of Discrimination by Neighborhood
By Mary Kane | 09.09.09 | 2:00 pm
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Just a year ago, the theory that poor and minority borrowers were to blame for the housing crisis took hold with a vengeance, and so did the belief that the government forced lenders to make subprime mortgages to meet affordable housing goals. The view took on greater prominence in the heat of a presidential campaign, and an obscure anti-redlining law known as the Community Reinvestment Act became a scapegoat for subprime lending and the collapse of the mortgage market.
Illustration by: Matt Mahurin
Things have changed quite a bit since then, as the spotlight has shifted to lenders and their behavior during the boom. States and cities continue to aggressively pursue subprime lending discrimination suits, and judges across the country are signaling a willingness to move forward with some cases. As the lawsuits wind their way through the court system, more details and allegations about the inner workings of the subprime world are emerging. And as startling as some of the charges already have been — a former loan officer for Wells Fargo testified in one affidavit that employees regularly referred to minority borrowers as “mud people” and called subprime mortgages “ghetto loans,” — there’s even more ahead, said David Berenbaum, executive vice president of the National Community Reinvestment Coalition.
“The ‘smoking guns’ are coming out,” Berenbaum said, referring to possible evidence that lenders targeted minority communities and borrowers for higher priced loans. “And I expect more and more of these smoking guns to become apparent.”
In the latest development, a Superior Court Judge in Los Angeles recently certified a 2005 lending discrimination lawsuit against Wells Fargo as a class action case. The suit contends that area managers at the bank refused access in some minority neighborhoods to a software program that allowed for discounted prices on mortgage loans. Barry Cappello, a partner with Cappello & Noel in Santa Barbara, which represents some 10,000 to 20,000 borrowers in the suit, said he believes it is the first subprime lending discrimination suit in California to be classified as a class action.
According to Cappello, Wells Fargo introduced a program in 2002 called “Loan Economics,” which gave loan officers the authority to offer discounts to loan applicants. The savings on lower fees and interest rates could be significant, ranging from $500 to as much as $10,000 per loan. The suit claims that the Los Angeles area Wells Fargo manager refused to allow loan officers operating in certain minority neighborhoods to offer the program. Borrowers in predominantly white neighborhoods were given access to the software.
Cappello said the suit stemmed from complaints by black and Hispanic loan officers for Wells Fargo, who said they asked to use the software in their branches but upper management refused.
Wells Fargo is fighting the suit and has denied all the charges. In a statement, the bank said, “We are disappointed in this ruling and intend to vigorously defend this matter as the case proceeds. The decision does not indicate the court believes the underlying allegations have any merit. We feel the allegations represent a complete mischaracterization of our long-standing commitment to responsible lending and the pricing practices and tools we use. The policies, systems and controls we have in place ensure race is not a factor in the pricing or products we offer.”
The case could go to trial in about a year, Cappello said.
More lawsuits are expected in the near future over the treatment of Hispanic borrowers in Arizona and Texas, who were offered high-cost loans they didn’t understand at misleadingly low teaser rates, then refinanced into even more expensive loans than their initial mortgages, Cappello said.
Wells Fargo, the nation’s largest home lender, also has been a target of lawsuits elsewhere. Last month, Illinois Attorney General Lisa Madigan sued the lender, alleging that blacks and Hispanics were sold high-cost subprime loans more frequently than white borrowers with similar incomes. The suit contended loan officers were offered incentives by the bank to steer borrowers into the more expensive loans, and that white borrowers generally received the lower-cost prime mortgages.
Some borrowers thought they were getting prime loans from Wells Fargo Home Mortgage, the suit also charged. But their loans actually came from Wells Fargo Financial, the bank’s subprime unit.
In Iowa, two watchdog groups charged this week that minority homeowners in Des Moines were three times more likely to receive high cost subprime loans from Wells Fargo than white homeowners.
In June, the New York Times reported on affidavits from a 2008 lawsuit by the city of Baltimore against Wells Fargo over subprime lending, which charged that the bank targeted blacks in Baltimore and suburban Maryland for high-interest subprime loans. Former loan officers testified in affidavits about using terms like “mud people” and “ghetto loans.” The bank also had an emerging markets unit that pinpointed black churches as fertile ground for selling subprime loans, according to the former officers. And in March, the NAACP filed suits in federal court in California against Wells Fargo and HSBC, alleging minority borrowers were more likely to be issued higher rate subprime loans than white borrowers with similar credit scores and qualifications. Both banks have strongly denied the charges. The NAACP also has pending litigation against nearly a dozen other banks and lenders over subprime lending discrimination.
Should the charges in the lawsuits be proven, it would amount to massive violations of the Fair Housing Act, the Equal Credit Opportunity Act, and other fair housing and lending laws, Berenbaum noted. Enforcing fair lending laws has been “an issue the government has failed to address over the past decade,” he said. Lenders could face criminal penalties from the government for violating fair housing laws, and they could be subject to punitive damages and fines from government lawsuits.
Big lenders like Wells Fargo and HSBC are obvious targets for suits because of their size and the amount of lending they did. In addition, many other lenders and originators of subprime loans have gone out of business, complicating efforts to address allegations of lending discrimination through lawsuits.
That leaves a major question regarding all the lending still unanswered, Berenbaum said: Where has the U.S. government been? The Federal Reserve reported in 2005 that an analysis of federal mortgage data found that blacks and Hispanics were more likely to receive higher interest rates on mortgage loans – and that it intended to examine the practices of 200 lenders as a result.
