Wells Fargo loan officers guided minorities toward high-rate mortgages and joked that they were “riding the stagecoach to hell” for routinely steering prime-loan-qualified customers toward subprime loans, according to sworn testimony by two former employees which has been filed in a federal court. The affidavits were offered as evidence in a lawsuit filed on behalf of the City of Baltimore last year. This lawsuit alleges that “tens of millions” of dollars in losses from racist, predatory lending, known as “reverse redlining” – the targeting of minority borrowers, regardless of credit history, for unfavorable subprime loans – took place. The City says the practice led to increased foreclosures, vacant properties and crime in black communities. City Solicitor George Nilson told the Baltimore Sun in an interview:
Our minority residents and homeowners, many of whom were first-time buyers, were led down a disastrous primrose path by Wells Fargo, one of the biggest lenders in the city of Baltimore. We’re trying to do what we can to get some kind of redress.
Lawyers for the City filed 20 exhibits with the court, including the employee affidavits, ten studies about reverse redlining, and statements from Baltimore residents about the problems of living near foreclosed-upon, vacant homes. There was a hearing on June 29th in the case before U.S. District Court Judge Benson E. Legg. The Judge was to rule on whether the case will go forward or be dismissed. We did not have his order at press time.
Former loan officer Tony Paschal said in his affidavit that Wells Fargo targeted black communities for bad loans by focusing on African-American churches, using black employees as its public face, and using software to translate marketing materials into various languages, including something called “African American.” He also said that other employees called subprime loans in predominantly minority neighborhoods “ghetto loans” and used racial slurs, including “mud people.” Paschal worked for the bank between 1997 and 2007 with a two-year hiatus beginning in 1999.
Another former bank employee, Elizabeth Jacobson, a top Wells Fargo subprime loan officer, outlined techniques in her affidavit that she and others used to turn prime borrowers into subprime borrowers, including talking them into borrowing the full amount even if they could actually afford a large down payment. 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. That flipped those loans from prime to subprime. It was also stated in the Jackson affidavit that loan officers cut and pasted credit reports from one applicant onto the application of another customer. These practices were said to have taken 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 lawsuit, filed in January of 2008, was among the first in a number of similar suits filed in states across the country, including Alabama, Texas, Tennessee and California. In the California case, earlier this year, a federal court judge allowed the National Association for the Advancement of Colored People to pursue its lawsuit against nearly two dozen mortgage lenders. Hopefully, the judge will allow the Baltimore case to go forward.
Source: Baltimore Sun
