source: New York Times
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.
source: New York Times
Bank Regulation Case Pits U.S. Against States
WASHINGTON — The Supreme Court heard arguments on Tuesday in a case that could change the way big banks are regulated.
In the case, Cuomo v. the Clearing House Association, federal and state regulators have squared off over which part of the government should serve as the nation’s watchdog for national banks. The case began four years ago, when Eliot Spitzer, New York’s attorney general at the time, questioned why some national banks seemed to be making a disproportionate number of high-interest home mortgage loans to black and Hispanic borrowers.
The fight involves fundamental issues of federalism and consumer protection, and, should the court decide for Mr. Cuomo’s position, could open new powers of regulation to the states.
Mr. Spitzer was trying to enforce New York’s antidiscrimination laws, but he ran up against federal precedent that tended to leave regulation of national banks to the Treasury Department, and, specifically, the Office of the Comptroller of the Currency. A consortium of banks sued Mr. Spitzer, and so did the Office of the Comptroller of the Currency.
The banks and federal regulators argued that letting state officials regulate the banks would force the financial institutions to deal with a national patchwork of conflicting regulations. States can make laws concerning the banks’ practices, they argued, but only the federal government should enforce those laws.
That argument appeared to resonate with Justice Stephen G. Breyer, who pictured 51 regulators — one from each state and the federal government — poring over a bank’s books for statistical patterns of differentiation in setting interest rates. “As long as, most unfortunately, income is correlated with race, with minorities being toward the bottom, of course such statistical disparities will exist, some legitimate, some not,” he said. In such analysis, “reasonable people will often differ,” he noted.
Judge Ruth Bader Ginsburg, however, called the unusual arrangement depicted by the government as “passing strange,” while Justice Antonin Scalia called it “weird.” He asked: “What incentive does the federal government have to enforce state law? It has so much spare time after enforcing federal law that it’s going to be worrying about state law?”
A federal district judge in 2005 and the United States Court of Appeals for the Second Circuit in 2007 ruled against New York and for federal regulation.
But much has changed since Mr. Spitzer began his inquiry. For one thing, he is no longer attorney general; Andrew M. Cuomo has succeeded him. And, at the same time, the nation has been shaken by financial scandal and failure in ways that have led many to question the sagacity and effectiveness of the regulatory structure. A brief filed by the 49 other state attorneys general argues, “The recent (and continuing) fallout from the subprime lending debacle demonstrates the need for more oversight and consumer protection enforcement in the area of mortgage lending.”
The Office of the Comptroller of the Currency, the brief states, “has no experience in enforcing state public protection laws, has a minimal track record in consumer protection and has no accountability to the citizens of any state.”
James E. Tierney, director of the National State Attorneys General Program at Columbia Law School, said that the federal regulators’ job was to promote “bank fiscal soundness and not protection of consumers,” and that battling fraud in mortgage lending was an area where state attorneys general had long excelled. “They got it first,” Mr. Tierney said, “and they got it right.”
A brief filed by all the Comptrollers of the Currency since 1973, however, takes a different view. The comptroller’s office, according to the brief, works quietly with banks to address consumer issues in a “prophylactic” way, and “uses the wide range of its supervisory powers in an effort to alert national banks of potential noncompliance that poses risks to consumers and to ensure that they are addressed as early as possible.”
The threat of action by the federal regulators, the comptrollers stated, is “a significant incentive for national banks to address any compliance issues before they become serious problems.” And when such gentle measures fail, the comptrollers wrote, the agency “does not hesitate to take aggressive enforcement action against national banks.”
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.
________________________________________________
source: New York Times
Bank Regulation Case Pits U.S. Against States
WASHINGTON — The Supreme Court heard arguments on Tuesday in a case that could change the way big banks are regulated.
In the case, Cuomo v. the Clearing House Association, federal and state regulators have squared off over which part of the government should serve as the nation’s watchdog for national banks. The case began four years ago, when Eliot Spitzer, New York’s attorney general at the time, questioned why some national banks seemed to be making a disproportionate number of high-interest home mortgage loans to black and Hispanic borrowers.
The fight involves fundamental issues of federalism and consumer protection, and, should the court decide for Mr. Cuomo’s position, could open new powers of regulation to the states.
Mr. Spitzer was trying to enforce New York’s antidiscrimination laws, but he ran up against federal precedent that tended to leave regulation of national banks to the Treasury Department, and, specifically, the Office of the Comptroller of the Currency. A consortium of banks sued Mr. Spitzer, and so did the Office of the Comptroller of the Currency.
The banks and federal regulators argued that letting state officials regulate the banks would force the financial institutions to deal with a national patchwork of conflicting regulations. States can make laws concerning the banks’ practices, they argued, but only the federal government should enforce those laws.
That argument appeared to resonate with Justice Stephen G. Breyer, who pictured 51 regulators — one from each state and the federal government — poring over a bank’s books for statistical patterns of differentiation in setting interest rates. “As long as, most unfortunately, income is correlated with race, with minorities being toward the bottom, of course such statistical disparities will exist, some legitimate, some not,” he said. In such analysis, “reasonable people will often differ,” he noted.
Judge Ruth Bader Ginsburg, however, called the unusual arrangement depicted by the government as “passing strange,” while Justice Antonin Scalia called it “weird.” He asked: “What incentive does the federal government have to enforce state law? It has so much spare time after enforcing federal law that it’s going to be worrying about state law?”
A federal district judge in 2005 and the United States Court of Appeals for the Second Circuit in 2007 ruled against New York and for federal regulation.
But much has changed since Mr. Spitzer began his inquiry. For one thing, he is no longer attorney general; Andrew M. Cuomo has succeeded him. And, at the same time, the nation has been shaken by financial scandal and failure in ways that have led many to question the sagacity and effectiveness of the regulatory structure. A brief filed by the 49 other state attorneys general argues, “The recent (and continuing) fallout from the subprime lending debacle demonstrates the need for more oversight and consumer protection enforcement in the area of mortgage lending.”
The Office of the Comptroller of the Currency, the brief states, “has no experience in enforcing state public protection laws, has a minimal track record in consumer protection and has no accountability to the citizens of any state.”
James E. Tierney, director of the National State Attorneys General Program at Columbia Law School, said that the federal regulators’ job was to promote “bank fiscal soundness and not protection of consumers,” and that battling fraud in mortgage lending was an area where state attorneys general had long excelled. “They got it first,” Mr. Tierney said, “and they got it right.”
A brief filed by all the Comptrollers of the Currency since 1973, however, takes a different view. The comptroller’s office, according to the brief, works quietly with banks to address consumer issues in a “prophylactic” way, and “uses the wide range of its supervisory powers in an effort to alert national banks of potential noncompliance that poses risks to consumers and to ensure that they are addressed as early as possible.”
The threat of action by the federal regulators, the comptrollers stated, is “a significant incentive for national banks to address any compliance issues before they become serious problems.” And when such gentle measures fail, the comptrollers wrote, the agency “does not hesitate to take aggressive enforcement action against national banks.”
