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Wells Fargo, Citi Are Sued Over 'Discriminatory' Mortgage Practices (Update 1)

Stocks in this article: C WFC

Updated from 9:39 a.m. EST with Wells Fargo statement.

NEW YORK (TheStreet) -- Los Angeles City Attorney Mike Feuer is suing Citigroup (C) and Wells Fargo (WFC), alleging that the banks engaged in discriminatory mortgage lending practices that triggered a wave of foreclosures, hurting the city's tax revenue.

In complaints filed in U.S. federal court, the city alleged that Citi and Wells "... engaged in a continuous pattern and practice of mortgage discrimination in Los Angeles since at least 2004 by imposing different terms or conditions on a discriminatory and legally prohibited basis."

The city is seeking damages for lost tax revenue, the decrease in the value of homes in neighborhoods affected by foreclosures and the increased costs for city services due to foreclosures.

The complaint cited a report by the Alliance of Californians for Community Empowerment and the California Reinvestment Coalition which estimated that the mortgage crisis caused 200,000 foreclosures in Los Angeles and an estimated $78 billion decline in home values during 2008-2012.

The city is estimated to have lost about $481 million in property tax revenue over the period. The foreclosure crisis has also increased costs to local governments in terms of safety inspections, trash removal and maintenance. The report estimated the cost of the foreclosure crisis in Los Angeles at $1.2 billion.

Los Angelese alleged that the banks engaged in "red lining," the practice of denying credit to particular neighborhoods based on race, and "reverse red lining," the practice of targeting minority communities with predatory loans.

The suit cited confidential witness statements by former employees as part of its evidence.

"We believe this suit is without merit, and we are disappointed that the LA Attorney does not recognize our deep commitment to fair lending," Citigroup said in a statement. "Citi considers each applicant by the same objective criteria, which are blind to race, ethnicity, gender and any other prohibited basis. Using these objective criteria allows us to lend on terms that are consistent with the risk profile of each borrower and gives millions of qualifying consumers the opportunity to own a home."

Wells Fargo said it was disappointed by the lawsuit. "The accusations made by the City Attorney are baseless, do not in any way reflect our values as a company, and we will vigorously defend ourselves.  We will continue to focus on helping customers succeed financially and expanding homeownership in California and across the United States."

-- Written by Shanthi Bharatwaj in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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