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A federal judge on Thursday denied Wells Fargo's motion to dismiss a lawsuit filed by Baltimore over what city officials said were racially discriminatory lending practices that led to a wave of foreclosures that cost the city millions.

The courtroom victory means the city, whose lawsuit is being closely watched by other municipalities, could gain access to the inner workings of one of the largest mortgage providers in the region.

U.S. District Judge Benson E. Legg wrote in a memo Thursday that the city had produced enough evidence to continue its claim and is entitled to discovery.

In the wave of lawsuits filed after the housing market began to tumble last year, the Baltimore case stands out because the city says it - not just the borrowers - suffered damages. It appears to be the only such case in the country, now that a Cleveland lawsuit with similar themes was tossed out this spring by a state judge who thought it was too broad.

Mayor Sheila Dixon said she is pleased with the ruling and hopes the case can make it to trial.

"We've been out front on this issue," she said. "We've seen the impact on families and communities."

She said she discussed the suit, filed in January last year, at the U.S. Conference of Mayors and that urban leaders across the country are watching to see what happens.

Wells Fargo played down the importance of the ruling in a statement released late Thursday, saying it "simply means additional information will be gathered."

"We continue to believe that this lawsuit lacks merit," said Cara Heiden, co-president of Wells Fargo Home Mortgage. "We welcome the opportunity to set the record straight and demonstrate the many controls we have in place to ensure fair, responsible and nondiscriminatory lending for all our customers."

Lawyers for Baltimore say the city has been hurt by Wells Fargo foreclosures because many of those houses now stand vacant, eroding the property tax base and costing money in public services such as sanitation. They said more than half of the 379 properties subject to a Wells Fargo foreclosure between 2005 and 2008 resulted in vacancies, and 71 percent of those vacancies were in mostly black neighborhoods. The city wants to extend the lawsuit back to 2000.

In an all-day "test run" of the case Monday, lawyers for Wells Fargo argued that it will be impossible for the city to assess damages specific to vacant houses that once were purchased with Wells Fargo loans. They said a fraction of 1 percent of the city's 33,000 foreclosures in recent years involved Wells Fargo, and that the city itself is responsible for 9,000 vacancies.

But Legg wrote that the depositions of two former Wells Fargo employees provide "sufficient proof to proceed with its claim for disparate treatment discrimination under the Fair Housing Act."

Those affidavits, of Elizabeth Jacobson and Tony Paschal, said they witnessed the company "steer" black borrowers into higher-interest subprime loans, termed "ghetto loans" by other employees, even when they qualified for traditional, cheaper loans.

City lawyers allege that in 2006, Wells Fargo made subprime loans to 65 percent of its black customers and 15 percent of its white customers.

A spokesman for Wells Fargo said that financial risk alone, not race, determined the kind of loans available to borrowers. And a lawyer for Wells Fargo called Jacobson and Paschal "disgruntled former employees" pursuing their own litigation against the company.

Legg asked the lawyers to submit their plans for how discovery should proceed by July 13; he'll have a hearing July 20. The judge urged the city to limit the amount of information it is seeking.

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