A Sordid Tale of Discriminatory Lending Practices and “Ghetto Loans”

Submitted by Elaine Magliaro, Guest Blogger

In the aftermath of the financial crisis back in 2008, a number of conservative commentators—including Mike Huckabee and Neil Cavuto—blamed minorities and low income people for the subprime mortgage mess. According to some of these conservatives, the responsibility for the mortgage mess lay at the feet of the Community Reinvestment Act and the poor/minorities among us who took out subprime mortgages. There didn’t seem to be any mention of banks and their predatory lending practices being at fault in any way.

Well, James Theckson, a former banker who was a regional vice president for Chase Home Finance in southern Florida, claims that banks are mostly culpable for the subprime mortgage fiasco. He told Nicholas Kristof of the New York Times that his team wrote $2 billion in mortgages in 2007—and that some of them were “no documentation” mortgages. Theckson said, “On the application, you don’t put down a job; you don’t show income; you don’t show assets. But you still got a nod.” He continued, “If you had some old bag lady walking down the street and she had a decent credit score, she got a loan.”

From Kristof’s article, A Banker Speaks, With Regret, which appeared in the New York Times on November 30, 2011:

“You’ve got somebody making $20,000 buying a $500,000 home, thinking that she’d flip it,” he said. “That was crazy, but the banks put programs together to make those kinds of loans.”

Especially when mortgages were securitized and sold off to investors, he said, senior bankers turned a blind eye to shortcuts.

“The bigwigs of the corporations knew this, but they figured we’re going to make billions out of it, so who cares? The government is going to bail us out. And the problem loans will be out of here, maybe even overseas.”

Theckson also said that some account executives would earn commissions seven times higher for subprime loans than they would receive for prime loans.

The unethical lenders often targeted “less savvy borrowers”—people with less education, people who had never taken out a mortgage before, or people who weren’t fluent in English. As you may have already deduced, a great proportion of those “less savvy borrowers” were blacks and Latinos.

Kristof isn’t the first person to write about the discriminatory practices that bankers/lenders were involved in perpetrating on minority borrowers. In 2009, Michael Powell wrote an article for the New York Times titled Bank Accused of Pushing Mortgage Deals on Blacks. In the article, Powell explained why the city of Baltimore was suing Wells Fargo “over its mortgage lending practices in black neighborhoods.”

From Powell’s article:

As she describes it, Beth Jacobson and her fellow loan officers at Wells Fargo Bank “rode the stagecoach from hell” for a decade, systematically singling out blacks in Baltimore and suburban Maryland for high-interest subprime mortgages.

These loans, Baltimore officials have claimed in a federal lawsuit against Wells Fargo, tipped hundreds of homeowners into foreclosure and cost the city tens of millions of dollars in taxes and city services.

Wells Fargo, Ms. Jacobson said in an interview, saw the black community as fertile ground for subprime mortgages, as working-class blacks were hungry to be a part of the nation’s home-owning mania. Loan officers, she said, pushed customers who could have qualified for prime loans into subprime mortgages. Another loan officer stated in an affidavit filed last week that employees had referred to blacks as “mud people” and to subprime lending as “ghetto loans.”

Ms. Jacobson, who is white, said, “We just went right after them.” She added, “Wells Fargo mortgage had an emerging-markets unit that specifically targeted black churches, because it figured church leaders had a lot of influence and could convince congregants to take out subprime loans.”

It has been reported that a subprime loan on a $165,000 mortgage would add more than “$100,000 in interest payments.” I think one of the most tragic things about this sordid tale of discriminatory lending practices is that many of the minority individuals who were foreclosed upon or who are currently being threatened with foreclosure actually qualified for prime loans.

Isn’t it nice to know that we taxpayers bailed out Wells Fargo to the tune of $25 billion so it could remain “adequately capitalized despite holding ‘troubled assets,’ particularly subprime loans.”


