(2005) A Case of Black and White - Inequalities in Wells Fargo's Lending

8/17/2019 (2005) A Case of Black and White - Inequalities in Wells Fargo's Lending

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A Case of Black and White:Racial Inequalities in Wells Fargo’s

Mortgage Lending

September 2005

ACORNACORNACORNACORN ReportThe Association of Community Organizations for Reform Now


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A Case of Black and White:Racial Inequalities in Wells Fargo’s Mortgage Lending

The Association of Community Organizations for Reform Now ACORNACORNACORNACORN Report 2

Introduction 3

Findings

- Wells Fargo’s Lending Nationally 6

- Wells Fargo’s Lending By State 8

- Wells Fargo’s Lending By Metropolitan Areas 16

Methodology 24

An Analysis of Wells Fargo Lending Reforms 25

Table of Contents


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The history of housing discrimination in the United States is a long and shameful one – homeownersimposing deed restrictions preventing the sale of homes to people of color, the Federal HousingAdministration (FHA) determining home values based on a neighborhood’s racial makeup, whiteresidents violently greeting Martin Luther King’s open housing marches, banks drawing redlines aroundcertain neighborhoods where they wouldn’t lend, loan officers coding applications to tell the underwriterwhen it was a minority applicant, white home owners openly refusing to sell to people of color, and realestate agents steering minority homebuyers to minority areas.

Housing discrimination has continued and evolved into new forms. Over the last five years in the area ofmortgage lending, community groups have focused their attention less on access to credit and more on the

type of credit that is granted. Several studies have documented that when buying or refinancing a home,borrowers of color, and African-Americans in particular, receive mortgages with much less favorableterms than whites receive1. African-Americans have been segregated into the subprime market where theyreceive loans with higher interest rates, larger fees, and onerous features such as prepayment penalties.

Subprime loans are intended for people who are unable to obtain a conventional prime loan, and thehigher interest rates are supposedly to compensate for the potentially greater risk that these borrowersrepresent. Predatory lending occurs when loan terms or conditions become abusive or when borrowerswho would qualify for credit on better terms are targeted instead for these higher cost loans.

Many in the lending industry argue that the disproportionate concentration of subprime loans among

minority borrowers is only a reflection of the greater risk that these borrowers represent based on theirlower credit ratings. However, Fannie Mae has stated that the racial disparities in subprime lendingcannot be justified by credit quality alone and has estimated that as many as half of the borrowers insubprime loans could have instead qualified for a lower cost mortgage2.

In response to the growing concern about predatory lending and discriminatory pricing, the FederalReserve Board issued new guidelines for the Home Mortgage Disclosure Act (HMDA). Starting in 2004,lenders had to report loans that had a high rate (and thus were subprime), making possible for the firsttime a statistical analysis of the types of loans a lender originates. On average in 2004, high rate loanswere defined as first mortgages with Annual Percentage Rates (APRs) above 8% and second mortgageswith APRs above 10%.

For several years, Wells Fargo has promoted itself as the largest lender to African-American homebuyers.The new HMDA data allows us to look deeper into this statement, examine the quality not just quantity ofthe loans they make to African-Americans, and compare this lending to their lending to whites.

The results are disturbing, coming almost thirty years after the enactment of the Fair Housing Act.

1 Curbing Predatory Home Mortgage Lending: A Joint Report, June 2000, U.S. Department of Housing and UrbanDevelopment and U.S. Department of Treasury2 “Financial Services in Distressed Communities”, Fannie Mae Foundation, August 2001.

Introduction


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When reviewing the combined totals of all of Wells Fargo’s lending operations, one out of every fourmortgages made to African-Americans was a high rate loan (24.71%), and one out of every nine

loans made to Latinos (11.65%) had a high rate, compared to just one of out every thirteen loans towhites (7.44%).

In comparative terms, this means that African-Americans were 3.3 times more likely than whites toreceive a higher cost subprime loan from Wells Fargo and that Latinos were 1.6 times more likely thanwhites.

However, when we look at just the lending from Wells Fargo Bank and Wells Fargo Home Mortgage, thedisparities are even greater. Nationally, African-Americans were four times more likely than whitesto receive a higher cost subprime loan, and Latinos were almost twice as likely as whites to receive a

higher cost subprime loan.

