HSBC Holdings was accused of targeting minority borrowers in Chicago with high-cost mortgage loans as Cook County, Illinois, followed other local governments in trying to hold subprime lenders liable for urban blight.
Cook County, the largest county in the U.S. after Los Angeles County, seeks unspecified compensatory and punitive damages for its alleged costs to police and maintain deteriorating neighborhoods and from lost tax revenue on vacant properties, according to the complaint filed March 21 against HSBC North America.
The county's lawsuit against HSBC, Europe's largest bank, mirrors claims brought by Baltimore, Cleveland, and Memphis, Tennessee, targeting banks under the Fair Housing Act for making loans to minority borrowers who didn't qualify for them, or for giving high-interest subprime mortgages to minority borrowers who could have qualified for prime loans.
"It was defendants' actions, and the actions of certain other subprime mortgage industry participants, that instigated the U.S. financial crisis, precipitating the economic decline and higher unemployment rates," Cook County said in the complaint. "That in turn further exacerbated the foreclosure crisis initially caused by the predatory subprime lending itself."
HSBC Mortgage Services, which used "bulk underwriters" to buy subprime loans from third-party originators, approved loans for borrowers who were gardeners or worked for McDonald's and reported $90,000 in annual income, according to the complaint.
If the bulk underwriters didn't think the stated income was accurate, they were told to approve the loan anyway, in line with HSBC's "liberal" guidelines, according to the complaint.
Rob Sherman, a spokesman in New York for London-based HSBC, declined to comment on the lawsuit.
Deutsche Bank AG last year settled a lawsuit by Los Angeles alleging the bank had become the city's biggest slumlord because, as trustee for mortgage-backed securities, it had acquired title to thousands of foreclosed properties. The bank said in June that servicers and securitization trusts would pay the $10 million settlement.
Los Angeles City Attorney Mike Feuer in December filed new lawsuits against Citigroup, Wells Fargo and Bank of America, seeking to hold them liable for the high rate of foreclosures in the city's minority neighborhoods after the collapse of U.S. housing market. Those banks have said the city's claims have no merit.
"HSBC Plc entered the U.S. subprime mortgage market in 2003 with the acquisition of Household and by 2006 had become the largest subprime lender and the second-largest subprime loan servicer in the United States," Cook County said in its complaint in federal court in Chicago, referring to HSBC acquiring Household International Inc. in 2003.
Cook County, including Chicago, had a population of more than 5.2 million residents in 2012, according to the U.S. Census Bureau.
The case is County of Cook v. HSBC North America Holdings Inc., 14-2031, U.S. District Court, Northern District of Illinois (Chicago).