Wells Fargo Targeted "Mud People" with "Ghetto Loans"

Something to add. What happened was a perfect storm. Yes many banks lent to people with the plan of collecting some payments, then foreclosing to re-sell. And I want to see class action suits.

But we also have tremendous lying in real estate markets as to home values. Rampant unemployment. How many of you could keep paying your mortgage for. Year without a job? Who is already living check to check just trying to live?

And these banks were using these, in all likelihood fraudulent, mortgages to backbone their companies.

We also had a government that created the whole fiasco completely f*ck the dog by "solving" the situation in the same we we got into the mess; writing the banks a blank check. But it will trickle down, right?

KingGorilla wrote:

Something to add. What happened was a perfect storm. Yes many banks lent to people with the plan of collecting some payments, then foreclosing to re-sell. And I want to see class action suits.

That's part of the problem I have. Some people say that the market is perfect, but the market sanctioned these unethical scams.

Once you get beyond the 30,000 foot view of economists, the market isn't such a hot thing. Behaviors like what was uncovered at Wells Fargo is acceptable as long as it brings in the profit. It even promotes behaviors that are bad for the company, as we have all found out. The vaunted market is really made up of fallible people motivated by compensation packages that often stress the wrong things. I think you'd be hard pressed to say that the market correctly allocated several trillion dollars in real estate and mortgage backed securities.

OG_slinger wrote:

Behaviors like what was uncovered at Wells Fargo is acceptable as long as it brings in the profit. It even promotes behaviors that are bad for the company, as we have all found out. The vaunted market is really made up of fallible people motivated by compensation packages that often stress the wrong things.

I`m not an expert in corporate governance but I`d say that one fundamental problem is the administrative structure of the big public companies. There seems to be some kind of weird buffer between the clients and owners and it consists of pure bureaucracy, just like government. It should work for company owners but instead it works for itself. From what I gather, it`s often hard to get rid of CEOs, they often seem focused on short term gains because that`s how their performance is measured and all in all they dont really seem so different from some dude in some state department. Well, he might wear more expensive shoes.

Not to condone the Well's Fargo business practices, but I can't believe Wells Fargo was the only lender in Baltimore. If a bank was trying to sell me a loan at 9%, I sure as hell would look around and see if I could get it cheaper elsewhere. Did the bank coerce homebuyers? Did they lie to the people asking for the loan? Was there collusion between multiple lenders not to offer anything but subprime mortgages to black people?

The article serves a good purpose of reminding folks not to necessarily trust lenders, and highlights some deplorable behavior at Wells Fargo, but the lawsuit it references seems baseless unless they can answer some of those questions above in the affirmative.

Bullion Cube wrote:

Not to condone the Well's Fargo business practices, but I can't believe Wells Fargo was the only lender in Baltimore. If a bank was trying to sell me a loan at 9%, I sure as hell would look around and see if I could get it cheaper elsewhere.

This is the point I was trying to get at on the last page. When I got my house, I knew exactly what type of rate I should be offered by a mortgage company based on my credit score, the local market, and research on rates offered by competing lending institutions, including the FHA, and the lender offered me exactly what I expected. Had they not, I would've walked out after leaving what I thought of their business in their restroom.

It's clear that Wells Fargo targeted minorities because the chances of finding people who wanted to own a home but didn't have the education or the access to the internet to do the research I did was much higher than in other areas. Further, I suspect that "trust of authorities" runs higher in minority circles than in non minority, although I have no sources to back that up. And Libertarians may just write this off as the ultimate caveat emptor -- but they may not be fully wrong in this case.

The question is, does a company have the responsibility to educate its customers when such education will absolutely decrease the profit that company makes?

I would say absolutely it does, and I support making mortgage education a required part of the mortgage process. Others likely disagree.

I would suggest all of you tune in to this week's This American Life podcast. It focuses on why the public and private watchdogs failed so horribly. Specifically with "derivatives."

Apparently it was a failure we should have seen coming, but we had a system built for failure.

We did a re-fi through a local Baltimore company that specialized in them. They cold-called me, I checked them out on the web and talked to them about their policies and practices. They pride themselves on their being a local company and they worked hard to get us a good deal at a decent cost. That was how we switched from an adjustable rate to a fixed rate, and combined two mortgages into one. So there are ethical companies out there.