In this report, we looked at Wells Fargo’s lending in each of the 50 states and in 50 individualmetropolitan areas and examined it in two ways: 1) looking at all of Wells Fargo’s companies together3;and 2) looking at just Wells Fargo Bank and Wells Fargo Home Mortgage together.

In a number of the states and even more so in some of the metropolitan areas, the level of inequality is fargreater than that for the country as a whole.

● California, the state with by far the largest total of Wells Fargo loans, also had the greatestdisparities of any state. When receiving a loan from one of Wells Fargo’s lending companies,African-Americans were 5.3 times more likely than whites to receive a subprime loan, and Latinos

were 3.4 times more likely than whites.

The disparities are even more startling in reviewing Wells Fargo’s lending in individual metro areas.

Across all of Wells Fargo’s lending operations, African-Americans:

● in the Miami metropolitan area were 8.3 times more likely than whites to get a subprime loan.

● in the Philadelphia area were 6.9 times more likely than whites to receive a higher costsubprime loan.

● in the Washington, DC metropolitan area were 5.3 times more likely than whites to receive ahigh rate loan.

Latinos who received a loan from one of Wells Fargo’s lending companies:● in the Los Angeles metro area were 5.3 times more likely than whites to receive a subprime loan.

3 Wells Fargo Financial, Wells Fargo Funding, Wells Fargo Joint Venture, and Wells Fargo Mortgage Venture, in addition tothe Bank and Mortgage company.


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● in the Tucson metropolitan area were 2.9 times more likely than whites to get a subprimeloan.

In 2003, ACORN launched a national campaign to shed light on Wells Fargo’s abusive lending, to forcethem to change their predatory practices, and to win some compensation for the borrowers they hadharmed.

The campaign has included a steady and escalating series of actions, from demonstrations at local WellsFargo offices throughout the country to a 2,000 person march to Wells Fargo’s downtown Los Angelesoffice last summer. At Wells Fargo’s shareholder meeting in April 2005, 15 members were able to goinside the meeting and directly confront CEO Richard Kovacevich about Wells Fargo’s abusive loans.

As part of the campaign ACORN has also filed three lawsuits against Wells Fargo charging the companywith unfair and deceptive lending practices, such as using “bait-and-switch” sales tactics. In addition,ACORN has submitted complaints to several state and regulatory agencies asking them to investigateWells Fargo.

Although Wells Fargo has denied they engage in predatory lending, they have gradually been making thechanges that ACORN demanded, including some that were just announced on August 30, 2005.

However, even with the most recent changes, there are still large areas that Wells Fargo has notaddressed, and for every practice they say they are changing, there are thousands of innocent borrowerswho have been harmed by that practice and whom Wells Fargo should compensate.

Equally important is that Wells Fargo needs to address the serious racial disparities that are present in its

lending and that are documented in this report.


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Latinos who received a mortgage from Wells Fargo Bank or Wells Fargo Home Mortgage were 1.8 times

more likely than whites to receive a higher cost subprime loan.

Wells Fargo Bank and Wells Fargo HomeMortgage

All Wells Fargo Lending Companies

BorrowerRace

Total # ofmortgages

# ofSubprimeMortgages

SubprimeLoans asPercentageof all Loans

Total # ofmortgages

# ofSubprimeMortgages

SubprimeLoans asPercentageof all Loans

Latinos 64,755 3,572 5.52% 74,046 8,626 11.65%

Whites 633,969 19,680 3.10% 690,735 51,381 7.44%

African-Americans received a much larger share of Wells Fargo’s high rate loans than of their

prime loans. Nationally, across all of Wells’ lending companies, African-Americans received 15% ofWells Fargo’s subprime loans, or one out of every seven subprime loans made by Wells Fargo. Incontrast, African-Americans received a three times smaller share of the lender’s prime loans – just 4.7%,or one out of every twenty-one prime loans made by Wells Fargo.

Latinos received 7.49% of Wells Fargo’s prime loans and 9.72% of the high rate loans.

In contrast, White borrowers received a larger share of Wells Fargo’s prime loans than of the subprimeloans. Wells Fargo made 73.2% of its prime loans to white borrowers, compared to 57.9% of its subprimeloans.


