Minority bounty

June 8, 2009 10:32 AM

Bank Accused of Pushing Mortgage Deals on Blacks: "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,' " [a Wells Fargo subprime loan officer] said in his affidavit, filed in the NAACP's lawsuit (pdf) against 13 mortgage lenders. "The company put 'bounties' on minority borrowers. By this I mean that loan officers received cash incentives to aggressively market subprime loans in minority communities."
posted by hayvac (40 comments total)

Which is interesting, in light of how conservatives blamed minorities for the market crash during the last elections. Guess we'll see if FOX News, WSJ, the National Review and the Republican Party will retract their statements.
posted by Blazecock Pileon at 10:40 AM on June 8 [5 favorites]

Reverse redlining-- infuriating.

Lest anyone who doesn't RTFA first jump in and claim that this is merely another example of extending credit to those who don't qualify for it, instead of institutionalized racism:

"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."
posted by availablelight at 10:44 AM on June 8 [9 favorites]

I think we probably will see that retraction, BP. In the post-Sotomayor world, conservatives are very concerned about racism.
posted by DU at 10:44 AM on June 8 [2 favorites]

Guess we'll see if FOX News, WSJ, the National Review and the Republican Party will retract their statements.

I think that would be bad for business at all those organizations. They'll either ignore this or somehow twist it to represent what they've said all along -- "Hey, these bankers were just entrepreneurs looking to make a buck by playing the system as it was built. Maybe they said some 'insensitive' things, but who could have known that home values didn't always go up? Besides, 'those' people didn't have to take the loans that they're now responsible for defaulting on." & cetera.
posted by Devils Rancher at 10:48 AM on June 8

Clearly a product of reverse racism- see how they got preferential treatment as "mud people"?

Excuse me while I go roll in the glory of post-racial America and get into the kumbayah circle with unicorns and kittens and the mysterious purple skinned people that no one ever cares about their skin color...
posted by yeloson at 10:51 AM on June 8 [3 favorites]

Not that I expected to see it, but I'm still a bit appalled by the fact that there's no mention of any of these loan officers donating money back to the community or anything. Made $700,000 in one year off a predatory practice, and no feelings of guilt or acts of contrition aside from testifying against your employer after the cash cow's gone dry? Beth Jacobson, you sicken me.
posted by explosion at 10:55 AM on June 8

They'll either ignore this or somehow twist it to represent what they've said all along -- "Hey, these bankers were just entrepreneurs looking to make a buck by playing the system as it was built. Maybe they said some 'insensitive' things, but who could have known that home values didn't always go up? Besides, 'those' people didn't have to take the loans that they're now responsible for defaulting on." & cetera.

You forgot the part where they blame the democratic congress for forcing the lending industry to make bad loans to low-income families. That's always a good one.
posted by Thorzdad at 10:58 AM on June 8 [1 favorite]

African Americans earning more than $300,000 were more likely to get high-cost loans than Asian, Latino and white borrowers earning less than $40,000.
posted by enn at 10:59 AM on June 8 [9 favorites]

The world sucks. Thanks to Metafilter, it'll soon be all sorted out though.
posted by Hovercraft Eel at 11:04 AM on June 8

You forgot the part where they blame the democratic congress for forcing the lending industry to make bad loans to low-income families. That's always a good one.

"According to the conservatives' narrative, a 1977 law called the Community Reinvestment Act caused all of our problems by encouraging the extension of credit to poor people and minorities. The problem with that argument was that the vast majority of subprime loans were made by institutions that were not subject to the CRA, and studies have shown that the act has actually increased the amount of responsible lending to poor families. Even the Federal Reserve has posted research explaining that the CRA argument is bogus.

So why, then, do we keep hearing about poor people and minorities defaulting on subprime loans? Because, as it turns out, subprime lenders didn't need any encouragement to make predatory loans to people they thought they could easily exploit." (source)
posted by jonp72 at 11:06 AM on June 8 [2 favorites]

CRA is, of course, a scapegoat. Even under CRA, no-one held a gun to the lender's heads and told them to specifically create such evil products. Surely these high-paid "best and brightest" could have devised something a bit more equitable for the low-income market. Something that had its genesis in community, rather than greed.
posted by Thorzdad at 11:12 AM on June 8

I hate purple skinned people.
posted by cjorgensen at 11:27 AM on June 8 [1 favorite]

I worked at a Canadian Insurance Company where they had they had a perverse situation where they put drivers with a bad driving history into a shared pool that all of the insurance companies the in the province supported (based on their market share). The drivers where charged high rates and the companies expected to make a loss on this insurance (it was part of the cost of the regulations). The best part? This "portfolio" of crap drivers outperformed my company's regular portfolio as all the companies had been too liberal in kicking drivers into the pool. So they had decent but unlucky drivers off their books and in the general pool paying higher rates but being unlikely to get into another accident. The good part is they got punished for their glib decision making by having to share the profits with their competition. The downside is that those customers still got screwed. Just by everyone instead of by one company.

