More On The City Of Baltimore v. Wells Fargo "Ghetto Loans" Predatory Lending Case

In a recent interview with Democracy Now!, Wells Fargo whistleblower and ex-subprime loan officer and sales manager Elizabeth Jacobson speaks out on some of the predatory lending practices allegedly engaged in by her former employer.(1)

I) On the incentives for Wells Fargo loan officers to allegedly bulldoze every would-be borrower into a subprime loan:

• I was at Wells Fargo for nine years, and I originated loans. Wells Fargo had two separate divisions: the prime division and the subprime division. And you could not originate prime loans if you were in the subprime division. So that’s what I did for nine years at Wells Fargo, is originate the subprime loans.

• In the beginning years at Wells Fargo when I started, there was no filter system. So, if you had somebody come into your office and you could sell them a subprime loan, even if they qualified for a prime loan, that’s what you did. The compensation worked out that you had a huge incentive to put people into a subprime loan. Even the prime loan officers would make as much money on a [...] subprime loan, referring it over to the subprime division, that they would make doing a prime loan. So there was an incentive for the prime loan officers to refer the business to the subprime side.

II) On her company training putting borrowers into exploding adjustable rate mortgages:

• Well, when I was hired by Wells Fargo, I had never worked in the mortgage industry at all. I had been a paralegal. So I took everything that Wells Fargo was telling me, that this is the way things were done. I didn’t question the fact that we were putting people in a 55 percent debt-to-income ratio and that we were only qualifying them based on the two years at the lower interest rate. The whole goal was, every two years you’re going to refinance that loan. So, it was sold as a two-year loan. These people were never intended to be in the loan for thirty years.

III) On her experience on the question of allegedly seeking the assistance of African American churches in Baltimore to target their members for subprime loans:

• A lot of this was information that I would receive on conference calls as a sales manager. And people on the call, the management there, would encourage the loan officers, the subprime loan officers, to go into Baltimore city and target the churches, the African American churches, to get a relationship going with the minister or the reverend at the church and try to get that person to schedule some sort of meeting. They would call it a “wealth-building seminar” to get the parishioners of the church to attend. And any loan that was funded by Wells Fargo, whether a purchase or a refinance, $350 would then be donated to the church. And so, that was the incentive for the church to want to have these seminars there.

• But what would happen is the only loan officers that would attend these seminars were generally the subprime loan officers. And on these conference calls, at one point, somebody made a joke who happened to be a white loan officer and said, “Well, will I be able to go to these seminars?” And they were told right there on the conference call, unless you were of color, you could not attend these conferences, these wealth-building conferences. So it seemed me—Wells Fargo didn’t come right out and say this; this is just what I saw—is that they wanted the African American Wells Fargo loan officers to sell loans to the African American community.

IV) On her resignation from her position as sales manager and top producer in the subprime division at Wells Fargo (originating approximately $55 million a year in subprime loans):

• I happened to see a news report with the CFO of Wells Fargo, and he was questioned about the subprime division and denied at that point that Wells Fargo even had a subprime division. So here he is, the chief financial officer, where the subprime loans were supposed to be paying for the fixed costs of the company, and he’s denying that Wells Fargo even did subprime loans. That was just the final straw of total disillusionment, and then I put my resignation in.

For the transcript of the interview, and link to view the television interview, see Former Wells Fargo Subprime Loan Officer: Bank Targeted Black Churches as Part of Predatory Subprime Lending Scheme.

(1) Earlier this summer, Jacobson filed a sworn affidavit with a federal court in support of the city of Baltimore’s lawsuit against Wells Fargo for pushing high-interest, subprime loans onto African Americans in Baltimore and the Maryland suburbs, leading hundreds into foreclosure. She and another whistleblower allege Wells Fargo targeted African Americans for subprime loans and routinely steered customers qualified for prime loans toward subprime loans.

The Federal lawsuit and earlier media reports on the Baltimore City predatory lending action against Wells Fargo indicate that Jacobson and fellow whistleblower Tony Paschal allege, in sworn affidavits filed in Federal court, that:

• Wells' "Subprime managers joked that Prince George's County was the 'subprime capitol of Maryland'" (see Jacobson Declaration, at paragraph 26), Wells' loan officers targeted black ZIP codes (see Paschal Declaration, at paragraph 10) and churches (see Jacobson Declaration, at paragraph 27), used software to “translate” marketing materials into African-American vernacular (see Paschal Declaration, at paragraph 11), referred to subprime loans in minority communities as “ghetto loans” and to borrowers as “mud people” (see Paschal Declaration, at paragraph 8), use of the words "nigger" in referring to African Americans and "'hoods" and "slums" in speaking on how African Americans live (see Paschal Declaration, at paragraph 16; see also Paschal Declaration - Exhibits B and C for email exchange in which Tony Paschal addresses these points with two Wells Fargo higher-ups - one supervisor actually acknowledged in one of the emails the use of the racial slur), and loan officers joked that, in making these subprime loans, they were “riding the stagecoach to Hell” (see Jacobson Declaration, at paragraph 31).

For the Federal lawsuit (including affidavits, evidence, and other court filings ) and earlier media reports, see:

• Lawsuit - First Amended Complaint (filed June 1, 2009): Mayor and City Council of Baltimore v. Wells Fargo Bank N.A. et al., (links to a 12 MB+ "zip" folder containing a total of 24 court documents filed in Federal court, including the first amended complaint, and the above-referenced declarations and evidence from Jacobson and Paschal, declarations from Baltimore residents living near vacant Wells Fargo foreclosures that describe the state of these properties and the conditions that contribute to injury to the City by increasing the costs incurred by City departments and decreasing the City’s property tax revenues); link to "zip" folder also available on the home page of Relman & Dane, the law firm representing the City of Baltimore.
• The Maryland Daily Record: Ex-workers allege race-based loan approach at Wells Fargo,
• The New York Times: Bank Accused of Pushing Subprime Deals on Blacks.