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The city of Cleveland is suing 21 national and international financial institutions over the subprime lending and foreclosure crisis. Cleveland has one of the highest foreclosure rates in the nation, with thousands of abandoned homes. The city's mayor now wants the courts to force banks and mortgage lenders to help clean up the mess.
From WCPN in Cleveland, Mhari Saito reports.
MHARI SAITO: For more than 20 years, Tony Brancatelli has been working to bring development into his working-class Cleveland neighborhood, Slavic Village. He used to love driving through the area's new developments of 200 homes complete with green space for trails and parks. But these days, Brancatelli spends most of his free time checking up on the more than 1,000 abandoned homes here. He pulls up in front of a wooden frame that was once a house.
Mr. TONY BRANCATELLI (Councilman, Cleveland City Council): You can't get any more stripped than 3443 East 53rd. They pulled the wiring out of the house, they pulled the fixtures off the walls, and they pulled every piece of metal that can be salvaged is now in a scrap yard.
SAITO: Once scavenged like this, Brancatelli says, there is little left for these homes but the wrecking ball. Cleveland Mayor Frank Jackson blames financial institutions that provided thousands of subprime loans to risky borrowers. He goes so far as to compare subprime lenders to drug dealers.
Mayor FRANK JACKSON (Cleveland, Ohio): The money was just too good. It - the consequences of what they were doing, the impact that it had on other people became irrelevant to them.
SAITO: So today, Cleveland announced a lawsuit against companies such as Deutsche Bank and Bear Stearns. The city's law director, Bob Triozzi, says investment banks financed thousands of high-risk loans in Cleveland between 2002 and 2006 even though the rust belt city was in bad fiscal shape.
Mr. BOB TRIOZZI (Law Director, Cleveland): Given the economic conditions that existed here, given the investment vehicle which they were foisting upon the market, there was no other result in the foreclosures that we've incurred here. And that is why you see, over the last couple years, this enormous spike in the foreclosures in our community.
SAITO: Some experts say borrowers looking to blame the subprime industry for their woes should look in the mirror as they took advantage of easy money. The city is using a legal strategy most recently tried in lead paint class action suits. That complaint says lenders violated public nuisance laws by selling loans they could have known would go bad and damage property tax revenue and home prices.
Mr. ERIC TALLEY (Co-director, Berkeley Center for Law, Business and the Economy): I would describe it as creative. And that may be a necessary condition also for being a long shot.
SAITO: Eric Talley is co-director of the Berkeley Center of Law, Business and the Economy.
Mr. TALLEY: Courts that have had taken a rather dim view on the public nuisance sort of approach have done so with the view that this may not be the best area for courts to be making policy. Maybe this is a better area for legislators or the executive branch to be making policy decisions about how to allocate the losses due to foreclosure.
SAITO: Cleveland is the second city this week to file a lawsuit against the subprime lending industry. Baltimore filed in federal court, alleging that lender Wells Fargo unfairly targeted African-Americans for high-cost loans.
John Taylor is the president of the National Community Reinvestment Coalition.
Mr. JOHN TAYLOR (President, National Community Reinvestment Coalition): There's very much interest in these efforts to see if that might be part of the solution to forestalling a lot of the foreclosures.
SAITO: Some of the largest financial institutions named in the suit declined to comment for this story today. Nearly all of them have lost billions of dollars because of the meltdown in the subprime markets.
Mayor Frank Jackson says that's just not his problem.
Mayor JACKSON: I look at the people whose lives have been ruined, look at neighborhoods that have been destroyed and quality of life that's been just extinguished in neighborhoods. So you know, that's their problem, not ours. They did it, they owe.
SAITO: Jackson says Cleveland will sue for hundreds of millions of dollars. Asked if he really thought the city's small team of lawyers could seriously take on the legal talent of Wall Street's investment banks, Jackson says, we're in this to win.
For NPR News, I'm Mhari Saito in Cleveland.
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