PPF Pearls: What may Milwaukee have in common with Baltimore?

The City of Baltimore has filed a federal lawsuit against Wells Fargo bank, alleging that the bank pushed high-interest subprime mortgages on homebuyers, and deliberately did so more often to African-American borrowers than to whites.

Baltimore is seeking damages from Wells Fargo because more than half of the Baltimore homes on which Wells Fargo has foreclosed since 2005 are now vacant, with 71% in predominantly African-American neighborhoods. The city argues that the resulting hit to property values in those neighborhoods has affected the city's bottom line, both by decreasing property tax revenues and increasing demand for services.

Other cities around the country are watching Baltimore's suit quite closely, including, perhaps, Milwaukee. The Public Policy Forum's 2002 study of affordable housing in the Milwaukee region found a pattern of higher subprime loans to African-Americans than to whites. We found that in 1999, 41% of all mortgage loans to African-American homebuyers in the Milwaukee region were subprime, compared to just 8% of all loans to white homebuyers. This put us way ahead of the rest of the nation--the national subprime lending rate to African-American homebuyers that year was 19% (the white rate was 4%).

If Baltimore is successful in recovering damages from Wells Fargo, more cities will likely file more suits against this and other banks. What's the likelihood of Milwaukee being one of them?

If history is any guide, remember that Milwaukee was just the second government to seek damages from paint manufacturers due to the negative health impacts of lead paint on city children. On the other hand, while Rhode Island won that first suit against the paint manufacturers, Milwaukee ended up losing (after appealing all the way up to the state supreme court). The city might be reluctant to attempt another novel law suit.