I can easily see someone who does not know better believing the "yeah, 9% seems high, but your credit sucks and this really is the best deal you'll get. And you need to decide soon or the rate will go up." Yadda yadda yadda. The more we look, the more we find that many of these mortgage lenders were cheating their customers.

Seth wrote:
Bullion Cube wrote:

Not to condone the Well's Fargo business practices, but I can't believe Wells Fargo was the only lender in Baltimore. If a bank was trying to sell me a loan at 9%, I sure as hell would look around and see if I could get it cheaper elsewhere.

The question is, does a company have the responsibility to educate its customers when such education will absolutely decrease the profit that company makes?

I would say absolutely it does, and I support making mortgage education a required part of the mortgage process. Others likely disagree.

You're answer is a bit incomplete. Responsibility to educate implies some force is holding them accountable for doing so, though that force is not defined in your response.

You could mean God will hold them responsible, and if they don't educate the customer they'll go to hell. As far as i know they are already held accountable in this way.

You could mean the government will hold companies responsible for education, and that costs millions of dollars in oversight, and burdensome regulation that raises fees charged to customers. This apparently was not done, at least not affectively.

You could also mean customer oversight, in which word of bad practices gets out when a company acts like sh*t and doesn't educate customers, customers stop going to said company for business, and the company suffers accordingly for making a quick grab at profits.

Personally I believe that if you are going to have government intervention in a case like this, I'd prefer you do it through the schools by mandating high schools institute a personal finance class where you learn about credit cards, credit scores, mortgages and interest rates. If you don't learn it there, you probably won't pay attention when a mortgage lender shoves 200 pages of small print in front of your face either.

Stowing it in high schools discriminates against dropouts, though, and even people without GEDs have the right to buy a house.

I would EITHER charge the lending institutions for providing this education, OR I would make them legally liable for not providing it if, down the road, the mortgage owner finds he's been screwed like these people did.

I almost like the second one better. Sell a product to an uneducated client, risk the wrath of easy lawsuits.

Seth wrote:

Stowing it in high schools discriminates against dropouts, though, and even people without GEDs have the right to buy a house.

I would EITHER charge the lending institutions for providing this education, OR I would make them legally liable for not providing it if, down the road, the mortgage owner finds he's been screwed like these people did.

I almost like the second one better. Sell a product to an uneducated client, risk the wrath of easy lawsuits.

Why is none of this on the consumer? I am not discounting how sh*tty what they did was. But at the same time if you are signing documents saying you will pay back Hundreds of thousands of dollars. Do you not have some responsibility to know what the hell you are getting into?

A lot of this trouble happened prior to the contracts -- if your lender lies about your credit report and tells the underwriter you don't have a reported income and you don't have the mortgage knowledge to realize that, the contract will be perfectly legitimate -- albeit built on terrible, illegally obtained information.

WiredAsylum wrote:

Why is none of this on the consumer? I am not discounting how sh*tty what they did was. But at the same time if you are signing documents saying you will pay back Hundreds of thousands of dollars. Do you not have some responsibility to know what the hell you are getting into?

From the article:

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.

Ok but what amount of education would prevent that?

I am not being a dick, or have an agenda. This to me is a con operation and a mark is a mark.And I can see it working anywhere regardless of income.
I need to go on record saying mortgage/credit education is necessary in all tax brackets. I will be honest and say I am not comfortable with any funding options discussed but I do not have a ready alternative.

WiredAsylum wrote:

Ok but what amount of education would prevent that?

I am not being a dick, or have an agenda. This to me is a con operation and a mark is a mark.And I can see it working anywhere regardless of income.
I need to go on record saying mortgage/credit education is necessary in all tax brackets. I will be honest and say I am not comfortable with any funding options discussed but I do not have a ready alternative.

these are some really good questions. In this case, Wells Fargo lied to people and broke the law. In all honesty, now that you've scrutinized my position a bit, I don't see where mandated education would've done a lick of difference here.

Rather than thrusting all of the responsibility on the government to slap the wrist of every lender that engages in predatory lending, wouldn't it make more sense to foster an environment where it is in the lenders' best interests to only engage in loans that will plausibly avoid default?