A Banker Speaks, With Regret (New York Times)

Bank Accused of Pushing Mortgage Deals on Blacks (New York Times)

Tracking the $700 Billion Bailout (New York Times)

Former Chase Banker Admits His Bank Pushed Minorities Into Subprime Mortgage Loans (ThinkProgress)

Report: Wall Street Firms Drove The Subprime Crisis, Fueled Drop In Lending Standards (ThinkProgress)

Bailed Out Bank Accused Of Intentionally Steering Minorities Toward Subprime Loans (ThinkProgress)

Conservatives Try To Dodge Responsibility For Crisis By Blaming Poor People  (ThinkProgress)

American Enterprise Institute Has The Mortgage Mess Backward (ThinkProgress)

Wells Fargo Accused of Pushing African Americans Into Subprime Loans (Legum’s New Line)

Scandal: Market Crisis (ProPublica)

Predatory Lending: A Decade of Warnings as Congress and the Fed Fiddled (Center for Public Integrity/Cutting Edge News)

26 thoughts on “A Sordid Tale of Discriminatory Lending Practices and “Ghetto Loans””

  1. mickey,

    Interesting story.


    How Big Banks Finance Billions In Predatory Payday Lending

    One of the more pernicious forms of predatory lending is payday lending, which involves firms giving usually low-income workers very short-term, high-interest loans in order to help them pay for necessities until they receive their next paycheck. While this may sound like a valuable service, the interest rates on the loans are so high that many borrowers get caught in a cycle in which they’re constantly taking out new loans to cover the new bills that they can no longer afford, due to having paid back the last loan.

    In fact, the Center for Responsible Lending has found 76 percent of payday loan volume (and $3.5 billion in annual fees) is due to “churning,” which is repeat borrowing by customers who paid off their loan, but because of the interest, require another loan before their next paycheck. And according to Credit Slips’ Nathalie Martin, a professor at the University of New Mexico, the nation’s biggest banks are, in a big way, financing this predatory lending:

    – Major banks provide over $1.5 Billion in credit available to fund major payday lending companies.

    – The major banks funding payday lending include Wells Fargo, Bank of America, US Bank, JP Morgan Bank, and National City (PNC Financial Services Group).

    – All together, the major banks directly finance the loans and operations of (at minimum) 38% of the entire payday lending industry, based on store locations.

    – The major banks indirectly fund approximately 450,000 payday loans per year totaling $16.4 Billion in short-term payday loans.

    – Wells Fargo is a major financier of payday lending and is involved with financing companies that operate one third (32%) of the entire payday lending industry, based on store locations.

    1. Now we know why there was such a big fuss about loan sharks for all those years. And we thought they were trying to protect us from crime and unfair borrowing practices. They were just Pissed that the sharks were taking their business and not kicking back in the bargain.

  2. My daughter just got a job in a newer division of a large national bank that, from how she describes it, is essentially pushing equity loans on cars. Seriously.They will loan up to 125% LTV and the borrower can take the cash difference. So someone who is having trouble making their car payment can go to this bank, who will pick up their existing loan and add a little extra (with the car as collateral of course) so that said consumer can get in even deeper with a larger obligation at a higher interest rate. They sell this concept to consumers by extending the term so the monthly payment is lower, even though the overall cost to finance is staggeringly higher.

    Naturally, most of these clients are ‘sub-prime,’ often by virtue of getting hit with under or unemployment–like my daughter who looked for one and half years before finding this job that she feels she has to keep despite her misgivings about this all. Interestingly enough, she was stunned when the underwriters rejected an app from someone with good credit who was a long-term bank customer and who had a demonstrated history of paying off other loans from this bank in full. The reason? His source of income was from the porn industry and some higher up in the branch apparently found that unacceptable (or maybe only taking bad risks is the point of this scheme ala subprime mortgages–who knows?).

    This plan just doesn’t seem like it will go anywhere good and I’m sure if this bank is doing it, all the other banks are too. My daughter feels like they are already prepping for the PR disaster this is likely to become by sending out ‘official’ policy emails that in no way match what the loan processors are being verbally instructed to do.

    And on it goes…

    1. Well………if you walked into someone’s home. Pillaged and plundered the house and then because you lost the loot on the way home; the Mayor paid you for the loss, sent you home to recover and never even said, “BAD BOY”;
      Then charged the victims of your crime for not having a good enough security system, forced them to go out and buy everything new and then took away the house when they didn’t have enough money left to make the payment;—————-wouldn’t you be home gearing up for you next raid?

