Multi-City Litigation Group, hold banks accountable, cities sue mortgage lenders
David J. Phillip/AP

St. Paul and Baltimore Rally US Cities Against Questionable Mortgage Lenders

January 15, 2009 01:02 PM
by Anne Szustek
St. Paul Mayor Chris Coleman is urging other cities to join a litigation group against mortgage lenders deemed to have used dubious criteria for loan issuance.

Irresponsible Lending Targeted by Multi-City Litigation

The cities of Baltimore, Md., and St. Paul, Minn., are spearheading a coalition of several U.S. cities in a quest to go after allegedly unscrupulous mortgage lenders. The Multi-City Litigation Group, to be co-chaired by St. Paul City Attorney John Choi and Baltimore City Solicitor George Nilson, has so far signed on 13 other major American cities, including Chicago and Atlanta, to work to reduce the number of foreclosures, save urban neighborhoods blighted by the mortgage crisis and tighten the legal reins on subprime mortgage purveyors.

St. Paul Mayor Chris Coleman is pushing to get other cities on board. “As the severity of the economic crisis becomes more apparent every day, cities can’t afford to sit on the sidelines. This coalition will represent millions of homeowners who are eager to see action and accountability on foreclosures and vacant building in their communities,” he was quoted as saying by the MinnPost.

St. Paul has seen more than a four-fold increase in foreclosures over the past four years: from 503 in 2005 to 2,289 in 2008. The city has sent letters to six lenders behind a large portion of the affected homes asking for collaboration on joint properties; however St. Paul may take legal recourse.

Explaining the benefits of the cities pooling their legal resources, Baltimore Chief Solicitor Susan Sangree was quoted by the Star-Tribune as saying, “Many of the lenders who have engaged in irresponsible lending practices are national banks, so many cities are dealing with many of the same entities.”

The plan is to draw from the resources and staff of the International Municipal Lawyers Association. Choi told the Minneapolis-St. Paul Star Tribune that lawsuits against mortgage lenders are not out of the question.

A spokesperson for the Mortgage Bankers Association did not comment Tuesday when asked about the Multi-City Litigation Group, writes the Star-Tribune.

Background: Holding banks and mortgage lenders accountable

A December Associated Press poll of 21 banks that had received at least $1 billion in funds of the $700 billion TARP focused on four key questions of transparency: “How much has been spent? What was it spent on? How much is being held in savings, and what’s the plan for the rest?”

The result? The banks were less than forthcoming with disclosure of how they are divvying up their share of federal funds. When questioned, Bank of New York-Mellon spokesperson Kevin Heine told the AP, “I just would prefer if you wouldn’t say that we’re not going to discuss those details.”
JPMorgan Chase, which has had $25 billion in TARP funds allocated, told the wire service that it was “declining” to provide information, although it did mention that $5 billion was going toward health care and nonprofits. And Citigroup and Bank of America, two of the top TARP recipients, apparently gave skeletal, public relations-laden answers focused on loan liquidity and shoring up their balance sheets.

On Jan. 14, Morgan Stanley’s $2.7 billion purchase of a 51 percent stake in a joint venture with Citigroup to take over the latter’s Smith Barney, Smith Barney Australia and Quilter units.

The deal is to create Morgan Stanley Smith Barney, which with more than 20,000 advisers would be the world’s largest brokerage firm by far. But on Citigroup’s end, it was a capital-raising move that could help fend off government scrutiny in light of the bank’s acceptance of $300 billion in TARP funds.

Bank of America, which, with its subsuming of investment bank Merrill Lynch, came under flak in early December for its role in the closure of Chicago’s Republic Windows & Doors factory. Workers staged a six-day sit-in after the factory closed with just three days’ notice, rather than the 60 days required by federal law. According to Republic statements, it had unsuccessfully tried to negotiate its debt with Bank of America, its creditor, so that it could close as per labor guidelines. Politicians pointed at banks being able to provide lending as the raison d’être of the bailout in the first place.

The federal government has called for greater oversight of the mortgage industry as well. In March, Paulson outlined a number of rules and regulations developed by the president’s Working Group on Financial Markets aimed at preventing future mortgage crises.

Paulson said that the group has been reviewing policy issues “to help reduce the likelihood that mistakes of the past are repeated.”

“Regulation needs to catch up with innovation and help restore investor confidence but not go so far as to create new problems, make our markets less efficient or cut off credit to those who need it,” Paulson was quoted as saying.

Key Player: International Municipal Lawyers Association

The International Municipal Lawyers Association is a nonprofit group of lawyers who provide legal counsel and information on municipal issues, as well as advise local governments on lawsuits and legislation.

Reference: Web Guide to Mortgages


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