American Morning

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June 11th, 2009
06:41 AM ET

"Ghetto loans” allegedly target minorities

[cnn-photo-caption image= caption="Baltimore mayor Sheila Dixon alleges Wells Fargo violated the federal Fair Housing Act."]

From CNN's Bob Ruff and Carol Costello

Once upon a time, many banks didn't loan money to minorities seeking home mortgages.

The practice is called "redlining." The name comes from the notion that some banks and real estate agencies drew a red line around parts of the map where minorities lived so that they wouldn't do business with them.

The Fair Housing Act was passed in 1968 to stop redlining and prohibit all housing discrimination based on race, religion, gender, disability, or ethnic origin.

So, what's up with "reverse redlining"?

This variation on redlining describes banks who target parts of a city with significant minority populations in order to sell them costly sub-prime mortgages, even if they can afford cheaper prime mortgages.

Beth Jacobson knows all about it.

At one point she was the top salesperson selling sub-prime mortgages at Wells Fargo. One year she made $700,000 in salary and commissions by just selling the sub-primes. Now that she's left the bank she and another former Wells Fargo mortgage officer are spilling the beans by alleging reverse redlining on the part of their former employer.

"Wells Fargo," Jacobson told CNN's Carol Costello, "set up a whole platform called ‘emerging markets’ that was geared to the African American." She says the bank's goal was to sell them sub-prime mortgages, which are much more profitable to the banks than prime rate mortgages. But the problem, says Jacobson, was that Wells was so single-minded about this that "we had products where you didn't have to disclose income…and they would loan up to 95% (of the mortgage total)." When temporary low teaser rates were replaced with much higher rates after two years, she says, the defaults mounted.

The city of Baltimore has been closely watching the effects of this alleged reverse redlining.

In January 2008, Baltimore sued Wells Fargo for violating the Fair Housing Act with "discriminatory lending practices." The case is before Federal Judge Benson E. Legg, who is considering affidavits from Jacobson and Tony Paschal, another former Wells Fargo loan officer, which describe in detail what they say is reverse redlining by the bank.

Paschal, who is African American, claims black loan officers were hired to gain the trust of the black community in order to sell them on high interest loans. He also describes how he often heard employees – whose job it was to target African Americans for subprime loans – jokingly refer to doling out “ghetto loans” to people with “bad credit.”

Baltimore Mayor Sheila Dixon says the effect of reverse redlining is that so many people defaulted from the Wells Fargo loans that her city is forced to spend millions of dollars to protect and clean the empty homes. The city also says it has lost tax revenues from declining property values. Dixon told CNN the city wants Wells Fargo to pay the city "so we can take these communities that have been devastated as a result of these foreclosures to stabilize those neighborhoods."

At least one neighbor who lives near an empty foreclosed building is angry.

We visited Stephan Faison who pointed out the foreclosed Baltimore row house right next door. It was filled with garbage on the front porch and in the back yard. Faison told Carol Costello that the house "is nothing but a rat hotel. That's all it is, nothing but a rat hotel." Faison directs his anger right at the bank. "There's no excuse that it look like that. That's a bank, come on now. It shouldn't look like that at all."

What does Wells Fargo think about all of this? They say "the lawsuit absolutely lacks merit." In a statement issued to CNN, they added the following:

"We have worked hard to be the #1 home lender to people of color and low and moderate-income borrowers nationally in a fair and responsible way. This includes collaborating with leaders within diverse segments who provide us with advice and guidance on how to make people aware that our loans are available to all communities. Our intention has always been to do what is right to ensure we can make home-ownership achievable and sustainable for as many borrowers as possible, with loan pricing that is nondiscriminatory."

Filed under: Controversy
soundoff (24 Responses)
  1. Pat

    Hmmmm, Wells Fargo shows up on Acorn's Mortgage site. My guess is they did this to shut Acorn up about all the frivilous lawsuits they filed agains Wells Fargo.

    According to Acorn's Home Loan site, Acorn mortgages offer:

    -Low downpayments
    -Flexible credit guidelines and income requirements including the use of non-traditional income (like welfare and child support.)

    Ready for round two of the housing crisis? This is the problem and with Acorn involved it will continue.

