The city of Los Angeles filed a lawsuit on May 30th, 2014 against JP Morgan Chase & Co., the biggest bank in the United States. According at an article in The Wall Street Journal, the city issued a complaint alleging that J.P mortgage practiced in redlining and reverse redlining. Redlining is a process in which the banks deny applicants credit based on the neighborhood that the applicant lives in and/or chooses to live in, or simply denies the application based on said applicant’s race. Reverse redlining is a process in which lenders target specific neighborhoods or racial group with sub-prime financial products that are risky and unaffordable, when there were better options available. This was allegedly done by “imposing different terms and conditions on a discriminatory and legally prohibited basis” (The Consumerist). The complaint says that redlining and reverse redlining performed by J.P. Morgan has directly led to higher instances of foreclosure in LA.
According to The Consumerist, the loan officers also failed to educate applicants on adjustable-rate mortgages, and therefore applicants did not understand that their rates would go up and instead were under the impression that they were on a fixed-rate mortgage. As a result, the article states, J.P. Morgan declined to offer to refinance the loan or allow for loan modifications to these minority borrowers. The city of Los Angeles contends that this triggered a series of foreclosures throughout LA and that decreased property tax revenue and increased city maintenance costs as a repercussion of the bank’s actions. It now wants to collect damages for the burden that the city endured as a result of predatory lending that took place between 2004 and 2011. The Los Angeles Times contends that some of the evidence against the bank is reportedly derived from its own employees.
City Attorney, Mike Feuer stated that the banking giant engaged in “a continuous pattern and practice of mortgage discrimination in Los Angeles since at least 2004 by imposing different terms or conditions on a discriminatory and legally prohibited basis”. The city revealed data stating that, “J.P Morgan loans made between 2004 and 2011 in predominantly black or Hispanic neighborhoods were 2.19 times more likely to go into foreclosure than loans made in mainly white neighborhoods” (The Los Angeles Times).
The city is making the allegations based on a significant spike in foreclosures in the city, and it still feels the aftermath of the height of the crisis. In April, 1 out of every 1,464 properties in LA were in foreclosure. In some zip codes, the same figure was as high as 1 in every 350 properties according to an article by Yahoo! Finance. In that same article, it was detailed that, “the five Los Angeles ZIP codes with the most foreclosures are overwhelmingly inhabited by minorities, mostly African-Americans, according the RealtyTrac foreclosure numbers and Movoto Real Estate demographic information”. The city maintains that the predatory lending activities resulted in 200,000 foreclosures between 2008 and 2012.