In this case there is a huge serving of caveat emptor due. Those people who could have qualified for prime loans didn't have to take subprime loans. Simply because something is targetted to you doesn't mean you have to take it. Just today my wife avoided buying train tickets to London at the local train station for 33 quid a pop and came home and got two returns for 20 quid total using the internet. 46 quid savings for the same bloody tickets! Why assume a ticket seller has your interests at heart when it is their interest and their company's that you pay the highest possible fare? They mostly correctly assume that if you are buying at the counter you are unlikely to shop around for cheaper fares so they make a show of it and then give you expensive ones. Because you have sucker written on your forehead.

Trusting a banker is, and always has been, asking for trouble. Trusting people whose financial interests are in opposition to yours is also a bad idea.
posted by srboisvert at 11:56 AM on June 8

Those people who could have qualified for prime loans didn't have to take subprime loans. Simply because something is targetted to you doesn't mean you have to take it.

For the most part, I would have agreed with you on this point. Certainly many people with subprime mortgages either failed to shop around and/or lacked the financial savvy/numeracy required to understand the real-world, money-in-your-wallet effects of each percentage point in interest and each additional year of amortization. Did you get to this part of the article, though?

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. (emphasis added)

Obviously, some of the people who ended up with subprime mortgages didn't actually choose them.
posted by thisjax at 12:14 PM on June 8 [6 favorites]

I'm glad this is getting more airplay. I was at a shareholder meeting in support of a resolution that condemned this practice, and the board blew it off completely. There were 10 minutes for shareholder discussion and they called on their pet crackpot who was obviously a meeting regular and who they clearly knew would take the entire 10 minutes and not say anything sensible. Very frustrating.
posted by small_ruminant at 12:26 PM on June 8

"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."

And I suppose stereo salesmen who steer people to buy high-end gear when the low-end gear works just as well ... we'll be gettin' out the pitchforks for them, too?
posted by Cool Papa Bell at 12:27 PM on June 8

Homes and stereo equipment are not equivalent.
posted by small_ruminant at 12:29 PM on June 8 [3 favorites]

CPB
the two situations are not at all analogous. Rather, it would be like the stereo salesman offering certain customers the same gear for a higher price than what they are offering other customers. The loan customers were borrowing the same amount of money for similar residences. On top of that, the customers had comparable credit backgrounds.
The only difference is that some were offered much better terms for no reason other than their skin color. It is appalling.

I've not read anywhere, but I'm curious how much good it would do to shop around in this situation. I'm curious to know how prevalent this practice was/is. I suspect this is not the only company pulling this crap.
posted by Librarygeek at 12:39 PM on June 8 [3 favorites]

[NOT PERIWINKLEIST]
posted by Pollomacho at 1:01 PM on June 8

This is appalling - and it needs to be brought forth into the light of day in excruiating detail. Because until we have such facts rubbed in their faces, even those of us who have been subject to such discriminatory practices may not be aware of how pervasive they are, let alone those of us who are not.

This is the sort of thing that there should be media storms about.
posted by jb at 1:07 PM on June 8

And I suppose stereo salesmen who steer people to buy high-end gear when the low-end gear works just as well ... we'll be gettin' out the pitchforks for them, too?

Insofar as that no figurative pitchfork is likely to touch the flesh of any of these loan officers or bank policy makers and that shouting "YOU GIANT FUCKING ASSHOLES" at them is what we're talking about, then yeah, salesman like that are shitty slimey motherfuckers and fuck them, too.
posted by fleacircus at 1:08 PM on June 8

I've already heard the spin that the reason minorities, particularly blacks, were targeted for mortgages was because banks were responding to the NAACP's prior outrage that blacks were often denied loans.

"What, first they were mad that we weren't giving out loans, and now they're mad that we are???"
posted by jabberjaw at 1:08 PM on June 8 [1 favorite]

According to the conservatives' narrative, a 1977 law called the Community Reinvestment Act caused all of our problems

1977? Why didn't The Wise And Beneficent Reagan employ his supernatural powers of conservative awesome to smite that law? Or Puppet Bush the Elder? Or Idiot Bush The Younger? I think they're reaching a tad.
posted by Devils Rancher at 1:27 PM on June 8

I heard about this suit a few months ago from somebody who works for the NAACP, but I did not realize how egregious the abuses were until now. Wow. The original complaint is also online for people who like that sort of thing.
posted by caddis at 1:38 PM on June 8

the two situations are not at all analogous.

