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The city of Baltimore is taking a stand against Wells Fargo claiming that they targeted African Americans with high risk home loans that were loaded with fees, that in return has resulted in a record number of foreclosures.
The statistics compiled by the city of Baltimore show that, in 2006, Wells Fargo made 65 percent of their home loans to African Americans and only 15 percent to white customers. The foreclosure rate in the minority community is four times that of the white community and is double the city average.
The suit asks the court to award damages, and to compensate the city for the tens of millions of dollars in damage it has suffered, including the loss of real property tax, real estate taxes, undermining the city programs and deteriorating families in Baltimore.
If the city of Baltimore wins the tens of millions of dollars in the lawsuit, the money would be funneled towards public programs to help homeowners who are struggling with adjustable rate mortgages. As much as $5,000 per homeowner could be awarded to help make mortgage payments until homeowners are able to refinance.
See the video at Maryland Mortgage Homepage.
Posted January 9th, 2008 by jredz
"Targeted" means what, precisely?
The after-the-fact statistics about how many loans were made, and how many resulted in foreclosure, doesn't suggest any mechanism by which Wells Fargo's "targeting" of minorities supposedly took place.
I've been more or less broke for most of my adult life -- first as a college student, then trying to get by with the high cost of living in Southern California. Most of the bank accounts I got or credit lines I had were all loaded with fees. CapitalOne doesn't make money from giving me a $300 credit line. They make money from charging $29 overdraft fees when my $1.99 "credit protection" plan bumps me over $300. Bank of America didn't make money by allowing me to have a free checking account. They made money when my direct deposit was delayed a day and I overdrafted multiple minor purchases (grocery, gas, parking, Starbucks) as a result.
Was I "targeted" for these high-fee products because I was poor? No. Banks and credit companies have to make money one way or another. If you are getting low interest rates and low fees, it is probably because you have enough deposits that a bank will do what it takes to get your business. We all know that people with great credit can get zero-percent financing on a new car. Why would mortgages be different?
The sad fact is that a disproportionate number of black people in Baltimore are poor. And a lot of black neighborhoods don't appreciate at the same rate as the neighborhoods where those white homebuyers are living. But it is just absurd to say that Wells Fargo looked at black buyers who would have been qualified for good loans, and pushed them into less desirable mortgages instead. Mortgage consultants, the people who sit there and sell you the loan, *want* to get you the best rate and the best terms that they can. That makes it more likely you'll take out the loan and they'd get their commission. It's not like a car lot where they have a fixed number of each product to sell.
So what is the city claiming? Assuming they're not saying that black homebuyers who could have qualified for good loans got bad loans instead, the logical alternative is that they're claiming that Wells Fargo deliberately sold these undesirable high-fee loans to blacks who really couldn't afford to buy a home at all. This is nuts. Tighter lending standards would have benefited banks and consumers, as we're all seeing now. But loan approvals are made by computers, not by the person sitting with you trying to sell you a home loan. A poor white guy with a cruddy credit score and no income verification would have been offered the same cruddy loan as a poor black guy with a cruddy credit score and no income verification. What is the City of Baltimore claiming -- that the mortgage consultant entered a secret code in the application to tell the system that the applicant was black, which resulted in a loan approval that otherwise wouldn't have gone through?
I can imagine that *advertising* was targeted, just to get people in the door to come apply. Maybe a first-time homebuyer program was "targeted" to different groups in and around the city who have credit issues, low/no down payment, little or no income verification, and other problems that first-time homebuyers often have. Or depending on what city or federal programs were available, there may have been brochures or informational sessions targeted toward minority home ownership. It sure seems unfair for the City of Balitmore to thwack Wells Fargo for doing what, in better days, it probably wanted the bank to do -- try to increase home ownership among low-income minority groups. Now that loans are riskier and loans are harder to get, I wonder if Baltimore will sue Wells Fargo for not making an equitable amount of loans to blacks. We've already seen the city can hypocritically ignore the income disparities that are the real cause of different mortgage outcomes.