Los Angeles Says Bank of America Pushed Minorities Into Risky Mortgages

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Los Angeles City Attorney Mike Feuer was on a roll last week. Last Thursday, Feuer filed lawsuits against Citigroup (NYSE: C  ) and Wells Fargo  (NYSE: WFC  ) , alleging discrimination against minority borrowers during the pre-crisis mortgage boom.

The next day, he added Bank of America  (NYSE: BAC  ) to the list of miscreant banks, charging the big bank with similar distasteful lending practices as Citi and Wells: steering unwitting Hispanic and African American borrowers into pricey, subprime mortgages that they could not afford.

An ugly charge dating back to pre-recession days
The charges stem from lending behavior as far back as 2004 and, according to the suit, continues to this day. The city cites testimony of former bank employees to showcase dodgy business practices designed to entice minority borrowers into the subprime market.

One confidential witness, as the suit calls the former employees, noted that loan officers at Wells Fargo were paid bonuses for originating subprime mortgages, an incentive system that produced marketing strategies like targeting minority churches to drum up business. Notably, the same strategy was not employed at predominately white churches, and one CW said that the word "church" was known to be code for "African-American."

For Citigroup, the suit presents some sobering statistics: For the years 2004 through 2011, over 41% of loans made to Hispanic and African-American borrowers were high-cost, compared to 14.5% of loans obtained by white borrowers. Again, a CW noted the extreme pressure on workers to procure subprime mortgages, with threats of termination lobbed at employees who didn't produce.

Much of Bank of America's predatory loans were created by Countrywide between the years 2004 and 2008, but the suit alleges that the nasty lending practices extended beyond Countrywide's acquisition by B of A. During that time frame, the city estimates that over 100,000 minority customers were steered into costly subprime loans, regardless of their ability to repay such loans. Since 2008, the suit claims that Bank of America changed their lending strategy to produce more higher-cost home equity lines of credit loans -- again, aimed at minority groups.

A history of predatory lending?
Both Wells Fargo and Bank of America have been nabbed for this type of behavior before. Wells settled a similar suit in 2007, putting up approximately $4.4 million to put an end to a class action suit alleging subprime lending in California. Last year, Wells settled two other discriminatory lending suits -- agreeing to new lending goals of over $400 million to the residents of Tennessee, and spending $175 million in a settlement in July for charges stemming from lending abuses in several U.S. cities.

Bank of America has been down this road previously, as well. At the end of 2011, the bank agreed to pay a record $335 million in a settlement with the Department of Justice, putting to rest claims of fair-lending law abuses against African-American and Hispanic borrowers. And, of course, who can forget the more recent charges tied to the bank's dicey mortgage refinance business, where former employees testified that bonuses and other perks were commonly bestowed upon bank employees who made an extra effort to foreclose on hapless customers – even if it included outright lying?

Los Angeles is seeking unspecified damages, based upon losses to the city of more than $480 million in property taxes due to foreclosures and loss of home values, as well as another $1.2 billion in extra city services made necessary by the crisis. Considering the track record of these banks, investors can expect more massive payouts to settle this new set of charges linked to the damage done by the financial crisis.

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