TheLoop21.com

By: Devona Walker (Add to your loop)
Tue, 06/23/2009 - 00:00

Tavis Smiley should speak out against Wells Fargo's predatory lending.

The financial implications of subprime lending on cities like Baltimore, Oakland, Cleveland and Detroit have been devastating. The effect on the black community nationally has been the single most financially devastating event in United States history. Oakland, Calif., faces a $100 million deficit, and Baltimore has actually filed suit against one of the largest companies in the city, Wells Fargo.

Wells Fargo has clearly targeted black homeowners for years with predatory loans and contributed to billions of dollars in lost wealth in the black community. But yet a man cited as an emerging leader in the black community, has not severed ties with the corporate bank. In 2005, when Tavis Smiley went on his whole "empowering" the black community tour, Wells Fargo footed the bill. Interestingly enough, one of the key components of the tour was promoting home ownership in the black community which happened to coincide with Wells Fargo's need to gain access into the black community to market its subprime loan division. In Smiley, they found an inspirational, if not an official, pitch man.

I don't fault Smiley for what happened back then. Few of us had the clarity to fully understand what lenders like Wells Fargo were really up to when they started showing up in the black community.

But now? Everyone knows. And now, Smiley should man up, cut the purse strings and issue a sincere apology.

We've written about how Wells Fargo loan officer Tony Paschal, a black man, said Wells Fargo frequently called subprime loans "ghetto loans" and their black subprime customers "mud people."

Today, we are pushing that story forward by informing you that loan officers frequently and fraudulently told these black customers that sub prime was sometimes their only option. In an affidavit, Paschal and another prominent Wells Fargo loan officer, Elizabeth Jacobson, wrote that, the lender had an unwritten policy of omitting information concerning fees and penalties but instead sold black people on the more expensive loans by saying it would simply mean less paperwork, less documentation and a lower down payment.

And what is most damaging to Wells Fargo, and Smiley as far as that is concerned, is the rampant amount of fraud going on in order to give blacks loans they could not afford. The bank in fact set up an entire division, called the mortgage resources division or MORE, that was designed to target black ZIP codes. In this division, loan officers were only allowed to authorize subprime loans. They received incentives for steering prime customers into subprime products and they were reportedly reprimanded when they didn't, according to court reports.

Wells Fargo actions in places like Baltimore and Prince George's County, Md., if proven to be true, are shocking, according to Eric Halperin, director at the Center for Responsible Lending.

"I have never seen anything quite like it," Halperin said of testimony surfacing in a lawsuit the city of Baltimore brought against Wells Fargo. "Redlining was about providing access to lending to minority communities. This is about providing access to equitable terms."

Wells Fargo v. city of Baltimore

"Our minority residents and homeowners, many of whom were first-time buyers, were led down a disastrous primrose path by Wells Fargo, one of the biggest lenders in the city of Baltimore," City Solicitor George Nilson told the Baltimore Sun. "We're trying to do what we can to get some kind of redress."

In the complaint, the city has introduced numerous accounts by former Wells Fargo employers of reverse redlining and what appears to be the total targeting of minorities in the city. Paschal originally left the company because he was uncomfortable with the treatment of minority customers and employees. He said Wells Fargo told its black customers that their interest rate was locked when, in fact, they weren't.

"I believe this was deceptive and discriminatory, particularly since Wells Fargo loan officers offer lower interest rates for white loan applicants," Paschal said.

Wells Fargo has denied the allegations and claims Baltimore is simply so thirsty for revenue that it has chose to sue a company. A spokesman with Wells Fargo says the company is not to blame for the city's foreclosures or any of its other problems affecting the housing market.

Wells Fargo v. the black community

Wells Fargo's MORE division was designated by ZIP codes like Washington, D.C., Prince George's County in Maryland and Baltimore, municipalities where there were huge swaths of blacks. ZIP codes that were largely white were not marketed with subprime loans and were not included in the MORE zone, according to loan officers. 

Paschal even presented evidence of a software option available for loan officers that "spoke the language of African Americans." He and Jacobson both presented evidence on another Wells Fargo division, emerging markets, which targeted black churches. Black churches were chosen because the lender believed preachers held a lot of influence in the community, and it provided those ministers with a significant carrot — a $350 donation to the non-profit of the borrower's choosing per loan originated at Wells Fargo. And with churches being non-profits, well, you can fill in the blanks.

Paschal, who had access to the loan files of many of these black subprime customers, said he routinely saw families who could qualify for prime loans. He also said he was repeatedly passed over for promotion because he was not doing enough to "build up the subprime business." In essence, when he came across a customer who could qualify for a lower interest loan, he referred them to the prime loan division. Paschal also claims Wells Fargo tolerated a corporate culture of discrimination. One manager, whom Paschal formally complained about because he used the word "nigger" in the office, was promoted shortly after Paschal's complaint.

"Loan officers received cash incentives to aggressively market subprime loans in minority communities. If a loan officer referred a borrower who should have qualified for a prime loan to a subprime loan, the loan officer would receive a bonus," Paschal said. "Since loan officers made more money when they charged higher interest rates and fees to borrowers, there was a great financial incentive to put as many minority borrowers as possible into subprime loans and to charge these borrowers higher rates and fees."

Falsifying documents

Jacobson, who is white, also offered detailed testimony about the financial incentives loan officers received.

"I also know that there were some loan officers who did more than just use the discretion that the system allowed to get customer into subprime loans," Jacobson wrote. "Some A reps actually falsified the loan application in order to steer prime borrowers to subprime loan officers."

One way of doing this, she noticed, was cutting and pasting credit reports of one borrower to another. Loan officers did the same with W-2 forms. She reported these practices but nothing, to her knowledge, was done to stop it.

In her office, they jokingly said they were "riding the stage coach to hell" in reference to Wells Fargo's unethical and morbid approach to subprime loans, and more specifically, using the black church as a means to exploit African Americans.

"The culture at Wells Fargo was focused solely on making as much money as possible. Even as foreclosures were increasing in recent years, the company continued to lavish expensive trips and gifts on successful subprime loan officers," Jacobson said, adding that she attended them all.

There was Cancun, Orlando, Palm Springs, Vancouver and the Bahamas. They were exclusively entertained by Aerosmith, the Beach Boys, the Eagles, Sheryl Crow, Elton John, Jimmy Buffet and James Taylor. Then, when they returned to their hotel rooms, they would find gifts like artwork, iPods and crystal platters. 

Tavis Smiley has some explaining to do

Wells Fargo will have its day in court. But Smiley's continued involvement with the disgraced lender needs to face a different court, and that's one of public opinion — black public opinion. This issue should be discussed, debated and Smiley himself needs to address it publicly, not in a press release issued on his Web site.

The question is, shouldn't the actions of "black leaders" be in accordance with our empowerment and best interests?

Smiley has since reported that Wells Fargo, which has sponsored his annual event for three years straight, won't in 2010. But still, his little announcement didn't exactly take them to task for the utter fleecing of the black community.

Devona Walker is TheLoop21.com's senior reporter/blogger.

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