Loan Officers Detail Wells Fargo's Blatantly Racist Subprime Loans
UPDATE: Read the affidavits here.
Meet Beth Jacobsen and Tony Paschal, two of Wells Fargo's top subprime loan officers, who recently gave affidavits detailing the bank efforts to needlessly steer minority Baltimore families into subprime loans. The banks shady dealings include setting up a special unit to target "mud people" with outrageously expensive "ghetto loans;" targeting black churches leaders because they "had a lot of influence and could convince congregants to take out subprime loans;" and offering cash bounties to loan officers who issued subprime loans to minority communities. And it gets so much worse...
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.
[...]
"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."
The affidavits come as part of a pending federal lawsuit from the NAACP, which has filed class action suits against over a dozen banks for racist lending practices.
Bank Accused of Pushing Subprime Deals on Blacks [The New York Times]
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Comments:
Disgusting. We bail out these banks... why? Not only did they get into this mess by lending more subprimes than they should have done, they actually *pushed* good consumers into it? What the hell were they thinking?
I think this is reprehensible and I think these people should burn in hell.
Now, I'm just curious, why would some of their clients not want to provide income documentation? I don't understand that.
@Jessica Haas: I think the implication is not that they REALLY didn't want to provide income documentation, but that the loan officers committed fraud and told the underwriters that the clients didn't want to provide income documentation so that they could steer them into a higher-cost, subprime loan and net a bigger commission. Even when the clients could have provided the documentation.
Honestly, I worked in the mortgage industry for many a years; but don't feel tricked into thinking that this was only happening to "Black" or African American's. It was intended to get a loan done no matter what color or race they were. I think it's really wrong to continue to say mortgage lenders were targeting only this specific race.
Everyone was a target, greed is color blind.
Wowsers.
I'm conflicted. I thought we were living in post-racial America now that we have a black president. I'm not sure what to believe anymore.
Seriously, though, this is another sad example of old habits dying hard. As a Ravens fan, I'm calling for a Ray Lewis back tackle for all responsible parties.
@dukegreene: In some ways, we are. While the article focuses on minorities, poor whites where JUST as targeted.
Basically anyone with a poor understanding about what was going on was a mark to these banks. Its a perfect scam too! Just go watch any conservative commentator and how they BLAME these people for getting involved with mortgages they couldn't pay, disregarding completely the overwhelming evidence showing these people DIDNT KNOW what was going on.
The US loves to criminalize its poor as useless drains on our nation. This is just another example of how we chew them up and ruin their lives for the upper classes benefit.
Didn't we learn anything the last time we talked about racism on the weekend? Any bets on how many comments get disemvoweled written by people who don't understand what racism is?
Poor whites were targeted but the point of this suit and other complaints like it is that minority applicants were steered towards subprime loans even if they would have qualified for other loans.
The complaints have been that upper middle class and middle calls minorities applying for loans were regularly given sub prime loans while white applicants with the nearly identical job histories and economic situations were not automatically given sub prime loans but given better loans.
Wow ... you stay classy, Wells Fargo.
Maybe their stagecoach has confused them into thinking it's still 1850. Totally inexcusable.
And people ask why I want to move out of Maryland...This stuff starts at the top; Wells Fargo upper management should be fired no questions or excuses.
I personally recommend the FHA and USDA/FHA (if you're buying in a rural area) for all first time buyers. I bought my house using an FHA loan through the USDA (the USDA offers 0 down mortgages to people buying houses in rural areas) and I've been very happy with it.
It would be nice if a non-profit would contact the black churches and offer to do financial education seminars. Since the pastors have so much influence I'm sure a lot of people would show up to one. Might cut down on the predatory lending industry.
Taking bets on the NAACP misintreperting facts, sensationalizing and spinning the story to their benefit.
@Munchie: That would seem unlikely as two sworn affidavits detail racism at Wells Fargo. Can I take bets on whether you read the story beyond the word NAACP?
@Jessica Haas: What johnva said. However, if you were asking why such a claim would even be plausible, I'd guess that people trying to minimize child support and tax burdens (or legal consequences for illicit income, of course) might wish to avoid committing to a statement about what their income was. Why a bank would pander to such a customer anyway is a question I have no guess for.