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STATES

As shown on the charts on pages 9 and 10, the racial disparities between Wells Fargo’slending to African-Americans and its lending to whites are present throughout the country.

However, a number of states had levels of disparity greater than that for the country as a whole. In WellsFargo Bank and Wells Fargo Home Mortgage’s lending in Wisconsin and California, African-Americanswere over six times more likely than whites to receive a high cost subprime loan and in South CarolinaAfrican-Americans were more than five times as likely as whites to receive a subprime loan.

In just ten states, African-Americans were less than 1.5 times as likely as whites to receive a subprimeloan at Wells Fargo Bank and Wells Fargo Home Mortgage. All of the ten states have minimal African-American populations (Hawaii, Vermont, North Dakota, New Hampshire, Montana, Idaho, New Mexico,

South Dakota, Utah, and Alaska).

In contrast, the ten states with the largest African-American populations also had large levels of disparity.Of these states, California had the greatest disparity with African-Americans being 6.1 times more likelythan whites to receive a subprime loan. The least disparity among these states was in New York whereAfrican-Americans were still 2.4 times more likely to receive a subprime loan at Wells Fargo.

Wells Fargo Bank and Wells Fargo Home Mortgage’s Lending in the States with the Largest

AFRICAN-AMERICAN Populations

StatePercentage of Wells Fargo

Mortgages to AFRICAN-AMERICANS That Were

Subprime

Percentage of Wells FargoMortgages to Whites That

Were SubprimeDisparity Between

AFRICAN-AMERICAN andwhite customers

California 4.71% 0.77% 6.1

Florida 8.78% 1.98% 4.4

Michigan 15.97% 4.22% 3.8

Louisiana 27.69% 7.54% 3.7

North Carolina 8.29% 2.29% 3.6

Maryland 9.38% 2.60% 3.6

Illinois 16.55% 4.71% 3.5

Georgia 10.94% 3.34% 3.3

Texas 13.58% 5.01% 2.7

New York 6.82% 2.85% 2.4

When we include all of Wells Fargo’s companies in the evaluation, the racial inequalities persist. InCalifornia, African-American borrowers were 5.3 times more likely than whites to receive a high ratesubprime loan.

In evaluating Wells Fargo in this manner, though, there are just six states in which African-Americanswere less than 1.5 times as likely as whites to receive a subprime loan. Again, these are states with


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minimal African-American populations: Maine, Rhode Island, Idaho, Hawaii, New Hampshire, andVermont.

As with the review of just Wells Fargo Bank and Wells Fargo Home Mortgage’s lending, the racialdisparities are very large in the states with the largest African-American populations.

All of Wells Fargo’s Companies’ Lending in the States with the

Largest AFRICAN-AMERICAN Populations

State

Percentage of Wells

Fargo Mortgages to

AFRICAN-

AMERICANS That

Were Subprime

Percentage of Wells

Fargo Mortgages to

Whites That Were

Subprime

Disparity Between

AFRICAN-

AMERICAN and

white customers

California 11.50% 2.19% 5.3

Florida 24.19% 5.42% 4.5Michigan 24.30% 6.37% 3.8

Louisiana 27.69% 7.54% 3.7

North Carolina 8.29% 2.29% 3.6

Maryland 9.38% 2.60% 3.6

Illinois 16.55% 4.71% 3.5

Georgia 10.94% 3.34% 3.3

Texas 26.13% 9.19% 2.8

New York 15.53% 5.35% 2.9

The disparity between white and Latino Wells Fargo customers is less dramatic than that for African-Americans but still of serious concern.

In Wells Fargo Bank and Wells Fargo Home Mortgage’s lending, several of the states with the largestLatino populations also had high levels of inequality. For instance, Latinos:

● in California were 3.6 times more likely than whites to receive a subprime loan● in New Mexico were 2.8 times more likely than whites● in Colorado were 2.7 times more likely than whites● and in Texas and Arizona were 2.6 times more likely than whites.