  3. Gene,
    “Or are the banks just that confident in the fascist choke-hold they exert over campaign finance?”

    I believe you have hit on the answer right there. Damn. I don’t understand why it is so hard for people to believe. What have these Uberwealthy bankers and corporate CEOs ever done to make us believe that they have even a shred of humanity,compassion, empathy, or even sympathy for the 99%. Everytime I turn around I am confronted with yet another story about yet another scheme or another sordid detail of the inner workings of the scheme that screams, Theft! Racism! Evil Intent! Willingness ne Eagerness to harm the American people. To impoverish and degrade the people.
    And yet people continue to ask, “Are they really that Evil? Maybe they’re just dumb. I can’t believe they really meant us harm.”
    I acknowledge the possibility that you were being sarcastic. I hope so. If not; i mean no disrespect. But please see the reality if you don’t. The Conspiracy Theorists look more right every day. This is more than just a few bankers looking to make and extra billion for pocket money. This is a well planned and concerted effort by the wealthiest if the worlds people to impoverish and enslave the rest of us. This is an attempt to establish that “New World Order” we have all heard so much about. The history goes way back. Back to WWII and before when george Bushe’s Father Prescott was a Nazi and used his American banking connections to secure money for the Nazis as well as being linked to other Anti-american schemes to aid the Nazis. Now I know saying someone is a Nazi has become rather a joke in this country; what with “Soup Nazis”, “Feminazis” and the like but You can call them what ever you like. You can call a Pigeon a Squab but it still tastes like Pigeon. You can call a ‘Ditch Digger” a “Manual Excavation Engineer” but his body is still going to break down under the pressure. And you can call a Nazi a Fascist; an Authoritarian; or a Wealthy Banker or Executive. Call them whatever you choose as long as you realize that the pain, poverty, oppression and death are going to feel the same no matter the monicker attached to it. Can you really tell me that the actions taken by these thieves are any less insideous or Evil than those taken by the Nazis to gain power in Germany? Do you really believe that it can’t happen here? When they have made Poverty and barest survival the average American condition and starvation the reward for your labor; how far is it to disposing of unwanted people or unproductive people to relieve the burden on the state.WWII didn’t save the world for Democracy. It served as a flamboyant display of Nazi color and blatant hatred and murder. When they were defeated as any open display of power has always been; it made us believe that Nazism had been defeated. Made us feel safe again. But what it did more than that was it provided an atmosphere of hero worship and trust toward the government. It made us lazy. It made us receptive to the lies told to us by our own leaders and politicians. In short; it gave the “Nazi” leaders of this “New World Order” a gullible and fertile field to ply their trade in. Sorry if I seem angry at you personally man. I’m not. ust very angry at what is going on and at how few people seem to realize it. Even if you think I’m just another nutcase with a theory; can we really afford to just brush off the possibility that I am right?

    “I am often surprised at how little some people know about the things that really caused the financial crisis.”

    Hey Elaine,
    Great piece. I wanted to say that I don’t think that most of the 99% have an understanding of the finacial mechanisms involved in the crisis. To be honest I; and I am not alone; when I began writing my blog, I had no real idea of what all the fuss was. I have recognised for a long time that there are things in this country that were wrong but most of the ones that concerned me and that I understood as serious issues were not finacial.
    I saw that our rights were being taken away. I saw that our prisons were nothing more or less than an extensive system of slave labor for the benefit of the state. I saw that the government was spending hundreds of billions of dollars on fighting wars that we should not be fighting abroad and at home. I saw the Coke or Pepsi choices we are offered as Political Parties. And i saw the blatant disrespect that the 1% showed for the 99% but I never connected it to money.
    Seems stupid now. After all we should all know by now that everything comes down to money. But most Americans know little to nothing about banking, investment, bonds and funds or Prime and Subprime motgages. they have no reason that they can see to aquire such knowledge anymore than you feel the need to learn how to fly a fighter jet. it;s not something you will ever need or have a chance to use.
    The American people trusted the Politicians and the Bankers to watch out for the country. They believed that what was good for the 1% would “Trickle Down” to the 99% in quantities that would allow us to pursue the dream. What the American people didn’t count on and would never have believed was that they were giving their trust to people who have no love for America. They have love only for money and power. They care only about other wealthy people who can do them good. They care nothing for a man who can’t help them. they care nothing for a man who has nothing to contribute to their idea of a perfect world where they rule and they live like gods and the rest of us pay what they feel is the just price for our lack of wealth generating enterprize and souless, greed.
    So, no, I’m not surprized many people don’t understand what got us into this crisis.

  4. Just wanted to share this, not quite sure how it all fits together but it seems like an important piece in this jigsaw puzzle.