@Chris W James: While I am sure there may be many reasons to move out of Maryland (taxes, high cost of living, I-695), The Wells Fargo Corporate offices are located in San Francisco.
Let's not even get started on California's problems.
@Megan Squier: It works sometimes especially if you credit score is low. However with the rate and mortgage insurance fee it is often better to go with a normal loan is your FICO is high enough.
@Munchie:
As a middle-aged white male, let me be the first to call you a f.... idiot. What is there to spin other than your vitriol?
@floraposte: There's a few answers to why a bank would pander , Flora. One reason was pure and simple short term greed to drive their value up as sub prime loans were more profitable to the bank if the loan was paid off. Another was the assumption that home prices would keep going up so if they were foreclosed on, the bank got a house that is now worth a lot more money. Basically, stupid/evil/scummy banks saw subprime lending as win-win.
And as for no-doc loans, it was an open 'secret' in the industry that the reason they never got income documentation was to allow the lenders to fudge numbers in their favor, including giving loans to people they knew would be foreclosed upon in a few years.
Isn't free market capitalism with little government regulation awesome?
@Jessica Haas: the biggest reason people don't want to verify income is b/c they are self-employed. unfortunately, the same rules that many business owners follow to minimize their tax liability makes proving their ability to pay a mortgage quite difficult.
@Munchie: Unless the NAACP claims bankers were shooting black people on sight, I don't see how that would be possible.
@Munchie: Sure, I'll take that bet against you. Putting anything down other than cry-more-newb reactionary racism?
@Munchie: Apparently they don't have to. The affidavits, if even 50% correct (and I'm guessing they are 100% correct) are about as damning as anyone with a shred of decency would want. This is not a civil issue. This is a criminal matter and the Wells Fargo executives who participated in this deserve to do their perp walks live on Fox News. This is just plain disgusting. And yes, I live in Maryland.
I'm not sure if the link works but here's the take on the story from the Baltimore Sun.
@Jessica Haas: I agree. Whenever I hear stories like this it tends to make me believe in a god because people like this need a hell to be burned in.
I've said on here, many times, that those who had subprime loans got what was coming, it was social darwinism, that they shouldn't have tried living beyond their means, etc etc.
I will now humbly eat crow, and take most of that back. It wasn't as if people went and got themselves into these messes thinking that the potential downfall would never happend.... they were lied to, plain and simple. Even worse, they were actually talked out of sensible decisions that they wanted to make, and into crappy ones.
On that note, check out the devil in the O!
@alilz: Nail on the head. When we stop lumping "x happened to minority group" in with "x happened to poor people," we can set about figuring out why the former is disproportionately likely to be among the latter.
@Munchie: I bet they'll claim that Wells Fargo targeted black people for subprime loans. I mean, where did the NCAAP get that crazy idea?
Oh yeah. Affidavits from the loan officers themselves.
@alilz: Same with immigrant/non-English speaking groups, who are not only not sophisticated in US lending practices (hell, I wasn't sophisticated in US lending practices when I bought my house, and I'm a lawyer) but also could not read any of the loan documentation.
It's really shameful what the loan industry did to so many people - and once a home is in foreclosure, the lender paints the borrower as a "deadbeat" who is trying to "steal" from them. Shameful.
@frank64: I have good credit, just not a lot because I'm only 23 but I was able to take advantage of another program offered in Alabama that lowered the interest rate to a conventional level. The insurance fee wasn't a big deal because my husband and I plan on paying it off early as his income goes up. This was just to get us in the door on an unexpected deal of a house.
Well, somebody has to ask this question since the NYT didn't (or did and withheld the information because it would taint the story), but why are Jacobson and Paschal no longer employed by Wells Fargo?
Could this possibly be a vendetta by two fired, disgruntled ex-employees against their ex-employer?
Why are there only two (ex)employees who filed affidavits? If this were standard operating procedure, why are there more?
That's why these cases are tried in court with cross-examination and witnesses, and not tried in in the press.
