An unprecedented federal lawsuit filed Tuesday by the city of Baltimore accuses mortgage giant Wells Fargo of engaging in predatory and discriminating loan practices. City officials estimate they could recoup “tens of millions” in damages.

Homeowners may get up to $5,000 to avoid foreclosure if the city of Baltimore prevails in the lawsuit filed yesterday against Wells Fargo.

Among other things, the city charges Wells Fargo with making black borrowers pay higher fees and interest rates on home loans and refinances.

Wells Fargo was the largest provider of loans in Baltimore between 2004 and 2007 and demonstrated the worst kind of racial disparity in regards to rates and volume of foreclosures, according to the lawsuit.

In 2006, Wells Fargo issued loans with an interest rate that was at least three percent above the federal benchmark to 65 percent of its black customers and to 15 percent of its white customers. The numbers show a clear unbalance.

Wells Fargo refuses to comment on ongoing litigation, but denied any wrongdoing in a recent statement.

“We do not tolerate illegal discrimination against or unfair treatment of any consumer,” Mr. Waetke said. “Our loan pricing is based on credit risk. We are committed to serving all customers fairly–our continued growth depends on it.”

This is not the first time accusations of racial discrimination and predatory lending have been made against a mortgage lender. Ameriquest was accused of predatory lending and settled a $295 million lawsuit with 49 states and the District of Columbia in 2006. Ameriquest customers are still receiving restitution checks.

In July of last year, the National Association for the Advancement of Colored People (NAACP) filed a lawsuit alleging the home loan industry discriminated by steering black borrowers into high-cost loans.

The Baltimore lawsuit is the first attempt by a municipality to recoup losses resulting from foreclosures, according to city officials. Mayor Sheila Dixon estimates the city could win “tens of millions” of dollars that could be funneled into counseling, refinance programs and other outreach efforts.

“Wells Fargo could do a lot, as well as other banks that have engaged in similar practices, to help to curb the flood of foreclosures that the city is experiencing now,” Suzanne Sangree, chief solicitor for the Baltimore City Law Department, said Tuesday during a press conference.