacy groups that claimed the mortgage crisis resulted in 200,000 foreclosures in Los Angeles from 2008 through 2012, a wave that depressed property values and caused city property tax revenue to fall by $481 million.
In addition, the local government costs for safety inspections, police and fire calls, trash removal and property maintenance for those foreclosures hit an estimated $1.2 billion, according to the California Reinvestment Coalition and the Alliance of Californians for Community Empowerment.
Neither Feuer nor a spokesperson for him could be reached for comment.
Wells Fargo spokesman Ancel Martinez said the bank, which had steadfastly denied wrongdoing, was gratified by the decision.
The suit was part of a series of federal civil actions that Feuer has filed against the nation's biggest banks in late 2013 and 2014 to address what he said were the "devastating consequences of the foreclosure crisis in America's second-largest city."
Feuer's suits also accused JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. of engaging in predatory lending and redlining as far back as 11 years ago.
Specifically, it accused all four banks of placing minority borrowers into riskier loans than it did to "similarly situated" white borrowers. Those loans caused a disproportionate number of foreclosures in minority neighborhoods compared with white neighborhoods, according to the city.
When the housing market crashed, the banks then curtailed credit to minority borrowers on a racially discriminatory basis, the lawsuits allege. If the banks did lend to minorities, they continued to do "so on predatory terms," the lawsuits allege.
In May, however, a federal judge threw out the case against BofA, saying that the city failed to produce evidence of any damages and that its legal theories were "unsupported by legal precedent." Feuer has appealed the decision.
Early this year, Feuer's office filed separate state lawsuits against Wells, JPMorgan, BofA and Citigroup in Los Angeles County Superior Court alleging similar discriminatory lending practices. The pending cases were consolidated under the court's procedures for complex litigation.
Separately, Feuer sued Wells Fargo in early May over allegations that its rigid sales quotas have driven employees to open unauthorized accounts for customers, sticking them with bogus fees and damaging their credit. That suit echoes a 2013 Los Angeles Times investigation into the bank's practices.
Wells has denied those allegations, blaming the problems on a few rogue employees, whom the bank has disciplined or fired.