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African-Americans -- Wells Fargo Bank and Wells Fargo Home Mortgage

StatePercentage of Mortgages toAFRICAN-AMERICANS That

Were Subprime

Percentage of Mortgages toWhites That Were Subprime

Disparity BetweenAFRICAN-AMERICAN and

white customersWisconsin 27.36% 4.17% 6.57California 4.71% 0.77% 6.10South Carolina 21.89% 4.20% 5.22New Jersey 10.92% 2.28% 4.80Nebraska 18.54% 3.95% 4.69

Pennsylvania 16.19% 3.54% 4.58Florida 8.78% 1.98% 4.43Missouri 28.65% 6.55% 4.37Maine 12.50% 3.09% 4.04Tennessee 16.79% 4.23% 3.97

Virginia 10.41% 2.64% 3.95Connecticut 6.49% 1.65% 3.92Indiana 26.26% 6.86% 3.83

Kansas 19.79% 5.18% 3.82Michigan 15.97% 4.22% 3.78

Louisiana 27.69% 7.54% 3.67Delaware 9.89% 2.73% 3.63North Carolina 8.29% 2.29% 3.62Maryland 9.38% 2.60% 3.61Illinois 16.55% 4.71% 3.51Oregon 5.98% 1.74% 3.45Mississippi 35.87% 10.87% 3.30

Georgia 10.94% 3.34% 3.28Alabama 18.84% 5.77% 3.26Colorado 4.16% 1.30% 3.19Ohio 15.71% 5.05% 3.11

Massachusetts 4.19% 1.48% 2.84Wyoming 12.50% 4.40% 2.84Arkansas 21.81% 7.72% 2.82Nevada 6.04% 2.19% 2.76Texas 13.58% 5.01% 2.71Rhode Island 6.93% 2.83% 2.45

Kentucky 8.68% 3.56% 2.44Minnesota 5.92% 2.45% 2.42New York 6.82% 2.85% 2.39

West Virginia 26.23% 11.00% 2.39Iowa 15.34% 6.62% 2.32

Oklahoma 24.38% 10.89% 2.24Washington 3.34% 1.54% 2.17

Arizona 5.19% 2.87% 1.81Alaska 5.17% 3.35% 1.54

South Dakota 7.14% 4.68% 1.53Utah 5.00% 3.28% 1.52New Mexico 4.94% 3.71% 1.33

Hawaii 0.00% 0.61% 0.00Idaho 0.00% 3.23% 0.00

Montana 0.00% 4.27% 0.00New Hampshire 0.00% 1.27% 0.00

North Dakota 0.00% 5.05% 0.00Vermont 0.00% 2.71% 0.00


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African-Americans -- All Wells Fargo Lending Companies

StatePercentage of Mortgages toAFRICAN-AMERICANS That

Were Subprime



white customers

California 11.50% 2.19% 5.25Connecticut 18.65% 4.01% 4.65Florida 24.19% 5.42% 4.47New Jersey 16.48% 3.91% 4.22Wisconsin 40.46% 9.96% 4.06Michigan 24.30% 6.37% 3.81South Carolina 46.81% 12.30% 3.81Virginia 18.03% 4.78% 3.77Delaware 17.77% 4.89% 3.64Nebraska 34.60% 10.24% 3.38

Kansas 36.88% 10.93% 3.37Pennsylvania 27.86% 8.26% 3.37

North Carolina 19.65% 5.90% 3.33Maryland 17.29% 5.30% 3.26Colorado 15.68% 4.91% 3.19Indiana 41.06% 12.99% 3.16Tennessee 35.74% 11.91% 3.00New York 15.53% 5.35% 2.90Texas 26.13% 9.19% 2.84

Georgia 21.94% 7.76% 2.83Arkansas 20.78% 7.46% 2.79

Oregon 14.58% 5.40% 2.70Missouri 41.92% 16.01% 2.62Ohio 30.35% 11.70% 2.59

Illinois 28.64% 11.37% 2.52

Arizona 14.58% 5.81% 2.51Wyoming 30.00% 12.15% 2.47Alabama 50.46% 20.48% 2.46

North Dakota 30.00% 12.33% 2.43Iowa 29.29% 12.16% 2.41Washington 12.70% 5.38% 2.36Mississippi 56.25% 23.93% 2.35Minnesota 10.91% 4.72% 2.31