    June 21, 2009 at 3:07 pm |
  2. Pat

    This story is ridiculous. First of all, Sheila Dixon was convicted of fraud, theft and perjery. She stole money that was supposed to go to the poor. And, Acorn sued Wells Fargo because they said they didn't give out enough loans to minorities. They put them in a lose-lose situation. Keep the government and the crooked politicians out of banking. Wells Fargo is a stand up company from all that I know about them.

    June 21, 2009 at 12:10 pm |
  3. Tiff

    I do not find this hard to believe at all. Wells Fargo is a money hungry, shady, two faced company. I know many people who work there now, and i have known them for years, but when starting there they all just seem to shift and change. And being from the Baltimore area it amazes me that these friends that i have known for so long, could very well be responsible for these occurences. I am absolutly disgusted by this whole thing.

    June 19, 2009 at 9:42 am |
  4. Bob

    What has been forgotten , is Clinton pushed for legislation to commit this fraud of lending to people that can't afford it.Congress and Senate had to be involved in this scam , besides the AIG and real estates.A conspiracy that most are getting away with.Also if you remember , when Clinton was running for President , Ross Perot warned the American people what would happen if he was elected and he went through with the NAFTA treaty.Perot was right.So now Obama rewards these theives. What's wrong with this picture ?

    June 12, 2009 at 9:01 am |
  5. zooboy

    It's unbelieveable how individuals don't take responsibility for their own actions. Did anybody force the borrower(s) sign the disclosures twice (first time via the mail, second time at closing with the title company/lawyer)? They had PLENTY of opportunities to back out!

    June 11, 2009 at 11:57 am |
  6. Melanie

    I find it interesting how much effort CNN puts into this story of "hate crime" but so conveniently glossed over the offenses of Abdulhakim Muhammad. Are we only allowed to talk about hate crimes committed by white people?

    June 11, 2009 at 10:52 am |
  7. carol costello

    this is Carol Costello-an update on Ms Jacobson, the former Wells Fargo loan officer-

    FYI-she now works to save people from foreclosure. She knows one day she'll run across one of her former client's and the bad loan she pushed through for them.

    She told me she does have regrets–that's why she's working to save people's homes today.

    June 11, 2009 at 10:44 am |
  8. T

    I remain amazed at how greed can take over an individual's being. Corporate? Maybe. But the individuals, e.g., the whistle-blower? Why declare things were awry, *after* one has made her pile? Where was her mind, earlier?

    June 11, 2009 at 9:46 am |
  9. An American

    Geat story! Typical corporate greed.

    How does one conclude: It's the victim's fault.

    If the loan officer/ broker does the income qualification formula and other paperwork and tells the victim, "You can afford it." How can you blame the victim.

    It's like a mechanic putting bad brakes on your car and telling you, "You can drive it." And you go out and get into an accident. You are the victim. Is your fault for not taking off all the tires and inspecting the shoes and other compenents that make-up the braking system? No! The brakes were substandard from the beginning and the mechanic should not have proceeded with them, just like the Wells Fargo shoud not have proceeded with these customers. Check the logic.

    It seems as though someone has another underlying issue around race like Wells Fargo. Man up RJ! Your Red Neck is showing.

    June 11, 2009 at 8:46 am |
  10. Mike Cunningham

    You guys mentioned NO SUMMER and the JET STREAM and over an hour later I still had no explanation or the story.
    Amazingly irresponsible!!! Do you have any idea what the size of the typeface should be for a headline like that. For my kids, my summer camp, for our local businesses here in Old Forge New York in the heart of the Adirondacks this is tantamount to yelling FIRE!! in a crowded theater.

    June 11, 2009 at 8:28 am |
  11. Jetman

    There is more to this story,

    I have a Wells Fargo (FHA) loan on an investment house in Florida. The house has been vacant since June 2008 and I have been making the payments out of pocket while trying to sell the house. Needless to say, the house has not sold and I have been feeding that alligator.

