Cleveland Sues the Mortgage Industry

The City of Cleveland recently filed a lawsuit against twenty-one large investment banks and mortgage companies for creating what it calls a public nuisance, alleging they were responsible for the thousands and thousands of mortgage foreclosures filed within their city last year. Cleveland says the suit is to reclaim lost tax monies due to boarded up, run down, and abandoned homes, which has also increased crime in the area, they say, too.

They are blaming these large investment banks and mortgage companies for the high rate of foreclosures, saying the combination of relaxed lending standards, high interest rates, and aggressive lending practices led to the demise of many Cleveland homeowners.

The City says the mortgage lenders made money by making the loans. The investment bankers made money by buying these "bad" loans, pooling them together, and selling these pools to investors as securitized investment vehicles. Ultimately, the investors, the homeowners, and Cleveland were the only ones "holding the bag" per se.

The lawsuit is one of the first of its kind, but the overall concept appears to be always the same: when things go wrong, who should take the blame? Typically, those with the deepest pockets or those who made money from the situation (or both) are the first targets of lawsuits.

The issue of blame, however, may be bigger and wider spread than those who made a few bucks.
For example, could our school systems share some of the blame for not teaching the credit savvy that it takes to survive in today's society? There are so many more ways to get yourself into trouble financially these days, as compared to years past, and are the schools keeping up with these changes?

Is it the auto dealers, the electronics retailers, and home improvements stores fault for allowing these individuals credit to buy things now and pay later? After all, it wasn't just a mortgage payment that sunk these people, but a myriad of other outgoing payments and obligations.
Could it be the homeowners, who signed the mortgages and received the money? Many would put the blame there for making poor decisions or not paying attention to the details of these transactions.

These are all interesting questions, and the "blame game" could no doubt be extended into eternity, naming anyone and everyone that was even remotely involved. The case, however, has the potential to set new precedents, so stay tuned for the ultimate outcome.