The City of Los Angeles has sued JPMorgan Chase, accusing the largest U.S. bank of engaging in discriminatory mortgage lending practices that drove up foreclosures among minority borrowers.
The lawsuit on Friday is part of the second most populous U.S. city's effort to hold mortgage lenders liable for lost property tax revenue caused by falling home values, and the cost to maintain vacant foreclosed properties.
"LA continues to suffer from the foreclosure crisis—from blight in our neighborhoods to diminished revenue for basic city services," City Attorney Mike Feuer said in a statement. "We're fighting to hold those we allege are responsible to account."
The complaint filed in Los Angeles federal court accused JPMorgan of engaging in a "continuous pattern and practice of mortgage discrimination" in the city since 2004.
It said the New York-based bank's practices included redlining, where minority borrowers are denied credit on the same terms as other borrowers, and reverse redlining, where borrowers in minority neighborhoods are flooded with subprime loans they cannot afford despite qualifying for better terms.
"We are disappointed the L.A. City Attorney is pursuing an adversarial approach to address city finances impacted by the recent economic downturn," JPMorgan spokesman Jason Lobo said in a statement, in which the bank pledged to defend against the lawsuit. "The downturn was beyond our control."
Los Angeles said JPMorgan loans made from 2004 to 2011 in predominantly black or Latino neighborhoods were 2.19 times more likely to go into foreclosure than loans in mainly white neighborhoods. It also said loans to minority borrowers went into foreclosure faster.
Part of the case was based on confidential statements from former JPMorgan employees.
One, a former mortgage loan officer, accused the bank of refusing to help struggling borrowers, and instead often "just waiting for the sheriff to come around" and foreclose.
There were about 200,000 foreclosures in Los Angeles from 2008 to 2012, causing the loss of $78.8 billion in home values, the complaint said.
Last June, Deutsche Bank settled a lawsuit in which Los Angeles accused it of letting hundreds of foreclosed properties deteriorate into slum conditions.