Atlanta – In the latest blunder for HSBC, three Atlanta-area counties have filed a lawsuit claiming that the British bank cost them hundreds of millions of dollars in extra expenses and damage to their tax bases by aggressively signing minorities to housing loans that were likely to fail.
The Georgia counties' failure or success could help determine whether other local governments try to hold big banks accountable for losses in tax revenue based on what they claim are discriminatory or predatory lending practices. Similar lawsuits resulted in settlements this year worth millions of dollars for communities in Maryland and Tennessee.
As in those cases, the lawsuit filed by the Georgia counties says the bank, in this case HSBC, targeted communities with high percentages of Fair Housing Act-protected minority residents, particularly blacks and Hispanics.
"Communities with high concentrations of such potential borrowers, and the potential borrowers themselves, were targeted because of the traditional lack of access to competitive credit choices in these communities and the resulting willingness of FHA protected minority borrowers to accept credit on uncompetitive rates," the lawsuit says.
The lawsuit says minority borrowers were disproportionately targeted with high-cost loans between 2004 and 2007.
Fulton, DeKalb and Cobb counties say in their lawsuit, which was filed in October, that the housing foreclosure crisis was the "foreseeable and inevitable result" of big banks, such as HSBC and its American subsidiaries, aggressively pushing irresponsible loans or loans that were destined to fail. The counties say that the crisis has caused them tremendous damage.
"It's not only the personal damage that was done to people in our communities," said DeKalb County Commissioner Jeff Rader. "That has a ripple effect on our tax digest and the demand for public services in these areas."
The city of Atlanta straddles Fulton and DeKalb counties, while Cobb County is northwest of the city.
The lawsuit says the banks violated the Fair Housing Act, which provides protections against housing or renting policies or practices, including lending, that discriminate on the basis race, color, national origin, religion, sex, family status or handicap.
The personal damage that was done to people in our communities...has a ripple effect
The counties say their tax digests — which represent the value of all property subject to tax — have declined from a high point in 2009. Fulton's tax digest has dropped about 12 percent, from $32.7 billion to $28.7 billion; DeKalb's has dropped about 20 percent, from $22 billion to $17.5 billion; and Cobb's has dropped about 15 percent, from $25.5 billion to $21.3 billion, the lawsuit says. That reduces their ability to provide critical services in their communities, the lawsuit says.
In addition to causing decreased tax income, vacant or abandoned homes that are in or near foreclosure create additional costs for the counties, the lawsuit says. Their housing code and legal departments have to investigate and respond to code violations, including having to board up, tear down or make structural repairs to unsafe homes. They have to deal with public health concerns, such as pest infestations, ruptured water pipes, accumulated garbage and unkempt yards. And fire and police departments have to respond to health and safety threats.
The lawsuit says predatory lending practices include: targeting vulnerable borrowers for mortgage loans with unfavorable terms; directing credit-worthy borrowers to more costly loans; putting unreasonable terms, excessive fees or pre-payment penalties into mortgage loans; basing loan values on inflated or fraudulent appraisals; and refinancing a loan without benefit to the borrower.
The counties are asking the court to order the bank to stop its behavior and to take steps to prevent similar predatory lending in the future. They are also seeking financial compensation for the damages they've suffered and punitive damages to punish the bank for its "willful, wanton and reckless conduct." The counties say the financial injury they've suffered is in the hundreds of millions of dollars.
Andrew Sandler, a lawyer for HSBC and its subsidiaries, said he couldn't comment on the case. A federal judge has given the bank until Jan. 25 to respond to the counties' complaint.
Lawyers for the counties declined interviews on the case, but one of them, Jeffrey Harris, said in an emailed statement that they are continuing to investigate other banks and could file additional complaints.
Before the beginning of the subprime lending boom in 2003, annual foreclosure rates in metro Atlanta averaged below 1 percent, but U.S. Department of Housing and Urban Development data show that the estimated foreclosure rates for each of the three counties now average more than 9 percent and are as high as 18 percent in the communities with the highest percentages of minority borrowers, the lawsuit says.
Based on reporting by The Associated Press.