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VOL. 125 | NO. 117 | Thursday, June 17, 2010

Wells Fargo Uses City Initiative To Support Case

By Andy Meek

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At the end of March, Memphis Mayor A C Wharton Jr. unveiled to the Memphis City Council his “City of Choice” initiative, a public sector effort to repair the city’s image and restore its middle class.

It caught the attention of an unintended audience.

Attorneys representing Wells Fargo – the giant lender Memphis and Shelby County governments are suing for allegedly saddling black borrowers here with predatory loans – mentioned Wharton’s plan in a recently filed 50-page motion to dismiss the lawsuit.

Wells’ defense team cited the “City of Choice” initiative to bolster its contention that woes like suburban flight and high rates of crime, poverty and bankruptcy have been a drag on Memphis for years.

The “City of Choice” initiative is driving a revamp of city government to combat what it says is Memphis’ “abyss of poverty,” attributable to everything from unemployment to substance abuse.

Wells’ attorneys argue those problems predate the issue at the heart of the federal civil lawsuit Memphis and Shelby County governments filed at the end of December, when both governments went to court to prove several things. In short, that Wells extended high-cost home loans to a significant number of black borrowers who eventually couldn’t afford them, resulting in foreclosure and neighborhood deterioration.

Besides mentioning the “City of Choice” initiative, Wells’ attorneys in the motion to dismiss also cited 11 news stories from outlets like The Commercial Appeal and the Memphis Flyer.

Some of the stories date as far back as the 1990s and discuss everything from stress in Memphis’ “failing” inner-city neighborhoods to the city’s persistently high level of bankruptcy activity.

Not included is a May 30 story in The New York Times, headlined “Blacks in Memphis Lose Decades of Economic Gains,” that describes how unemployment and foreclosures are devouring black wealth in the city.

“The City of Memphis and Shelby County have been plagued by myriad significant social and economic problems for decades,” Wells’ attorneys wrote. “The ills that have befallen (the city’s and county’s) African-American neighborhoods, while tremendously unfortunate, are not fairly traceable to the actions of Wells Fargo.”

The Wells motion gives a lengthy dissertation about how Memphis supposedly got to this point. It argues, among other things, the city’s racial income gap is one of the nation’s worst; the state’s debt collection law is highly favorable to creditors who go after wages to collect; and low-income families here pay a higher portion of their incomes in state and local taxes.

The city and county filed an amended complaint against Wells in April. It included testimony from former employees of local Wells offices who allege the lender targeted black borrowers locally for high-interest, expensive mortgages.

Intentionally or not, the lender’s citation of Wharton’s effort to refashion Memphis into a “City of Choice” is a pointed slap at a city leader who’s been particularly vocal about his stance on the suit.

While in Washington earlier this year, Wharton had a private meeting with Tom Perez, the assistant U.S. attorney general in charge of the U.S. Justice Department’s civil rights division. The mayor laid out for Perez the rationale behind the local suit against Wells.

He told Perez the “American dream is turning into the American nightmare, and Memphis is a poster child for that.”

Said Wharton: “I told him it was my feeling that Memphis is a poster child for (similar) lawsuits simply because of the stark difference between the foreclosure rate in loans made to black borrowers and white borrowers.”

Wharton also testified in April to a U.S. House of Representatives judiciary subcommittee about the Wells case and the effects of foreclosure in Memphis.

Wells, meanwhile, acknowledged a few weeks ago in a regulatory filing that it’s being probed by “certain government entities” over its mortgage lending practices – specifically, over whether borrowers were inappropriately steered into high-cost loans.

The lender declined to be more specific about that investigation and about whether the government entities are federal, state or local.

PROPERTY SALES 76 133 1,342
MORTGAGES 83 131 1,047