South Dakota 17.65% 7.91% 2.23Louisiana 52.37% 23.85% 2.20Nevada 17.87% 8.25% 2.17New Mexico 21.36% 10.82% 1.97Utah 24.53% 12.66% 1.94

Massachusetts 9.78% 5.12% 1.91Alaska 16.42% 8.64% 1.90Oklahoma 46.21% 24.69% 1.87Montana 25.00% 13.50% 1.85West Virginia 41.46% 27.73% 1.50Maine 12.50% 8.38% 1.49

Rhode Island 15.25% 11.03% 1.38Idaho 9.52% 9.93% 0.96Hawaii 1.56% 1.87% 0.83New Hampshire 0.00% 1.95% 0.00Vermont 0.00% 2.67% 0.00


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Latinos -- All Wells Fargo Lending Companies

StatePercentage of Mortgages

to LATINOS That Were

Subprime

Percentage of Mortgagesto Whites That Were

Subprime

Disparity BetweenLATINO and white

customersHawaii 6.54% 1.87% 3.49

California 7.45% 2.19% 3.40Texas 24.41% 9.19% 2.66

New Mexico 27.35% 10.82% 2.53Arizona 14.62% 5.81% 2.51

North Dakota 28.13% 12.33% 2.28New Jersey 7.91% 3.91% 2.03Michigan 12.50% 6.37% 1.96

Colorado 9.44% 4.91% 1.92Connecticut 7.30% 4.01% 1.82

Wyoming 22.08% 12.15% 1.82Oregon 8.97% 5.40% 1.66

Kansas 17.95% 10.93% 1.64Idaho 15.63% 9.93% 1.57Wisconsin 15.60% 9.96% 1.57New Hampshire 3.03% 1.95% 1.56

Nevada 12.78% 8.25% 1.55Minnesota 7.21% 4.72% 1.53Nebraska 15.43% 10.24% 1.51Pennsylvania 12.41% 8.26% 1.50Utah 17.71% 12.66% 1.40

Alaska 11.19% 8.64% 1.30Delaware 6.31% 4.89% 1.29Montana 17.07% 13.50% 1.27Washington 6.77% 5.38% 1.26

Maryland 6.49% 5.30% 1.22Indiana 14.70% 12.99% 1.13

Iowa 13.45% 12.16% 1.11South Carolina 13.57% 12.30% 1.10Massachusetts 5.56% 5.12% 1.09Alabama 22.12% 20.48% 1.08South Dakota 8.25% 7.91% 1.04Mississippi 24.53% 23.93% 1.02Missouri 16.00% 16.01% 1.00

Louisiana 23.81% 23.85% 1.00Oklahoma 24.12% 24.69% 0.98New York 5.12% 5.35% 0.96Illinois 10.32% 11.37% 0.91Florida 4.90% 5.42% 0.90

Georgia 6.91% 7.76% 0.89Virginia 4.00% 4.78% 0.84Tennessee 9.78% 11.91% 0.82Ohio 7.93% 11.70% 0.68North Carolina 3.64% 5.90% 0.62

Arkansas 4.11% 7.46% 0.55Maine 4.00% 8.38% 0.48Rhode Island 3.33% 11.03% 0.30West Virginia 5.26% 27.73% 0.19Vermont 0.00% 2.67% 0.00


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African-Americans received a much larger share of Wells Fargo’s high rate loans than of their

prime loans.

In three states, African-Americans received more than a 4 times greater share of Wells Fargo’s subprimeloans in that state than of the company’s prime loans.

Greatest Disparity Between African-American Share of Prime and Subprime Loans –

All Wells Fargo Companies State African-American Share

of Prime LoansAfrican-American Shareof Subprime Loans

Disparity BetweenShare of Prime andSubprime

Wisconsin 2.18% 10.62% 4.88South Carolina 8.51% 36.60% 4.30

Florida 4.85% 19.41% 4.00

Nebraska 1.85% 7.31% 3.96

Connecticut 3.60% 13.88% 3.85

Indiana 3.53% 13.50% 3.82

Michigan 5.69% 20.77% 3.65

Kansas 2.48% 8.46% 3.41

California 2.94% 9.97% 3.39

Pennsylvania 4.05% 13.70% 3.38

In only four states did African-Americans receive a larger share of prime loans than of subprime loans,but in each of these states Wells Fargo’s total lending to African-Americans was minimal: Idaho, Hawaii,New Hampshire, and Vermont.


