Opinion ID: 4558819
Heading Depth: 3
Heading Rank: 2

Heading: Wells Fargo’s predatory home loans to Black and

Text: Latino borrowers cause foreclosures. A second set of regression analyses using the same data shows that Black and Latino borrowers who receive predatory home loans from Wells Fargo are far more likely to have their homes foreclosed on than White borrowers who receive non-predatory loans. Taking into account a borrower’s race and objective risk characteristics 10 such as 8 Oakland defines “minority neighborhoods” as neighborhoods with at least fifty percent Black or Latino households. Conversely, Oakland defines “non-minority neighborhoods” as neighborhoods with at least fifty percent White households. 9 According to the amended complaint, the probability that these discrepancies are random or coincidental is less than one percent. 10 The other “objective risk” variables that the regression analysis accounts for include whether the loan had predatory terms, the borrower’s credit score, the lien type (first or subordinate lien), the property type (single-family home, condo, coop, multifamily home, manufactured home, etc.), the loan purpose (purchase, cash-out refinance, rate-term refinance, etc.), the loan-to-value ratio, the combined loan-to-value ratio, the ratio of monthly loan payments to monthly income, the occupancy type (owner-occupied, second home, investment property), the month of loan origination, whether the loan became part of an agency or non-agency securitization, whether the loan was a conventional or an FHA/VA loan, whether the loan had an adjustable rate, and the property’s neighborhood characteristics such as 12 CITY OF OAKLAND V. WELLS FARGO & CO. credit history, loan-to-value ratio, and loan-to-income ratio, the results demonstrate that predatory home loans—which are disproportionately given to Black and Latino borrowers—are 1.753 times more likely to result in foreclosure. These studies also show that a Black Wells Fargo borrower who receives a predatory home loan is 2.573 times more likely to have their loan foreclosed than a White borrower who receives a non-predatory loan. Similarly, a Latino Wells Fargo borrower who receives a predatory home loan is 3.312 times more likely to have their home foreclosed than a White borrower who receives a non-predatory loan. In fact, 14.1 percent of Wells Fargo home loans issued in Oakland’s minority neighborhoods resulted in foreclosure, as compared to only 3.3 percent of Wells Fargo home loans in non-minority neighborhoods. These discrepancies in foreclosure rates are also statistically significant. C. Foreclosures decrease property-tax revenues. A third set of regression analyses, which use a technique known as “Hedonic regression,” 11 establishes that foreclosures caused by Wells Fargo’s predatory loans reduce the value of both foreclosed properties and other properties nearby. Using routinely maintained property tax and other data, Oakland’s statistical model isolates the lost property value attributable to Wells Fargo foreclosures and vacancies the ratio of median income in the borrower’s neighborhood to the median income in the metropolitan area, the share of homes in the neighborhood that are owner-occupied, and the median year in which homes in the neighborhood were built. 11 Oakland explains that “Hedonic regression” is a technique that isolates the factors that contribute to the value of a property by studying thousands of transactions. Hedonic analysis determines the contribution of each of these factors to the value of a home. CITY OF OAKLAND V. WELLS FARGO & CO. 13 caused by discriminatory lending from losses attributable to other causes. 12 The Hedonic regression analysis also allows Oakland to calculate the impact on a given neighborhood’s property values of the first foreclosure caused by a Wells Fargo predatory loan, the average impact of subsequent foreclosures, and the impact of the last foreclosure of this kind. This loss can be isolated from any losses attributable to non-Wells Fargo foreclosures or other causes. Therefore, according to Oakland, the Hedonic regression analysis precisely calculates the loss in property values in Oakland’s minority neighborhoods that is attributable to foreclosures caused by Wells Fargo’s predatory loans, which in turn can be used to calculate the City’s corresponding loss in property-tax revenues. 13 In sum, with the support of several regression analyses, Oakland alleges that Wells Fargo’s discriminatory lending practices cause foreclosures that directly result in lower property values and attendant lower property tax revenues for the City. 12 Other causes that might contribute to a home’s value include, among other things, the size of the home, the number of bedrooms and bathrooms in the home, the relative safety of the neighborhood, and whether neighborhood properties are well maintained. 13 The amended complaint cites to several academic studies that have successfully used Hedonic regression analyses to precisely calculate the loss of property value caused by predatory-loan-related foreclosures in Philadelphia and Los Angeles. See Anne B. Shlay & Gordon Whitman, Research for Democracy: Linking Community Organizing and Research to Leverage Blight Policy, 5 City & Cmty. 105, 173 (2006); All. of Cals. for Cmty. Empowerment & Cal. Reinvestment Coal., The Wall Street Wrecking Ball: What Foreclosures Are Costing Los Angeles Neighborhoods 3 (2011). 14 CITY OF OAKLAND V. WELLS FARGO & CO. D. Foreclosures increased Oakland’s municipal expenses and reduced spending in fair housing programs. Oakland also alleges, without any regression analyses or other statistical support, that foreclosures caused by Wells Fargo’s discriminatory lending practices increase municipal expenses because foreclosed properties require additional services such as police forces, firefighting, and safety code enforcement. According to Oakland, this increase in municipal expenses requires the City to divert resources that were otherwise intended for fair-housing programs designed to expand access to housing opportunities for Black and Latino residents. E. Procedural history. Oakland sued Wells Fargo under the FHA to recover damages in the form of lost property tax revenues and increased municipal expenses and to enjoin Wells Fargo from continuing to issue predatory home loans to Black and Latino borrowers. Wells Fargo moved to dismiss the original complaint, and the district court granted the motion only as to Oakland’s unjust enrichment claim. Shortly thereafter, the Supreme Court granted a writ of certiorari in Miami I, which raised key standing and proximate causation questions directly relevant to this case. 137 S. Ct. at 1306. The district court subsequently stayed its proceedings until that case was decided. On May 1, 2017, the Supreme Court decided Miami I, prompting the district court to instruct Oakland to amend its complaint consistent with the Supreme Court’s decision in that case. CITY OF OAKLAND V. WELLS FARGO & CO. 15 Wells Fargo again moved to dismiss the amended complaint, challenging Oakland’s ability to demonstrate proximate cause under the FHA for its alleged injuries using regression analyses. 14 The district court granted Wells Fargo’s motion to dismiss as to Oakland’s claims that it suffered increased municipal expenses. However, the district court denied Wells Fargo’s motion to dismiss as to Oakland’s claims that it suffered reduced property-tax revenues, and for declaratory and injunctive relief. Wells Fargo then asked the district court to certify its order for interlocutory appeal pursuant to 28 U.S.C. § 1292(b). The district court granted Wells Fargo’s request, certifying two questions: (1) whether Oakland’s claims for damages based on the injuries asserted in the first amended complaint satisfy proximate cause required by the FHA on a motion to dismiss; and (2) whether the proximate-cause requirement articulated in Miami I is limited to claims for damages under the FHA and not to claims for injunctive or declaratory relief.