    Bill Gross of PIMCO, a question asked at 6 minutes in and answered at about 7:45…

  5. Otteray,

    Here’s an excerpt from Matt Taibbi’s article “Why Isn’t Wall Street in Jail?:
    Financial crooks brought down the world’s economy — but the feds are doing more to protect them than to prosecute them”

    The rest of them, all of them, got off. Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted. Their names by now are familiar to even the most casual Middle American news consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Most of these firms were directly involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling. What’s more, many of these companies had corporate chieftains whose actions cost investors billions — from AIG derivatives chief Joe Cassano, who assured investors they would not lose even “one dollar” just months before his unit imploded, to the $263 million in compensation that former Lehman chief Dick “The Gorilla” Fuld conveniently failed to disclose. Yet not one of them has faced time behind bars.

    Instead, federal regulators and prosecutors have let the banks and finance companies that tried to burn the world economy to the ground get off with carefully orchestrated settlements — whitewash jobs that involve the firms paying pathetically small fines without even being required to admit wrongdoing. To add insult to injury, the people who actually committed the crimes almost never pay the fines themselves; banks caught defrauding their shareholders often use shareholder money to foot the tab of justice. “If the allegations in these settlements are true,” says Jed Rakoff, a federal judge in the Southern District of New York, “it’s management buying its way off cheap, from the pockets of their victims.”

    To understand the significance of this, one has to think carefully about the efficacy of fines as a punishment for a defendant pool that includes the richest people on earth — people who simply get their companies to pay their fines for them. Conversely, one has to consider the powerful deterrent to further wrongdoing that the state is missing by not introducing this particular class of people to the experience of incarceration. “You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street,” says a former congressional aide. “That’s all it would take. Just once.”

    But that hasn’t happened. Because the entire system set up to monitor and regulate Wall Street is fucked up.

  6. When are we going to go after the “occupiers” of certain penthouse office suites with pepper spray and zip cuffs? Some of us would like to see Officer Pike turned loose in those offices with his gallon size pepper spray can. Better yet, I would like to see them perp walked to the waiting paddy wagon to be hauled off for an arraignment. On major felony charges.

  7. Elaine,
    I can’t imagine that our friends on Wall Street would do anything illegal or immoral in order to make Billions and then lose Trillions and leave us with the bill. 🙂

  8. Gene H.,

    I am often surprised at how little some people know about the things that really caused the financial crisis. And why is it that so many people in the media didn’t get what Occupy Wall Street was about? Are they really that dense? Or maybe they have a mindset akin to that of the one-percenters. After all, most of them earn a lot more than the average taxpayer.

  9. Elaine,

    As usual, a well-thought out, researched and presented article, but the question that roils in my mind is: Isn’t all of this an open secret of sorts? The kind that festers with the public like an infection? Or do the banks really think people will eventually “forgive and forget”? Or are the banks just that confident in the fascist choke-hold they exert over campaign finance?

    As to Graham, yeah, I read that nonsense. The only “Stalinist era” agency in our current government is the DHS. If Lindsey’s head wasn’t up Wall Street’s ass and if he’d had the spine to label the correct agency, he might have been on to something. He is truly a revolting creature.

  10. Mike,

    Thanks. And it is “we the people of the 99%” who bailed out the banks involved in the subprime mortgage mess. The banksters got bailed out–but not the poor people who got the subprime loans and lost their homes.

    We must be wary of a Consumer Financial Protection Bureau, mustn’t we? Did you hear what Lindsay Graham said about the CFPB?

    Graham says watchdog agency ‘something out of the Stalinist era’

  11. Elaine,

    Brilliantly done and documented. A tale that needs telling. Firmly placing the responsibility where it belongs and not upon those unfortunate buyers, seeking the American Dream, but being conned into mortgages they couldn’t possibly pay.

  12. Elaine,

    Brilliantly done and documented. This is a major tale that needs telling because it focuses the blame for our housing meltdown where it belongs and not upon those harmed by it. It gives lie to the specious argument that it was the fault of the buyers, who were merely trying to realize the American Dream of owning a home.

  13. google wells fargo and tavis smiley for more evil bankster tales of pimping out the black community under the auspices of “civic leadership”.

  14. it’s a good thing we’ve learned our lessons from this financial calamity and now have a sound banking sector that no longer engages in such nefarious practices.


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