It's sad that Wells could find so many people who didn't shop around, understand the mortgage process, and didn't read the paperwork at closing. It shouldn't be this easy for one bank to get away with this in an ultra completive market like mortgages, but it is.
What Wells did is horrible, but being the sucker is just as bad.
@FrankReality: The Sun article has this: "Nilson said others have come forward with similar stories, and he expects to present their claims if the lawsuit is allowed to continue."
Also, the NYT article has pretty daming statistics, so its not like two random people making up random accusations out of thin air.
From the article:
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.
Nice to see a supposedly reputable institution like Wells Fargo doing business like the skankiest of fly-by-night mortgage brokers. This also puts the lie to the suggestion these are the allegations of two disgruntled employees.
Obviously, people more senior than they knew what was going on, and encouraged it. Not that the whistleblowers are such angels themselves. They were party to the ripoff for 10 years before they did anything about it.
The magnitude of the fraud here is staggering. Also from the article:
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.
So, over the course of a 30-year mortgage the victim is having about $300 stolen from them every month. If your or I held up a convenience store and stole $300 from the register we would probably get 5-10 years in prison. I hope the same happens to some people at Wells Fargo.
I worked for the California State Automobile Association, aka AAA Auto Insurance, as a claims representative from 1990 to 1997. They pulled these same racist tactics against their claimants. I was often forced by my supervisors to stake out [and spy on] insureds' homes based solely on their race [and to whichever former dickbag, racist boss might be reading this - you'd better believe I saved all of my files].
Why? To scare black, asian and latino customers into dropping legitimate claims and save the company millions of dollars.
Every time I have see a Bill O'Reilly or a Sean Hannity on the TV railing against "handouts" to suffering homeowners I want to go on a shooting spree at Faux News.
Banks, insurance companies, law enforcement agencies...pick one. They know what they've done to minorities in the past and they know what they continue to do to minority citizens. Try being a white guy in their employ and saying no to this kind of bullshit. I've been threatened in ways you can't imagine. I had a nervous breakdown and had to get out.
It will only be when someone finally and utterly nails these pricks on video [and in clear hi-def sound] in the middle of committing one of these crimes that we'll be able to address and correct these wrongs. And until it finally happens to them, "patriotic" white America will keep hiding in a foxhole and pretending none of this is true.
@RedwoodFlyer: This is the Maryland Daily Record. Consider yourself fortunate that they're using movable type.
@RedwoodFlyer: It takes a big person to admit they could be wrong. I applaud you. I just shared this story with my sons so that they would know that not all of the people in this mess deserve to be in it. Blame can be shared all around, it appears.
@FrankReality: Perhaps they are no longer with the company as they were "top subprime mortgage officers". That market seems to have dried up. Sometimes downsizing targets the most deserving people. Maybe they can go forward with clean consciences and find work outside of finance.
@Munchie: Wow you guys need to calm down. I never said that any of what was said was untrue. Read what is typed not what your little pc brains tell you is there. Most replies above this one are morons.
Well now I don't feel so bad for ditching Wells Fargo and leaving them holding the bag for my $9k credit card balance, sure it'll F*ck my credit, but it's already pwn3d so whatever.
@flipnut: I don't know if you've ever read a mortgage agreement, but those things are nigh impossible to read to those not proficient in the legalesse. And I can see a subprime lenders telling a customer that they don't need a lawyer, the bank's lawyer is all they will ever need.
I actually think it's pretty awesome that Baltimore is suing them for the costs Wells Fargo's predatory lending imposed on Baltimore (increased police and fire costs, etc.).
Lots of companies making "market decisions" get to externalize costs and push them onto bystanders, taxpayers, third world countries, whatever.
This, Wells Fargo, is just the cost of doing business. That's what your business practices cost. We're just not going to let you push that cost off on someone else.
Irredeemably vile. Especially referring to customers as mud people.
And the statistical analysis revealed that simply being Black, you'd be five times more likely to be shunted to high-rate, subprime loans. It'll be interesting to see how much more comes out of discovery.
Oh wait, my bad: it's all Barney Frank's fault.