    I lost my job in Feb 2009 and have been on unemployment and all of that money goes to trying to hang on to my primary residence and support my family. At the end of Feb 2009 I initiated a Deed in Lieu of Foreclosure with Wells Fargo to try and preserve my credit rating and get rid of the alligator I could no longer afford to pay for. Wells Fargo lost, threw out, or just disregarded all the paperwork they requested from me that was faxed to them no less than 30 times (no exaggeration I have documents to prove). I actually faxed 20 pages of documents to two fax numbers provided by Wells Fargo 15 times over a two-day period. After the two-day Fax fest they actually acknowledged they received ALL the paperwork. I still do not know the status of the Deed in Lieu of Foreclosure.

    Since Feb 2009 I have called and called and faxed and faxed Wells Fargo and their job was to lose the paperwork and placate me with the worst customer service system and people on the planet. I actually got to the highest management people in the customer complaint department called “Work Directors” who told me their was no one above them and they had no boss I could talk to above them to resolve this issue. WHAT A LIE!!!!!! I was not talking to the CEO. This happened 4 times!!!!

    Wells Fargo is a horrible company and should be shut down not just for they’re predatory lending practices but also for they’re over all lending modus operandi. Their goal in life is to grab, cheat and steal the American population out of their property. Hey Baltimore, you need to expand your lawsuit into the overall daily operation practices of Wells F%#king Fargo. By the way I am white upper middle class. This just goes to show you that race does not matter to Wells Fargo. EVERYONE is a target to them.

    June 11, 2009 at 8:27 am |
  12. Glenn Coates

    Selecting Well Fargo Bank as the villan in Baltimore's housing crisis points the finger of blame in the wrong direction. It should be pointed at the real cause of the problem....Government.
    Starting in 1977 with Jimmie Carter's Community Reinvestment Act and coutinueing into the late 90's when Bill Clinton deregulated the banking industry, governments direction and focus was to provide more minorities with home ownership opportunities.....a good idea in theory but a bad result in practice.
    Government forced banks into the subprime/risky mortgage business. Henrty Cisneros, Secretary of Housing and Urban Development, set a quota fo banks in the high 40's, forcing banks to lend to minorities. Andrew Cuomo raised that quota to 52% . Banks were forced to be creative and develop products and programs to serve that market,
    The result? Too many people borrowed too much money that they couldn't afford to pay. back.
    Complicit in this fiasco were Fannie Mae, Freddie Mac, Christifer Dodd and Barney Frank.
    Curious that it was always Democrats responsible for this mess. Now the American Taxpayer is paying for their mistakes.

    June 11, 2009 at 8:20 am |
  13. Kevin O'Donnell

    once again,the only plausible explanation=racism.and if wells fargo didn't lend the money,and some reporter got a hold of a stack of applications that were denied,guess what the story for that would be? racism of come nobody could figure out that if you have 4 kids and work at applebees you can't afford a mortgage.the white majority elected a black president,proving that racism is not a major issue.of course some whites hate blacks the same way some blacks hate whites,but the black racism is treated likeit's santa claus-there is no such thing,and don't start about how blacks can't be racist,nobody's buying it.

    June 11, 2009 at 8:08 am |
  14. Lynn Gendron

    This is yet another sickening example of the greed of banks... if it's any consolation to Baltimore, the same thing happened here in San Antonio. We sit in a sea of foreclosures due to the predatory lending of Hispanic citizens who never should have been approved for loans. Within a month of moving in to our neighborhood, I could see we were in trouble... people with jobs, no credit, no savings who somehow qualified for a home it took us 25 years to plan for... that was two years ago and now folks are loading up U-Hauls in the night. Where does that leave responsible prime borrowers? Upside down and wondering what's the incentive to keep paying.

    June 11, 2009 at 8:06 am |
  15. Chris

    As a former retail mortgage officer myself with a large national lender, Beth should take responsibility for her own actions and decisions and credit ACORN with initiating the use of churches as a means of target marketing. I targeted Prime Customers. But one customer I thought would only be eligible for sub-prime was approved by Wells Fargo for an FHA loan as a counter-offer to my loan request for a sub-prime loan. That seems to be the reverse of predatory lending.
    Wake up Beth and give back some of your earnings – my guess is you made a lot of your money on overages!

    Chris M, Houston, TX

    June 11, 2009 at 8:05 am |
  16. Bryan L.

