The NYT's published an interesting article over the weekend about how Wells Fargo deliberately targeted black communities in Baltimore and used shady business practices to push subprime loans, even for people who could qualify for conventional loans.
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.”
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 practice has also had a significant impact on the city in terms of foreclosures: half the properties Wells Fargo made "ghetto loans" for are now vacant.
Besides the blatant racism, what really bothers me is that it was Wells Fargo's established business practices that got it into trouble. The bank made more than $51 billion in subprime loans between 2005 and 2007 and who knows how much were based on predatory lending practices.