The U.S. District Judge - Otis Wright II in Los Angeles
rescinded the bid filed by
Wells Fargo & Company
) regarding the dismissal of a lawsuit charged against the bank by
Los Angeles City. The lawsuit accused it of discriminatory lending
practices towards minority borrowers. The judge has ordered the
plaintiffs to pursue the proceedings over their claims against
It has been notified that Wells Fargo was involved in predatory
lending practices since 2004 and provided overcharged (higher fees
and interest rates) loans to minority borrowers leading to
increased number of foreclosures. Moreover, the bank has been
accused by the city of discriminating against borrowers in
providing loans based on their race.
Notably, the mortgage crisis in Los Angeles led homeowners to lose
around $78.8 million in home values following over 200,000
foreclosures from 2008-2012. Further, Los Angeles lost property tax
revenue of around $481 million.
Last year, the three mortgage lenders - Wells Fargo,
Bank of America Corp.
) were sued by the city for discrimination in lending practices.
Recently in Mar 2014,
HSBC Holdings plc
) was sued by Cook County in the U.S. for providing high-cost home
loans to minority borrowers in Chicago. The plaintiffs hold banks
accountable for tax revenue losses and rise in municipal services
due to increased foreclosures.
We believe settlement of such issues would put the mortgage
borrowers at ease to some extent. Such settlements also provide
some relief to the companies and their shareholders as it reduces
the litigation overhang. However, the company's dented financials
and goodwill due to such lawsuits cannot be ignored.
Currently, Wells Fargo holds a Zacks Rank #3 (Hold).
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