    This story is identical to the fiasco with citizens blaming fast food chains for their obesity. Make good choices. I agree the misleading someone into signing into a loan they cannot afford is wrong, as well as lying or even withholding information. I disagree that it is related to the demographic for which the loans were geared. This is a common practice amongst all lenders. The bottom line is, if you cannot afford to buy a home, do not buy a home. If you cannot take the time to read through a contract, do not sign it. Make good choices America. STOP BLAMING AMERICAS CORPORATIONS!

    June 11, 2009 at 8:03 am |
  17. E. Adams

    This absolutely amazes me. For years we heard complaints about how African Americans were being discriminated against. We heard how they were being treated unfairly. Now that they have had the same opportunities and risks that the rest of the country has, we hear screams of being "used". This is shameful.

    Quite a few years ago our own government told banks they had to make loans available to people that normally would not qualify. The banks did that. In fact, being good business people, they realized that doing what the government asked or better, TOLD them to do, they would make lots of money. How shameful is that? A business trying to make money.

    Where is the thought of individual responsibility. I have never made more than what most people would call an average middle class income in my life. I have always paid my bills. I NEVER buy something that I can not afford. I drive 10 year old and 15 year old cars that are paid for. I put money away for retirement. I do not carry a balance on my credit cards. Why is it that when people live beyond their means that it is a banks fault?

    Your story is a disgrace to fair reporting. You should have brought up ALL sides of this story. Shame on you all!
    E. Adams

    June 11, 2009 at 8:02 am |
  18. beno

    This does not suprise me at all. Wells Fargo as well as Ameriquest, OptionOne, New Century, World Bank, Argent, and broker only institutions have been pushing these garbage programs for years. Their motivation was high profit only. If a mortgage professional is bragging about how much money they're making, they're involved in these shady deals.

    June 11, 2009 at 7:49 am |
  19. RJ

    The American dream isnt to live beyond your means, its actually to live within your means and work as hard as you have to to achieve higher goals, dont expect them to land in your lap! An old saying I came up with years ago, "some people were meant to drive Cadillacs and some people were meant to drive Chevettes! Credit has to start being harder to get and qualications need to be much tougher to recieve credit cards! Lot of people say boo to that but it will be the only way to save this country! And I say boo to the keep up with the Jones`!

    June 11, 2009 at 7:48 am |
  20. RJ

    Problem is too many people in this country dont no how to live within their means. Bank tells you you qualify for a $250,000 home but in reality you can only afford half that amount, so instead of people being realistic they have to keep up with the Jones`. Between credit cards and inflated home loans Americans have drove this country into a huge rut that my Grandkids kids will be paying for all these irresponsible people, my grammy calls it greedy want to be`s!

    June 11, 2009 at 7:42 am |
  21. Larry

    The abuses in the mortage and banking industries over the last 10 years resulted in nearly bringing down the world economy. Fortunately new regulations are arising now to prevent this in the future.

    Too bad Bill Clinton didn't forsee this before he eased all the regulations before he left office. But then again, Clinton always was out only for his own interests.

    He should be a republican.

    June 11, 2009 at 7:25 am |
  22. Milton Smith

    These acts of trickery will not go unpunished, I alone will not stand by and allow these wacky folks sell giant wooden boxes. I deserve better and I hope others see through the box giant architechture bumble. Mayhem, atrocity, Loner skinner named Earth, box people! Sick If I were alien or even a genetic marvel sent out to do deeds I blast these sick rapist box planet out of the universe, nebulized-brief case nebulae and over here the horse head nebulae and over here the tirantula nebulae and over here the naked lady nebulae- a master piece!

    June 11, 2009 at 7:13 am |
  23. Rachel in Austin TX

    This isn't the first time I have heard of Wells Fargo bending and breaking rules. Several years ago here in Texas, Wells Fargo began giving home loans to Illegal Immigrants. Last I heard, If you didn't didn't have a socal where credit could be followed, you didn't get a home loan. But somehow, Wells Fargo found a way to approve alot of these people for loans. What type of loans these were... I don't know. All I know, is that most of them who applied got a house. Myself with a credit score of 725 (at that time) couldn't even get a credit card.

    June 11, 2009 at 6:49 am |