As is, or was the case, lenders had no motivation to act responsibly because the risk was so far removed from themselves due to securitization. Regulate or remove that hat-trick, and you shouldn't need to educate the consumer or look over every lender's shoulder. It would then be in their self interest to make responsible loans because it would be their money on the line rather than that of thousands of partial investors twelve steps removed from the point of purchase.

What bothers me is where else is this happening?

It's happened all over.

Lenders were not generally worried about viability because they sold the mortgages within a few months. Things are very different in the old system, before deregulation, when if a bank issued a loan, it generally held it for the life of the loan. But that was back when banks were, you know, banks. Not insurance firms, investment houses and the like.

OG_slinger wrote:
KingGorilla wrote:

Something to add. What happened was a perfect storm. Yes many banks lent to people with the plan of collecting some payments, then foreclosing to re-sell. And I want to see class action suits.

That's part of the problem I have. Some people say that the market is perfect, but the market sanctioned these unethical scams.

Once you get beyond the 30,000 foot view of economists, the market isn't such a hot thing. Behaviors like what was uncovered at Wells Fargo is acceptable as long as it brings in the profit. It even promotes behaviors that are bad for the company, as we have all found out. The vaunted market is really made up of fallible people motivated by compensation packages that often stress the wrong things. I think you'd be hard pressed to say that the market correctly allocated several trillion dollars in real estate and mortgage backed securities.

And then the market tried to correct. The market isn't perfect, and never will be, because people are involved. But it is vastly more efficient and more effective than any central planning method. What you are missing is that the market didn't sanction these unethical scams - the market tried to put Wells Fargo out of business because of these scams. The only reason they are still around is government (taxpayer) largesse.

Another way of putting it: these people are still screwed, still have houses they can't afford, and destroyed credit ratings. Some of them will never recover. And we paid Wells Fargo to do it. We looked sorrowful when things mysteriously went bad, and handed them billions of dollars.

Edit - Not productive.

wells Fargo does my mortgage and they gave me a great a rate and looked very transparent the whole process. Is this like Bank wide or only limited to a few spots?

I also say whoever signed up for these things it their own fault. No one says you HAVE to goto Fat Tony to take out a loan.

Let's keep the funny pictures to a minimum in P&C, please. - Certis

I am disappointed by the lack of Tim Wise in this thread.

Pharacon there is a professional and legal obligation of fair dealing in the US. Taking advantage of ignorance on any party violates that. Not to mention knowingly giving borrowers the worst possible loan, when they qualify for a much better one is wanton and malicious.

KingGorilla wrote:

Pharacon there is a professional and legal obligation of fair dealing in the US. Taking advantage of ignorance on any party violates that. Not to mention knowingly giving borrowers the worst possible loan, when they qualify for a much better one is wanton and malicious.

A plumber gives you a quote to fix your toilet, and tells you you won't finder a better price anywhere else in town. You believe him and agree to his price without looking around. You find out later he overchanged you.

Your recourse is to not use that plumber again because he was "wanton and malicious." His own actions should put him out of business as he gets a reputation for foul play and people stop calling him up for his services. The people quoted in the article, and most of the people arguing against Pharacon's point on personal responsibility, are stating that the people should be able to sue the plumber for giving bad quotes.

Good companies get good reputations, and good consumers generally get better prices. A society in which consumers don't have to worry about doing their homework because they can always sue later becomes hugely inefficient, and it's mostly lawyers and politicians that benefit.

And if we lived in some sort of Ayn Rand fantasy land, that would batter. But in the real America od 2009, that is not the case. And I am more interrested in real solutions not masturbatory talk, when it comes to the livelihoods of real people.

This was a significant breach of professional ethics, and our laws. The people and companies involved need to be punished. And those hurt allowed a day in court to be made whole. The same way it would have worked almost 1000 years ago.

You can't wave away fraud by claiming it's the fault of people "not doing their homework". Otherwise, crime just wouldn't work.

Anyway, the scenario is not someone just gaming you on competitive pricing. The lenders moved specific customers into abusive loans based on race, location and other factors, when in fact they could have afforded better (and less dangerous) loans. They did this to make more money. That's not someone "not doing their homework", that's fraud. Bait and switch has long been recognized as fraudulent, and with complicated financial deals it can be easy to pull off.

