Cleveland sues lenders over subprime
City says 21 banks and mortgage companies signed off on deals they knew they shouldn't have made.
CLEVELAND†(CNN) -- Likening their actions to those of organized crime syndicates, Cleveland's Mayor is suing 21 major banks and mortgage companies for the roles they played in the sub-prime mortgage crisis that devastated many neighborhoods in the city.
The suit, filed in Cuyahoga County Common Pleas Court, alleges that in pushing sub-prime mortgages in Cleveland, the companies created a public nuisance in violation of state law.
City officials hope to recover hundreds of millions of dollars in damages for lost property tax revenue, the cost of demolishing homes left abandoned and the cost of policing neighborhoods devastated by thousands of foreclosures.
Cleveland Mayor Frank Jackson said, "If you look at the end result of organized crime activity on neighborhoods, cities and individual lives, sucking equity out, you see the same thing here."
There were over 7,000 foreclosures in Cleveland in 2007 alone. Crime has skyrocketed in areas where boarded up houses are a common site. Many of those homes have been stripped of their aluminum siding and plumbing. Some blocks bear an eerie resemblance to New Orleans' Lower 9th Ward in the months following Hurricane Katrina.
The banks and mortgage companies being sued reads like a 'Who's Who' list on Wall Street. "They are the ones that fueled this operation and that's what placed us in this predicament," said Cleveland's Director of Law Robert Triozzi. "They are going to be held accountable. Mayor Jackson said the lenders signed off on deals that they knew should have never been made."
Triozzi said, "The model they used was completely inappropriate for a city like Cleveland but they didn't care."
The companies being sued are Deutsche Bank Trust, Ameriquest Mortgage, Bank of America (BAC, Fortune 500), Bear Stearns (BSC, Fortune 500), Citigroup (C, Fortune 500), Countrywide Financial (CFC, Fortune 500), Credit Suisse (USA), Fremont General, GMAC-RFC, Goldman Sachs (GS, Fortune 500), Greenwich Capital Markets, HSBC Holdings, Indymac Bancorp, J.P. Morgan Chase (JPM, Fortune 500), Lehman Brothers, Merrill Lynch, Morgan Stanley, Novastar Financial, Option One Mortgage, Washington Mutual and Wells Fargo.
In a statement, Citigroup said, ""We believe the allegations against us are without merit and plan to contest the suit vigorously."
A J.P. Morgan spokesman said, ""We share the city's concern over foreclosures, and we work with borrowers whenever possible to keep them in their homes."
Goldman, Lehman, Merrill, HSBC and Deutsche Bank Trust would not comment on the lawsuit.
None of the other companies named in the complaint could be reached for comment.