[Debate] Bank Accused of Pushing Subprime Deals on Blacks

[tony roshan samara]

New York Times
June 7, 2009
Bank Accused of Pushing Subprime Deals on Blacks 
By MICHAEL POWELL
As
she describes it, Beth Jacobson and her fellow loan officers at Wells
Fargo Bank “rode the stagecoach from hell” for a decade, systematically
singling out blacks in Baltimore and suburban Maryland for
high-interest subprime mortgages. 
These loans, Baltimore officials
have claimed in a federal lawsuit against Wells Fargo, tipped hundreds
of homeowners into foreclosure and cost the city tens of millions of
dollars in taxes and city services. 
Wells Fargo, Ms. Jacobson said
in an interview, saw the black community as fertile ground for subprime
mortgages, as working-class blacks were hungry to be a part of the
nation’s home-owning mania. Loan officers, she said, pushed customers
who could have qualified for prime loans into subprime mortgages.
Another loan officer stated in an affidavit filed last week that
employees had referred to blacks as “mud people” and to subprime
lending as “ghetto loans.”
“We just went right after them,” said Ms.
Jacobson, who is white and said she was once the bank’s top-producing
subprime loan officer nationally. “Wells Fargo mortgage had an
emerging-markets unit that specifically targeted black churches,
because it figured church leaders had a lot of influence and could
convince congregants to take out subprime loans.”
Ms. Jacobson’s
account and that of the other loan officer who gave an affidavit, Tony
Paschal, both of whom have left Wells Fargo, provide the first detailed
accusations of deliberate racial steering into subprimes by one of the
nation’s top banks. 
The toll taken by such policies, Baltimore
officials argue, is terrible. Data released by the city as part of the
suit last week show that more than half the properties subject to
foreclosure on a Wells Fargo loan from 2005 to 2008 now stand vacant.
And 71 percent of those are in predominantly black neighborhoods.
Judge
Benson E. Legg of Federal District Court had asked the city to file the
additional paperwork and has not decided whether the lawsuit can go
forward. 
Wells Fargo officials have declined detailed interviews
since Baltimore filed suit in January 2008. In an e-mail statement on
Friday, a spokesman said that only 1 percent of the city’s 33,000
foreclosures have come on Wells Fargo mortgages. 
“We have worked
extremely hard to make homeownership possible for more African-American
borrowers,” wrote Kevin Waetke, a spokesman for Wells Fargo Home
Mortgage. “We absolutely do not tolerate team members treating our
customers or others disrespectfully or unfairly, or who violate our
ethics and lending practices.”
City and state officials across the
nation have investigated and sometimes sued Wells Fargo over its
practices. The Illinois attorney general has investigated whether Wells
Fargo Financial violated fair lending and civil rights laws by steering
black and Latino homeowners into high-interest loans. New York’s
attorney general, Andrew M. Cuomo, raised similar questions about the
lending practices of Wells Fargo, JPMorgan Chase and Citigroup, among
other banks.
The N.A.A.C.P. has filed a class-action lawsuit
charging systematic racial discrimination by more than a dozen banks,
including Wells Fargo. 
At the heart of such charges is reverse
redlining, specifically marketing the most expensive and onerous loan
products to black customers. 
The New York Times, in a recent
analysis of mortgage lending in New York City, found that black
households making more than $68,000 a year were nearly five times as
likely to hold high-interest subprime mortgages as whites of similar or
even lower incomes. (The disparity was greater for Wells Fargo
borrowers, as 2 percent of whites in that income group hold subprime
loans and 16.1 percent of blacks.)
“We’ve known that
African-Americans and Latinos are getting subprime loans while whites
of the same credit profile are getting the lower-cost loans,” said Eric
Halperin, director of the Washington office of the Center for
Responsible Lending. “The question has been why, and the gory details
of this complaint may provide an answer.” 
The affidavits of the
two loan officers seem to bolster Baltimore’s lawsuit. Mr. Paschal, who
is black and worked as a loan officer in Wells Fargo’s office in
Annandale, Va., from 1997 to 2007, offers a sort of primer on Wells
Fargo’s subprime marketing strategy by race.
In 2001, he states in
his affidavit, Wells Fargo created a unit in the mid-Atlantic region to
push expensive refinancing loans on black customers, particularly those
living in Baltimore, southeast Washington and Prince George’s County,
Md. 
“They referred to subprime loans made in minority communities
as ghetto loans and minority customers as ‘those people have bad
credit’, ‘those people don’t pay their bills’ and ‘mud people,’ ” Mr.
Paschal said in his affidavit.
He said a bank office in Silver
Spring, Md., had an “affinity group marketing” section, which hired
blacks to call on African-American churches. 
“The company put
‘bounties’ on minority borrowers,” Mr. Paschal said. “By this I mean
that loan officers received cash incentives to aggressively market
subprime loans in minority communities.”
Both loan officers said the
bank had given bonuses to loan officers who referred borrowers who
should have qualified for a prime loan to the subprime division. Ms.
Jacobson said that she made $700,000 one year and that the company flew
her and other subprime officers to resorts across the country. 
“I
used to joke that ‘I’ll pay for your kids to go to private school if
you give me clients,’ ” Ms. Jacobson said in the interview. 
Loan
officers employed other methods to steer clients into subprime loans,
according to the affidavits. Some officers told the underwriting
department that their clients, even those with good credit scores, had
not wanted to provide income documentation.
“By doing this, the loan
flipped from prime to subprime,” Ms. Jacobson said. “But there was no
need for that; many of these clients had W2 forms.”
Other times, she said, loan officers cut and pasted credit reports from one applicant onto the application of another customer. 
These
practices took a great toll on customers. For a homeowner taking out a
$165,000 mortgage, a difference of three percentage points in the loan
rate — a typical spread between conventional and subprime loans — adds
more than $100,000 in interest payments. 
The accusations contained
in the affidavits, which were given to Relman & Dane, a civil
rights law firm working with the City of Baltimore, have not drawn a
specific response from Wells Fargo. But city officials say the
conclusion is clear.
“They confirm our worst fears: that this is not
just a case based on a review of numbers and a statistical analysis,”
said the city solicitor, George Nilson. “You don’t have to scratch your
head and wonder if maybe this was just an accident. The behavior is
pretty explicit.”
Both sides expect to appear in court at a hearing in the case in late June.
Janet Roberts contributed reporting.

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