Next, we learn how mugging victims are at fault for not protecting themselves from crime sufficiently...

Bullion Cube wrote:
KingGorilla wrote:

Pharacon there is a professional and legal obligation of fair dealing in the US. Taking advantage of ignorance on any party violates that. Not to mention knowingly giving borrowers the worst possible loan, when they qualify for a much better one is wanton and malicious.

A plumber gives you a quote to fix your toilet, and tells you you won't finder a better price anywhere else in town. You believe him and agree to his price without looking around. You find out later he overchanged you.

Your recourse is to not use that plumber again because he was "wanton and malicious." His own actions should put him out of business as he gets a reputation for foul play and people stop calling him up for his services. The people quoted in the article, and most of the people arguing against Pharacon's point on personal responsibility, are stating that the people should be able to sue the plumber for giving bad quotes.

I'm pretty sure that we hold our financial institutions and other accredited/professional organizations that operate on a level above the average person to higher standards than we do for standard retail or basic services.

If we don't, we should.

Financial institutions have a much greater impact on our economic system's health, and knowingly engaging in fraudulent actions puts us into the kind of mess we're in now.

Robear wrote:

You can't wave away fraud by claiming it's the fault of people "not doing their homework". Otherwise, crime just wouldn't work.

Anyway, the scenario is not someone just gaming you on competitive pricing. The lenders moved specific customers into abusive loans based on race, location and other factors, when in fact they could have afforded better (and less dangerous) loans. They did this to make more money. That's not someone "not doing their homework", that's fraud. Bait and switch has long been recognized as fraudulent, and with complicated financial deals it can be easy to pull off.

Next, we learn how mugging victims are at fault for not protecting themselves from crime sufficiently...

The situation described in the article is not fraud. It also is not bait and switch. If it were either of those things then both your argument and Gorilla's would be very valid.

The situation described in the article is that a company could have offered better rates to a couple, but never did. They offered high rate mortgages when the purchaser may have qualified for a lower rate loan if they had gone to another bank, or adjustable rate mortgages when a fixed rate may have been better for the consumer.

Equating someone legally agreeing to the terms of a less-than-ideal contract to a mugging where you are given no freedom of choice is a disingenuous comparison.

It is bait and switch if Wells Fargo had told the prospective buyers they'd get a 6% loan, then at the last minute or without telling them put a contract with terms at 9% in front of them. It is fraud if the bank does not deliver on the terms of the contract.

Right now you have a bunch of angry people who've lost their houses, and a mayor/governor with a city falling down around them who will have to run for office in a year or two, and everyone wants someone to blame. That's not a good recipe for legal justice.

The case referenced in the article above is emotionally charged, but they haven't put evidence out there that there was legal wrongdoing involved in any of these loans.

However, there are tens of thousands of fraudulent loans under investigation or in court today, done by WF and other mortgage companies. In fact, while you assert that there's nothing criminal involved, the article indicates that the city of Baltimore has WF in court for these very practices. Not to mention criminal investigations in Illinois, New York and other areas, as well as a class action suit for discriminatory practices. Even if "bait and switch" was not directly used, unfair and discriminatory practices in lending are not generally legal.

They've certainly put evidence of wrongoing out; that's how you get into court in the first place. Now we need to see where it goes.

Bullion Cube wrote:

The situation described in the article is not fraud. It also is not bait and switch. If it were either of those things then both your argument and Gorilla's would be very valid.

The situation described in the article is that a company could have offered better rates to a couple, but never did. They offered high rate mortgages when the purchaser may have qualified for a lower rate loan if they had gone to another bank, or adjustable rate mortgages when a fixed rate may have been better for the consumer.

can you clarify this? you're talking about a company that willfully and intentionally lied about customers' financial information (income and credit scores) to their underwriting team. They used financial statements from one client in place of another.

We're not talking about a company that ran accurate credit scores, took financial information, and then tacked on a 3% convenience fee to the mortgage; we're talking about a company that handed couple with little or no mortgage experience 100 pages of documents, and on page 67 it said they had a credit score of 410 with zero reported income, when in reality they likely had significantly higher than those numbers.

On what planet can you say that's not fraudulent?