Detroit — Few cities were hit harder by subprime lending than Detroit, but city leaders repeatedly opted against confronting the banks and other lenders over the blight associated with their lending practices.
Cities such as Cleveland and Memphis, Tennessee, sued lending institutions over predatory lending and subsequent blighted foreclosures, and Detroit's city attorney and deputy mayor considered doing the same in 2010.
The plan went nowhere. Then-Mayor Dave Bing said no proposal ever made it to his desk.
Today, he said he's convinced some lenders' loans and handling of foreclosed properties hurt neighborhoods in Detroit. But Bing said criticism of him for not doing more to hold them accountable is "Monday morning quarterbacking."
"There's no doubt in my mind if banks did what they were supposed to do we would not be in the situation we are," said Bing, whose one term in office ended Dec. 31, 2013. "They were the primary reason for blight in the city of Detroit."
Bing said there was only so much he could do: The city was teetering toward bankruptcy and his "focus was making sure we could meet payroll."
As part of an ongoing project into foreclosure, The News reported Thursday that 1 in 3 homes have gone into foreclosure in the city since 2005. And 56 percent of 65,000 properties that went through mortgage foreclosure since then are now blighted or abandoned. Demolishing them will cost taxpayers up to $195 million.
The blight was preceded by subprime lending — risky, high interest loans to residents — that was among the worst in the nation: 68 percent of loans to owner occupants in 2005 were high-cost loans, compared to 27 percent in Michigan and 24 percent nationwide, according to federal loan data.
Bing's former corporation counsel, Krystal Crittendon, said she helped draft a proposal with Deputy Mayor Saul Green to sue over predatory lending. They met with law firms from New York and Washington, D.C., who pitched filing lawsuits against some of the nation's biggest banks, including Wells Fargo and Bank of America.
At least one of the law firms had sued Wells Fargo on behalf of Baltimore, a case that eventually led to a national $175 million settlement with the U.S. Justice Department and included $7.5 million for Baltimore. The settlement did not include Detroit. Green said he got quotes from law firms but had yet to present the plan to Bing before he resigned in summer 2011.
As a lawyer, Crittendon said attorney-client privilege forbids her from discussing what happened to the plan. As a Detroiter, she said she's disappointed the city did nothing.
"I would have liked to have seen my city government go after the banks," she said. "Everyone should be held accountable, even the banks."
Cities and states nationwide had some success taking banks and other lenders to court over predatory lending and claims they violated the Fair Housing Act by not maintaining properties in minority neighborhoods.
A lawsuit filed by Memphis officials against Wells Fargo spurred a $132.5 million settlement that included $125 million in loans for low- and moderate-income buyers. Massachusetts secured $850 million in settlements against 17 banks and others related to the foreclosure crisis.
A Grand Rapids housing nonprofit received $1.42 million from a national settlement of $28 million with Wells Fargo through a federal housing discrimination complaint and has more pending against several banks.
Others lawsuits were dismissed by the courts in Cleveland and Miami. Cases brought by Los Angeles and Cook County, Illinois, are still active.
Cleveland's housing court aggressively fined corporate property owners who didn't show for blight hearings. And its land bank brokered deals with Fannie Mae and other lenders to assume ownership of rundown properties in exchange for demolition money. Since 2009, Cleveland's land bank took ownership of nearly 4,500 properties, most of which were demolished.
Fannie Mae offered to relinquish ownership of some of its properties to Detroit, but city officials turned it down.
Last year, under new Mayor Mike Duggan, a deal came to fruition. Fannie Mae is kicking in $15,000 per house it donates to the city's land bank.
Under Bing, Detroit's land bank concentrated on fixing homes, either owned by the city or donated by Bank of America. The News reported last year that officials spent as much as $537,000 per home renovating 30 houses, only to sell most for less than $100,000 apiece.
Henderson said Bing concentrated on using available federal money to demolish houses and rehab others to save viable neighborhoods. Over four years, about 9,000 homes were razed.
"We knew we needed to put the investment where we had strength," Henderson said.
Detroit was an epicenter of subprime lending: In 2005, eight of 20 U.S. census tracts with the highest rates of those loans were in the city, federal statistics show.
But the only money the city of Detroit has received from lawsuits came from nationwide actions, including $10 million for blight removal from a massive $26 billion settlement in 2012 that ended legal action brought by 49 states against Bank of America, Wells Fargo, JP Morgan Chase, Citigroup and Ally/GMAC over claims of fraud in foreclosure.
When asked why Michigan Attorney General Bill Schuette opted against pursuing legal action for lending in Detroit, his spokeswoman, Sydney E. Allen, issued a statement saying: "The housing crisis didn't affect only Michigan consumers, but consumers across the country."
"There is greater power in numbers, so states commonly fight together to more efficiently resolve these matters for consumers," the statement continued.
Jerome Goldberg, a longtime anti-foreclosure activist and attorney, said city and state leaders ignored pleas for 10 years to sue the lenders.
"They never took us seriously. Not once," said Goldberg. "We went to every city administration and urged them to go after banks. Deaf ears."
Steve Tobocman, a former Detroit state representative who served as co-director of the Michigan Foreclosure Task Force, said some of the reluctance stemmed from uncertainty whether suits would work.
But some of the reluctance came, he acknowledged, because bankers and other lending officials served on anti-foreclosure groups such as his. Now, it's clear the city and state missed an opportunity, Tobocman said.
"When so many (problem) properties were bank-owned, it's clear there are hundreds of millions in direct costs that someone has to pick up to rebuild the city of Detroit," Tobocman said. "These are public costs that are borne from public actions."
Steve Bancroft helped lead the city's anti-foreclosure efforts under Bing as executive director of the Detroit Office of Foreclosure Prevention and Response. The group was formed and funded by foundations and reported to the Detroit Economic Growth Corp.
Bancroft said taking a hard line against the lenders would have deterred investment in the city after the housing meltdown.
"If you act precipitously and go at them hard, you'll never see another mortgage in the city," Bancroft said.
Detroit didn't sue, but lending still dried up: Last year, the city had 2,800 new home loans, according to RealtyTrac, a California-based real estate data company.
Last year, unprompted by legal action, JP Morgan Chase announced it is giving Detroit $100 million over five years for housing demolition, job training, small business assistance and neighborhood redevelopment.
Timing also worked against Detroit.
The stock market crash that sparked the Great Recession began Sept. 15. 2008, when banking giant Lehman Brothers filed for bankruptcy. Three days later, former Mayor Kwame Kilpatrick resigned over the text-message scandal and eventually went to jail.
"Everything collapsed at once," said Karen Dumas, Bing's former spokeswoman.
Bing took office in May 2009, after Detroit City Council President Ken Cockrel served as interim mayor. The economy was still in a free-fall, locally and nationally: Two months later General Motors filed for bankruptcy. The city of Detroit followed suit in July 2013.
"We just had so many competing priorities," said Henderson. "We didn't have the staff."
"We were broke. ... We had to ask ourselves, 'Is this (suing the lenders) really something that Detroit wants to take on?' " Henderson said.