Actually, I think they're nearly identical.

Rather, it would be like the stereo salesman offering certain customers the same gear for a higher price than what they are offering other customers. The loan customers were borrowing the same amount of money for similar residences.

You're missing the point that, from the bank's perspective, mortgages are products with their own measurements of profit and loss. The banks are steering customers from low-profit products to high-profit products, preying on the customers inability/unwillingness to differentiate the two with regard to their efficacy or qualitative differences.

This is exactly the same as the stereo salesman "upselling" to a high-end product for its perceived qualitative difference. "You could get the XK1000 model, or for $100 more, you could get the XK5000 model with the SuperWidget Performance Option."

Presumably, the subprime loans came with lower monthly payments or could be issued without down payments -- the qualitative differences these customers probably wanted. The bank is upselling to its customers what appears to be a better service, when in reality, it's not.

Provided no usury or redlining laws are broken, mere salesmanship can be nasty, but it's not illegal. If you think it is, then go after McDonalds for offering you an apple pie for 50 cents extra with the purchase of each Extra Value Meal.

What? You think McDonalds doesn't target neighborhoods by their racial makeups...?
posted by Cool Papa Bell at 1:46 PM on June 8 [1 favorite]

There has to be some great prose about slavery, the shackles that oppress man, and how much more effective the shackles one forge for themselves in the form of obligations to say banks is.

Alas, I am not the person to write that great prose.
posted by rough ashlar at 1:46 PM on June 8

Homes and stereo equipment are not equivalent.
posted by small_ruminant at 3:29 PM on June 8

The bank doesn't sell homes. They lend money. But the analogy does hold. If you know the stereo salesman is trying to screw you for $200, why wouldn't you assume the bank and your realtor and everyone else involved in this half a million dollar transaction are trying to screw you over also?

It seems to me that banks are playing dirty, no question about it. If this is happening at Wells, then it happened everywhere. But I find it hard to believe that all banks screwed all people in exactly the same way. In other words, if wells takes your prime loan and makes it subprime, that is dirty dealing. But you also shop around. It is not unreasonable to expect people to get about 6 serious quotes for a mortgage, given all the variability in rates, closing costs, down payment flexibility, etc. (3 national banks or national mortgage companies, 3 local or community banks). So if you do that, I would expect the bank that is screwing you over on rates wouldn't measure up to the others.

In other words, are all six of the banks you get quotes from going to mess up your mortgage in exactly the same way?

I understand that banks were not doing the right thing. But I still remember in 2005 people telling me to get interest-only mortgages and insane ARMs and all kinds of other things. how they even sold a single one of those things amazes me. People really are stupid when it comes to money.
posted by Pastabagel at 1:47 PM on June 8

I guess if they were offering the super widget option for $100 to everyone, it would be one thing, but instead they only pushed it on people of a certain race, based on race.

Yes, pitchforks for that, too, if it were Best Buy's company policy from the top down.
posted by small_ruminant at 1:50 PM on June 8

"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"

So...that's not illegal then? I think that goes beyond mere salesmanship.

"But I find it hard to believe that all banks screwed all people in exactly the same way."

Of course not. They screwed the blacks and latinos differently.
Uh...some of you seem to think this about being smart with money. Might want to ask yourselves why so many 'people' are 'stupid' when interacting with law enforcement and wind up 'getting themselves' thrown in jail.
posted by Smedleyman at 2:46 PM on June 8 [2 favorites]

It seems to me that banks are playing dirty, no question about it.

All banks are systematically committing racist fraud.

But that's OK, because they commit it in slightly different ways, so it's still your fault if you get screwed. Since unregulated capitalism is clearly the best system, I guess you'll just have to suck it up and not buy houses, black people. Oh well.
posted by dirigibleman at 3:05 PM on June 8

"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."

How in the world is this not at least fraud, if not outright theft? The loan officers falsified credit reports to force customers into higher percentage loans! Tell me there is a law against this!
posted by The Light Fantastic at 3:30 PM on June 8

I hate stories like this because they raise more questions than they answer. When and why did the two loan officers leave the bank? What do they do now? How did they hook up with the lawyers? Are they being compensated? How was the policy communicated to the troops? Is there anything in writing? How explicit was it, and from what level? Did Ms Paschal the Champ sit in her office and wait for people to show up, or did she make some rounds? If so, how?

