NEW YORK - Merrill Lynch & Co., Goldman Sachs Group Inc., and Bank of America Corp. were among 21 banks and mortgage companies sued by the city of Cleveland for their alleged roles in the city's deepening housing crisis.
The banks are accused of creating a public nuisance by funding and securitizing subprime mortgage loans for borrowers with weak credit that eventually led to a surge in foreclosures there, according to a state court complaint filed Thursday in Cleveland where foreclosures increased from 111 in 2002 to 7,583 in 2007, according to the lawsuit.
"Responsibility for Cleveland's plight rests principally with subprime's so-called 'securitizers' - investment banking firms from Wall Street and elsewhere that actually provided the cash used to make loans, regardless of the lender or broker nominally involved in the transactions," according to the complaint.
Cleveland is the second city to sue financial institutions over mortgage losses this week. On Tuesday, Baltimore Mayor Sheila Dixon sued Wells Fargo & Co. , the second-largest US mortgage lender, for making loans in black neighborhoods in which the bank allegedly knew borrowers could not afford the payments. The lenders shouldn't have increased loans to subprime borrowers starting in 2003 because Cleveland's struggling economy and limited employment meant housing prices were unlikely to rise, according to the complaint.