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Disparity Between African-American Share of Prime and Subprime Loans –

All Wells Fargo Companies

State African-American Shareof Prime Loans

African-American Shareof Subprime Loans

Disparity Between Shareof Prime and Subprime

Wisconsin 2.18% 10.62% 4.88South Carolina 8.51% 36.60% 4.30Florida 4.85% 19.41% 4.00

Nebraska 1.85% 7.31% 3.96Connecticut 3.60% 13.88% 3.85Indiana 3.53% 13.50% 3.82Michigan 5.69% 20.77% 3.65Kansas 2.48% 8.46% 3.41

California 2.94% 9.97% 3.39Pennsylvania 4.05% 13.70% 3.38Virginia 7.87% 26.13% 3.32

New Jersey 5.49% 17.94% 3.27Delaware 8.27% 25.95% 3.14

Missouri 5.30% 16.39% 3.09Tennessee 7.83% 23.85% 3.05North Dakota 0.22% 0.66% 3.03Wyoming 0.40% 1.17% 2.93Colorado 1.47% 4.23% 2.87Iowa 0.91% 2.54% 2.79Ohio 5.41% 15.10% 2.79New York 6.60% 17.96% 2.72

Arkansas 5.04% 13.66% 2.71Alabama 13.86% 37.43% 2.70Mississippi 12.14% 31.96% 2.63North Carolina 11.42% 29.92% 2.62

Illinois 7.55% 19.27% 2.55Oregon 0.74% 1.87% 2.51Louisiana 15.26% 37.85% 2.48Maryland 15.95% 37.23% 2.33Georgia 16.47% 37.27% 2.26South Dakota 0.23% 0.51% 2.26

Oklahoma 4.30% 9.59% 2.23Texas 4.15% 9.23% 2.23Minnesota 1.44% 3.18% 2.21Montana 0.20% 0.42% 2.11Nevada 3.46% 7.26% 2.10

Utah 0.53% 1.11% 2.09Washington 1.74% 3.52% 2.03

Arizona 1.52% 2.96% 1.95Massachusetts 4.06% 7.81% 1.93West Virginia 2.24% 3.85% 1.72

Maine 0.29% 0.44% 1.52Rhode Island 5.51% 8.33% 1.51Alaska 1.97% 2.88% 1.46New Mexico 1.33% 1.72% 1.29Idaho 0.24% 0.22% 0.91

Hawaii 1.56% 0.44% 0.28New Hampshire 0.66% 0.00% 0.00Vermont 0.13% 0.00% 0.00


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METROPOLITAN AREAS

The inequalities in Wells Fargo’s lending are even more apparent in individualmetropolitan statistical areas (MSAs).

In this report, we reviewed fifty MSAs encompassing most of the largest cities in the U.S.

In Wells Fargo Bank and Wells Fargo Home Mortgage’s lending in:

● nine of the metropolitan areas, African-Americans were more than seven times as likely aswhites to receive a high cost subprime loan.

● twelve of the metropolitan areas, African-Americans were over six times more likely than

whites to receive a high cost subprime loan.

● eighteen of the metropolitan areas, African-Americans were more than five times as likely aswhites to receive a high cost subprime loan.

Large racial inequalities are present in some of the metropolitan areas with the largest African-Americanpopulations, as shown in the chart below:

Wells Fargo Bank and Wells Fargo Home Mortgage Lending

in Metropolitan Areas with Large AFRICAN-AMERICAN Populations

MetropolitanStatistical Area (MSA)

Subprime Mortgages

as Percentage of TotalMortgages to

AFRICAN-

AMERICANS

Subprime Mortgages

as Percentage of TotalMortgages to Whites

Disparity Between

AFRICAN-AMERICAN and

white customers

Milwaukee 31.20% 3.19% 9.8

Miami 11.68% 1.23% 9.5

Los Angeles 4.87% 0.56% 8.7

Philadelphia 18.96% 2.42% 7.8

Chicago 14.65% 2.05% 7.2

Washington, DC 9.16% 1.49% 6.1

New York 4.86% 0.81% 6.0

Newark 8.38% 1.46% 5.7

Detroit 19.97% 3.49% 5.7

In just one of the fifty metropolitan areas reviewed here were African-Americans less than twice as likelyas whites to receive a subprime loan (Providence).

