From an article in the Maryland Daily Record
The city of Baltimore has beefed up its groundbreaking racial discrimination lawsuit against Wells Fargo with sometimes shocking testimony from a pair of the megabankâ€™s former subprime-loan officers.The two whistleblowers claim their co-workers targeted black ZIP codes and churches, used software to â€?translateâ€? marketing materials into African-American vernacular, and referred to subprime loans in minority communities as â€?ghetto loansâ€? and to borrowers as â€?mud people.â€?Their declarations were attached to an amended complaint filed Monday in U.S. District Court in Baltimore.The loan officers, who worked for Wells Fargo in the Baltimore-Washington area from the late 1990s until 2007, also alleged bank employees deceptively steered prime borrowers into subprime loans for their own financial benefit and joked that they were â€?riding the stagecoach to Hell.â€?The city also filed declarations from four city residents who live near Wells Fargoâ€™s foreclosed properties. They complained of squatters, rats and burst pipes, all of which have required attention from some city department.It cites 10 studies, including one specific to Baltimore, which studied reverse-redlining in black neighborhoods; and updated the foreclosure data to include the first part of 2009.The new material â€?shows the City has been injuredâ€¦and that Wells Fargoâ€™s policies and practices employ subjective and discretionary underwriting practices that have disparately impacted African Americans,â€? according to the cityâ€™s motion for reconsideration. ...The city has alleged Wells Fargo targeted minority neighborhoods and borrowers for high-rate subprime loans â€” a practice known as reverse red-lining, which is illegal under the federal Fair Housing Act, according to the cityâ€™s legal team. The city wants tens of millions of dollars to compensate for the collateral costs of Wells Fargoâ€™s foreclosures, such as increased police and fire department expenditures.The bank has denied any such strategy and said its loan pricing is simply based on credit risk. It has also challenged the cityâ€™s standing to bring suit and pointed to the cityâ€™s own role in the foreclosure crisis.â€?We have worked extremely hard to make homeownership possible for more African-American borrowers and all customer segments, and we have done so fairly and responsibly,â€? Wells Fargo spokesman Kevin Waetke wrote in an e-mailed statement late Monday. â€?We absolutely do not tolerate team members treating our customers disrespectfully or unfairly, or who violate our ethics and lending policies. Race is never a factor in the pricing or products we offer.â€?
The government spent decades attacking redlining as evil and irrational, so in this decade we got "reverse redlining"
— a.k.a., Diversity Outreach. Also, no doubt the bank was under pressure to hire more diverse workers, and to work more with more diverse mortgage brokers. All this is conducive to boiler room high pressure tactics that stay under the radar screen of regulators and the media until the bubble bursts.
I`m not particularly impressed by the implicit argument that the higher default rates on subprime loans taken out by blacks and Hispanics are due to them being steered into subprime loans instead of the prime loans they deserved. First, lots of them defaulted while still on the two year introductory teaser rates. Second, all that just suggests the risk premium should have been even higher, so high that many of these loans wouldn`t have been made. But of course that would just lead to charges of "redlining."
So, Housing Bubbles and Busts in heavily minority areas are inevitable under the current conventional wisdom about race.