But nothing’s happened since that announcement, Berenbaum noted. Instead, as the years go on, and the government takes no action, allegations about price differences in mortgage loans based on the race of borrowers and their neighborhoods continue to grow.
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COLORRED39 1 month ago
IF SOMEONE CAN TELL HOW TO FILE AGAINST WELLS FARGO I WOULD DO JUST THAT THE NEXT DAY MY WIFE AND I LOST OUR CAREER'S DUE TO A BAD HEART AND MY WIFE WAS IN A BAD CAR ACCIDENT AND ALL WELLS FARGO WANTED TO DO WAS REPO OUR HOME AND THEY DID JUST THAT. PLEASE CONTACT ME AT COLORRED39@AOL.COM
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Aliceame 2 months ago
Count me in to the Class Action Lawsuit against Wells Fargo, ASC, and Bear and Sterns. They foreclosed on me and my son and made us move out within 2 days of each other so there was no place for us to go. Alice - aliceame@hotmail.com
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louis vuitton 4 months ago
Wells Fargo is not acting in Good Faith. They are not put the money out there to help borrowers who the conned into bad loan products.
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Blu Cig 1 month ago in reply to louis vuitton
You should start and write article Miss Louis
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KatherineRBrownton 5 months ago
For an overview of both Wells Fargo home mortgages and Chase mortgages to learn more about the services each offer, keep reading.
WELLS FARGO
Wells Fargo is one of the United States' most versatile mortgage lenders. They offer a range of refinancing wells fargo bank locations
products, mortgage programs, types of mortgages and arrangements for borrowers of all stripes and colors.
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Cutlem 8 months ago
Great Post! Thank You Very Much.
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notouch 9 months ago
This is news from Wells Fargo for me.Thank for sharing.
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mrnan 1 year ago
Thanks for sharing. This information is useful for me.
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hurtinghomeowner 1 year ago
Wells Fargo's troubles are far from over !
Visit -- HurtingHomeOwners com
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AustrianSchool 1 year ago
The only color banks see is green. They have no personell bias except to maximized profit like any other company for its shareholders like me in my 401K.
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Rick200 1 year ago
And it isn't just Wells Fargo, but UBOC.
What I can't understand is that we have laws on the books that are supposed to protect us from "predator" lenders as well as prosecute those in the banking industry who fail to follow those laws as well as police themselves.
Is it no wonder that we, the citizen tax payers, the citizen workers, the citizens of this nation can't trust government or business any longer. These two women deserve prison time, minimum 5 years for banking violations as well as giving false testimony to Congress. But are they going to get it? Hell, no, they won't even get fired, because no body has the balls to do the right thing!!! No body!!!
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mgreg 1 year ago
Where has the government been? It's been where the monied interests wanted the gov't - quiet.
After all the people loved Ronald Reagan and his policy statements saying "Get government off our backs," "Government is the problem," not the solution. So we've had business foxes going after the "ca ching" wringing money wherever they could.
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AustrianSchool 1 year ago in reply to mgreg
We should learn by now that these kinds of regulations do not work. Heck, fannie and freddie had their own designated regulator and it didn't keep them on track. Nope, the thing that controls them is competition.
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gannieca 1 year ago
the abuse doesn't stop.
Even now.. the WF loan officers make *much less commission* (which is their only pay) on the HARP loans that would help borrowers who's market class has declined to refiance. These loans take much more time, but Wells Fargo pays their loan offers less to do these loans. So many loan officers don't do them because it takes too much of their time.
One loan officer told me she used to try to help the borrowers who had "hardship" to see if the qualified for the HAMP loans, basically trying to get their loans modfied to a lower rate.. but that was taken away from them. Now the borrowers have to frustratingly call a 1-800 # where they are put on hold for hours... never get calls back.. and are usually dealing with temps or inexperienced loan offiers.
* Wells Fargo is not acting in Good Faith. They are not put the money out there to help borrowers who the conned into bad loan products.
Our legislatures need to start helping the people adn put a moritorum on these foreclosures and force the banks to renegotiate these unethical loans.
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Kermit Lind 1 year ago
Yep. And guess which neighborhoods get ruthless servicing by servicers who won't maintain property under their control and abandon their mortgage liens before, during and after foreclosures leaving toxic assets with toxic titles.
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monkey99 1 year ago
Just when you think racism is fading in America, out comes this. Racism is alive and well with those who will not or cannot make the necessary intellectual step in accepting that we all came from the same cradle of humanity.
All you racists out there.......I'm not going to tell you not to be racist, I'm not so stupid to think that what I say will register. No, just come out and say you are racist. C'mon, the rest of us know the truth. Why can't you just be truthful with us, as well as yourselves. Quit hiding behind Rush or Beck or Hannity or O'Reilly. Or are you all cowards, like we have thought of you, all this time?
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algorealgore 1 year ago in reply to monkey99
Not wanting to lend money in a neighborhood with burned out cars and abandoned homes doesn't make someone racist. The real cowards are those that pretend not to see what is all around them. They pretend that because someone's skin is light or dark they should receive special treatment. Guess what? We are all the same, regardless of skin color. If you don' t pay your bills, you get high rates. Black or white. You don't get a free pass just because your skin is darker.
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