Ex-Employees Claim Racism in Wells Fargo Subprime Loan Push: New Affidavits Filed in City's Lawsuit
by The Baltimore Sun, Maryland - 2009-06-04
By Tricia Bishop, The Baltimore Sun
Jun. 4--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 declarations by two former employees, filed in federal court this week.
The affidavits were offered as evidence in a lawsuit filed on behalf of Baltimore last year and amended Monday, alleging "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. The city says the practice led to increased foreclosures, vacant properties and crime in black communities.
"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," City Solicitor George Nilson said in an interview Wednesday."We're trying to do what we can to get some kind of redress."
In an 825-page amended complaint filed Monday, city attorneys attached 20 exhibits, including the employee declarations, 10 studies about reverse redlining and statements from Baltimore residents about the problems of living near foreclosed-upon, vacant homes. They also filed a motion asking that a hearing scheduled for later this month, to determine whether their suit holds water, be "reconsidered" based on the information.
But after a conference call Wednesday, U.S. District Court Judge Benson E. Legg denied the motion and put parameters on the June 29 hearing. Each side will get two hours to present information, then, after a short break, the judge will rule on whether the case will go forward or be dismissed, Nilson said.
Legg did not return a call from The Baltimore Sun.
Wells Fargo has vehemently denied the allegations and accused Baltimore of being so "thirsty for revenue" that it has to sue companies. In an e-mailed statement, spokesman Kevin Waetke said the lawsuit "absolutely lacks merit" and that the company is not to blame for the city's foreclosures or any of its "many broad problems" affecting the housing market.
"We have worked extremely hard to make homeownership possible for more African-American borrowers and for all customer segments, and we have done so fairly and responsibly," Waetke wrote. "We absolutely do not tolerate team members treating our customers or others disrespectfully or unfairly, or who violate our ethics and lending policies. We have principles, systems and processes team members must follow that ensure race is never a factor in the pricing or products we offer."
He declined to comment on the specifics, including the declarations, which contradict the company's policies.
Former loan officer Tony Paschal said 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, who worked for the bank between 1997 and 2007 with a two-year hiatus beginning in 1999, is African-American. He claims he wasn't promoted because of his race and because he wasn't pushing subprime loans as hard as his colleagues.
Another former bank employee, Elizabeth Jacobson, a top Wells Fargo subprime loan officer, outlined techniques she and others used to turn prime borrowers into subprime borrowers, including talking them into borrowing the full amount even if they could afford a large down payment.
Nilson said others have come forward with similar stories, and he expects to present their claims if the lawsuit is allowed to continue.
"The case really can't move until we get past this current logjam of getting the court to decide this motion to dismiss," he said.
The lawsuit, filed in January last year, was among the first in what's now a wave of similar suits cropping up in states across the country, including Texas, Tennessee and California, where 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.
Excerpts from former Wells Fargo loan officer declarations filed in federal court this week:
Elizabeth Jacobson, a loan officer turned sales manager from 1998 through 2007:
-- Prime loan officers steered customers to subprime loans by telling them "that this was the only way for the loan to be processed quickly; that there would be less paperwork or documentation requirements, or that they may not have to put any money down."
-- "Some A reps [prime rate loan officers] actually falsified the loan applications in order to steer prime borrowers to subprime loan officers."
Tony Paschal, a loan officer from 1997 through 2007 (minus two years spent on hiatus):
-- "Wells Fargo also discriminated against minority loan applicants by advising them that the interest rate on their loan was 'locked,' when in fact, Wells Fargo had the ability to lower the interest rate for the applicant if the market rates dropped prior to the loan closing."
-- "I also heard [Mortgage Resource division] employees on several occasions mimic and make fun of their minority customers by using racial slurs. They referred to subprime loans made in minority communities as 'ghetto loans' and minority customers as ... 'mud people.' "
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