When combining the lending of all Wells Fargo’s companies, the racial disparities remain, especially inthose same metropolitan areas with large African-American populations.


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All Wells Fargo Lending in Metropolitan Areas with Large AFRICAN-AMERICAN Populations

Metropolitan

Statistical Area (MSA)

Subprime Mortgages

as Percentage of Total

Mortgages to

AFRICAN-

AMERICANS

Subprime Mortgages

as Percentage of Total

Mortgages to Whites

Disparity Between

AFRICAN-

AMERICAN and

white customers

Miami 21.53% 2.61% 8.25

Los Angeles 14.03% 1.64% 8.54

New York 12.83% 1.80% 7.12


Washington DC 13.69% 2.60% 5.26

Milwaukee 44.22% 8.70% 5.08

Newark 14.92% 2.95% 5.06

Chicago 26.27% 6.64% 3.96

Detroit 29.13% 7.69% 3.79

As with its lending to African-Americans, Wells Fargo had serious disparities in its lending to Latinos inareas with large Latino populations.

All Wells Fargo Companies’ Lending

in Metropolitan Areas with Large LATINO Populations

Metropolitan

Statistical Area (MSA)

Percentage of

Subprime Mortgages

to LATINOS

Percentage of

Subprime Mortgages

to Whites

Disparity Between

LATINO and white

customers

Los Angeles 8.70% 1.64% 5.30

Tucson 27.98% 9.69% 2.89

San Diego 4.15% 1.60% 2.59

San Antonio 19.89% 7.82% 2.54

New York 4.45% 1.80% 2.47

Houston 14.38% 5.97% 2.41


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Wells Fargo Bank and Wells Fargo Home MortgageMetropolitan Statistical

Area (MSA)

Percentage of Mortgages toAFRICAN-AMERICANS That

Were Subprime



white customersSan Francisco 4.67% 0.12% 38.91Oakland 3.68% 0.36% 10.18Milwaukee 31.20% 3.19% 9.79Miami 11.68% 1.23% 9.46Los Angeles 4.87% 0.56% 8.73

Philadelphia 18.96% 2.42% 7.82San Diego 2.41% 0.33% 7.32Raleigh 7.33% 1.01% 7.28Chicago 14.65% 2.05% 7.16Nassau-Suffolk 5.79% 0.94% 6.17

Washington, DC 9.16% 1.49% 6.13Ft. Lauderdale 11.28% 1.86% 6.06New York 4.86% 0.81% 5.99

Newark 8.38% 1.46% 5.73Detroit 19.97% 3.49% 5.72

Kansas City 22.66% 4.17% 5.44Cleveland 16.97% 3.32% 5.11Memphis 20.97% 4.35% 4.82Indianapolis 26.83% 5.73% 4.68Charlotte 11.65% 2.61% 4.47Baltimore 12.17% 2.80% 4.34Hartford 6.73% 1.58% 4.25

St. Louis 33.33% 7.94% 4.20Sacramento 4.49% 1.12% 4.02Denver 4.27% 1.07% 4.00Atlanta 10.13% 2.80% 3.61

Columbus 14.41% 4.01% 3.59Portland 4.59% 1.28% 3.58Houston 15.14% 4.29% 3.53Tampa-St. Petersburg 7.11% 2.03% 3.50Minneapolis 6.06% 1.77% 3.42Louisville 9.04% 2.64% 3.42

Boston 3.61% 1.06% 3.40Virginia Beach 10.56% 3.11% 3.40Birmingham 17.32% 5.35% 3.24Riverside-San Bernardino 6.05% 1.87% 3.23Cincinnati 11.02% 3.50% 3.15

Little Rock 20.00% 6.49% 3.08Wilmington 10.17% 3.64% 2.79New Orleans 19.41% 7.01% 2.77Las Vegas 6.42% 2.38% 2.69Dallas 8.59% 3.32% 2.59

Orlando 4.56% 1.78% 2.56Pittsburgh 14.41% 5.80% 2.48Seattle 2.35% 0.97% 2.43San Antonio 11.57% 5.22% 2.22Phoenix 5.73% 2.64% 2.17

