Main Street

Subprime Lending in Black and White

This is just incredible (not in a good way). Baltimore has filed a federal lawsuit against Wells Fargo Bank for pushing black applicants to get subprime mortgages even when they qualified for better terms, “tipp[ing] hundreds of homeowners into foreclosure and cost[ing] the city tens of millions of dollars in taxes and city services.”

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.

This wasn’t just in Baltimore: A New York Times analysis of mortgages in New York City found a greater black-white disparity in subprime rates for Wells Fargo than for other lenders (among borrowers of equivalent income).

A lot of commentators with big platforms—the banks, many politicians and pundits—want us to believe that the mortgage crisis is about irresponsible homeowners. As if Americans had suddenly, inexplicably just gotten really irresponsible, decided they didn’t care if they lost their homes. Stories like this remind us again of the range of practices by the lenders that produced this crisis. They were the ones who changed, not homeowners. And they got away with it because the government wasn’t keeping a close enough watch on them.

We need effective regulation and oversight of the financial industry.

Tags: mortgage crisis