You don't give me details, you're wandering in the area of polemic, which is fun, but of limited use for legal or policy questions. I'm happy as the next guy to be righteously indignant, but I want solid info to sustain me, and this story, it just doesn't have it.
posted by IndigoJones at 4:38 PM on June 8 [2 favorites]

It's fun (in this thread, not in life) watching the desire to defend capitalistic practices collide with the desire to reject racism. It seems to result in much victim-blaming, as if the people who signed these loan terms could have easily gone elsewhere to get a better one but just didn't bother.

Through exploitation of ignorance or fear, or through simple intimidation (anyone who's ever tried to buy a new car knows what kind of intimidation I'm talking about) banks by and large conspired to push a certain minority population into loans that were bad for them but good for the banks. If you can't separate that abhorrent business practice from capitalism in general, then perhaps it's a reflection of how institutionalized both amoral capitalism and racism are in the US.

As for the stereo comparison: I agree, actually, that it's similar. Of course, I also consider that kind of upselling (targeting people to purchase more than they need or want in order to mazimize personal compensation, by exploiting ignorance or fear, or through simple intimidation) to be morally abhorrent. The relative amount of dollars involved and the fact that housing is more important than a stereo is what brings out the pitchforks.
posted by davejay at 4:59 PM on June 8

admittedly, one man's "morally abhorrent" is another man's "salesmanship"
posted by davejay at 5:05 PM on June 8

conspired to push a certain minority population into loans that were bad for them but good for the banks.

If by minority you mean the tens of millions of white, black, brown, and all colors in the middle who ended up with subprime and Alt-A mortgages, and 2nd mortgages on top because they had no money down, then I completely agree with you.

If by minority you mean "black people", then you haven't been paying attention.

Greed doesn't choose race; why limit yourself to one, when you can fool them all?
posted by SeizeTheDay at 5:06 PM on June 8

It is not unreasonable to expect people to get about 6 serious quotes for a mortgage, given all the variability in rates, closing costs, down payment flexibility, etc...

Ah, but many, many people use mortgage brokers these days, because they are too damned busy to shop 6 different banks. If you search these very pages, you will find recommendations that home buyers find a good mortgage broker, in lieu of working around directly with lenders. But, then, who's to say what a good broker is? I suspect many people got caught in the net of a "good" broker who had close connections with a sub-prime lender and got steered into the trap.
posted by Thorzdad at 5:24 PM on June 8

If by minority you mean "black people", then you haven't been paying attention.

Were you paying attention when you RTFA?
posted by Thoughtcrime at 8:28 PM on June 8

"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."

How in the world is this not at least fraud, if not outright theft? The loan officers falsified credit reports to force customers into higher percentage loans! Tell me there is a law against this!

It probably isn't fraud because they can legally offer just about any terms they want to a borrower. The fact that the way those terms are determined internally at Well's Fargo has been subverted is immaterial.

These people go to a mortgage broker and they probably assume - and I don't know whether under US law it would be reasonable to assume this - that the broker has a fiduciary duty to them. Except that the broker either doesn't have such a duty, or doesn't care and just makes the maximum amount of commission off of them.
posted by atrazine at 11:02 PM on June 8

Tell me there is a law against this!

Yes. Yes there is. But like so many laws enforcement is up to the DA's and others in 'law enforcement'.

Back in the bad old days citizens could take complaints to the grand jury and ask for a true bill. In theory concerned citizens could still do this. So if it bothers you enough that you are willing to live life under a microscope - by all means gather up the info and stick it under the nose of the grand jury in your county.
posted by rough ashlar at 11:38 PM on June 8

Back in the bad old days citizens could take complaints to the grand jury and ask for a true bill. In theory concerned citizens could still do this. So if it bothers you enough that you are willing to live life under a microscope - by all means gather up the info and stick it under the nose of the grand jury in your county.

I'm not sure if that option is available much anymore, unfortunately.

This entire process went off the rails when the loans were disconnected from the properties and the lenders. The fact that some banks decided to prey on people based on race is unsurprising. The CRA was actually a boon because it gave incentives for banks to reinvest in the communities they operated in. Once the mega-banks came about, no one gave a shit.

It was highly amusing to watch a WaMu branch open up across the street a couple years ago. Almost no traffic going in and out at all. Since then the branch has closed, the ATM machines in the lobby were ripped out of the walls with wires hanging.

What was less amusing was watching the local banks get swallowed by the now failing mega-banks. There's an incredible (and old) local bank down the street that I was going to open up a business account with. Then it hung a tacky Capital One banner over the front.
posted by ryoshu at 1:15 AM on June 9