They've got muck; we've got rakes. TPM Muckraker
TPMmuckraker took a look at those filings, and here's what's being alleged:
During the subprime bubble which burst in 2007, Wells Fargo specifically targeted African Americans for its subprime loans, which carry a higher interest rate and are more lucrative for the company than standard loans:
- For instance, according to the sworn affidavit filed by one of the former loan officers, Tony Paschal (himself African-American), Wells Fargo was so focused on pitching subprimes to African-Americans that, until 2006, loan officers' computers had software that allowed them to print out flyers in the language "African-American." It's unclear how the language of the resulting flyer differed from English.
- In her sworn affidavit, Beth Jacobson, the former loan officer, writes: "I remember managers saying that they felt 'so lucky to have [Prince George's] County because it is the subprime capitol (sic) of Maryland.' " Prince George's County is heavily African-American.
- According to Jacobson, Wells Fargo used black loan officers to go into black churches in Baltimore to do presentations about loans. It also ran "wealth building" seminars targeted at black people for "alternative lending," which was the company's code for subprime lending." Jacobson was told she was "too white" to lead these seminars. When she complained, she got no response.
It's also alleged by Paschal that there was a broader culture of tolerance for racism at the company:
- Paschal writes that he heard loan officers "refer to subprime loans made in minority communities as 'ghetto loans' and minority customers as 'those people have bad credit,' 'those people don't pay their bills' and 'mud people'."
- Paschal also writes:
Dave Zoldak, who succeeded Dave Margeson as my branch manager in 2005, used the word "nigger" at the office. Although Wells Fargo knew Mr. Zoldak used racial slurs, it promoted him to area manager after I complained about his discriminatory comments. On October 21, 2005, I complained in my email to Mr. Zoldak directly about his use of the word "nigger" and speaking about how African Americans lived in "'hoods" and "slums." Mr. Zoldak replied that he had used the slurs in a humorous way, just as the African-American comedian Dave Chapelle did on television and thought that I would find the use of these terms humorous.
(It's hard to read this and not be reminded of the scene from the TV show, The Office, in which the racially insensitive boss, Michael Scott, organizes "Diversity Day", then complains: "How come Chris Rock can do a routine and everyone finds it hilarious and groundbreaking, and I do the exact same routine, same comedic timing, and people file a complaint to Corporate?")
The race issue aside, the suit also alleges that some loan officers falsified applications to get customers into higher-interest subprime loans:
- Jacobson writes:
Some ... reps actually falsified the loan applications in order to steer prime borrowers to subprime loan officers. These were loans applicants who either should not have been given loans or who qualified for a prime loan. One means of falsifying loan applications that I learned of involved cutting and pasting credit reports from one applicant to another. I was aware of ... reps who would "cut and paste" the credit report of a borrower who had already qualified for a loan into the file of an applicant who would not have qualified for a Wells Fargo subprime loan because of his or her credit history. I was also aware of subprime loan officers who would cut and paste W-2 forms. This deception by the subprime loan officer would artificially increase the credit worthiness of the applicant so that Wells Fargo's underwriters would approve the loan. I reported this conduct to management and was not aware of any action that was taken to correct the problem.
In fact, so desperate were loan officers to get applicants into subprime loans that, according to Jacobson, some even coached the applicants about how to lie to Wells Fargo's own underwriters, who were calling the applicants to verify that they were good candidates for such loans.
From Jacobson's affidavit:
[U]nderwriters in the underwriting department were told to call the customers directly rather than contact the loan officer who was working with the customer. The loan officers quickly figured out how to work around this by warning customers that underwriters might call them and then coaching the customers about what to say. For example, customers were told that they should just tell the underwriter that they did not have much in the way of assets or documentation for their income, because otherwise the underwriter would deny their loan or force them to fill out additional paperwork to document their financials. The point was to get the customer to say whatever would allow them to qualify for a subprime loan, even if it was not true. The customers went along with this because they thought it would expedite the process of getting them the loan that they had been told was the right one for them.
- Loan officers also made it all but impossible for customers to get lower-interest government-insured loans.
Federal Housing Administration (FHA) loans, like other government-insured loans, offered lower interest rates that are closer to prime rates. Subprime loan officers were required to have a subprime borrower sign a "Benefit to Borrower" Statement that stated that the borrower may qualify for a government-insured loan, but did not want it because it was too much paperwork. In fact, subprime loan officers were never trained in how to make FHA or government-insured loans. We asked for this training, but Wells Fargo refused to provide it.
And finally, it's alleged that, even once the downturn had begun, Wells Fargo rewarded its top-earning loan officers with lavish perks.
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. I attended all expense paid trips to Cancun, Orlando, Palm Springs, Vancouver and the Bahamas where we were entertained by Aerosmith, the Beach Boys, the Eagles, Cheryl Crow, Elton John, Jimmy Buffett and James Taylor. When we would return to our rooms at night we would find gifts of artwork, crystal platters, steak of the month club memberships and iPods left for us.
Jacobson wrote that loan officers used to joke that by pushing subprimes, they were "riding the stagecoach to hell." Sounds about right.