Tucson 7.50% 3.63% 2.06El Paso 12.12% 7.89% 1.50Providence 11.43% 9.22% 1.24


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All Wells Fargo Lending CompaniesMetropolitan Statistical

Area (MSA)Percentage of SubprimeMortgages to AFRICAN-

AMERICANS

Percentage of SubprimeMortgages to Whites


white customersSan Francisco 5.79% 0.28% 20.81Los Angeles 14.03% 1.64% 8.54Miami 21.53% 2.61% 8.25New York 12.83% 1.80% 7.12Philadelphia 30.41% 4.44% 6.85Oakland 6.44% 0.97% 6.63Raleigh 10.00% 1.51% 6.63

San Diego 9.73% 1.60% 6.09Nassau-Suffolk 16.45% 2.96% 5.56Washington DC 13.69% 2.60% 5.26Ft. Lauderdale 18.97% 3.67% 5.17Milwaukee 44.22% 8.70% 5.08Newark 14.92% 2.95% 5.06

Hartford 20.00% 4.25% 4.70Tampa-St. Petersburg 23.90% 5.57% 4.29Baltimore 22.66% 5.64% 4.02Sacramento 11.41% 2.86% 3.99Chicago 26.27% 6.64% 3.96

Detroit 29.13% 7.69% 3.79Houston 22.06% 5.97% 3.69Charlotte 26.51% 7.53% 3.50Kansas City 36.10% 10.44% 3.46Portland 12.03% 3.53% 3.41

Memphis 38.73% 11.60% 3.34Pittsburgh 36.42% 11.02% 3.31Indianapolis 41.31% 12.63% 3.27

Orlando 15.42% 4.79% 3.22Cleveland 31.30% 9.79% 3.20

San Antonio 25.00% 7.82% 3.19Seattle 11.92% 3.77% 3.16Virginia Beach-Norfolk 17.65% 5.59% 3.16Little Rock 19.26% 6.17% 3.12Cincinnati 30.38% 10.26% 2.96

Atlanta 18.44% 6.39% 2.88Riverside-San Bernardino 13.01% 4.55% 2.86Tucson 27.59% 9.69% 2.85Birmingham 46.85% 16.50% 2.84Columbus 23.11% 8.25% 2.80

Dallas 20.95% 7.54% 2.78

Denver 15.76% 5.78% 2.70Minneapolis-St. Paul 11.37% 4.24% 2.68Wilmington 15.26% 6.05% 2.52St. Louis 46.11% 18.43% 2.50Phoenix 13.24% 5.30% 2.50Boston 7.00% 2.89% 2.42

El Paso 43.14% 17.96% 2.40Louisville 32.05% 13.51% 2.37Las Vegas 18.29% 8.57% 2.14New Orleans 42.52% 20.16% 2.11Providence 12.90% 9.55% 1.35


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Wells Fargo Bank and Wells Fargo Home Mortgage Metropolitan

Statistical Area (MSA)4 Percentage of

Mortgages to LATINOs

That Were Subprime

Percentage ofMortgages to Whites

That Were Subprime

Disparity Between

LATINO and whitecustomers

San Francisco 0.88% 0.12% 7.29Los Angeles 3.31% 0.56% 5.93Oakland 1.95% 0.36% 5.40Milwaukee 12.92% 3.19% 4.06Philadelphia 8.66% 2.42% 3.57Newark 4.98% 1.46% 3.40Nassau-Suffolk 3.03% 0.94% 3.23

Tucson 11.45% 3.63% 3.15Boston 3.31% 1.06% 3.12San Diego 1.01% 0.33% 3.05Kansas City 11.16% 4.17% 2.68Houston 10.79% 4.29% 2.51Charlotte 6.25% 2.61% 2.40New York 1.87% 0.81% 2.30Sacramento 2.44% 1.12% 2.18Phoenix 5.68% 2.64% 2.15Denver 2.13% 1.07% 2.00Washington, DC 2.91% 1.49% 1.95San Antonio 10.08% 5.22% 1.93Orlando 3.39% 1.78% 1.91Miami 2.35% 1.23% 1.90

Chicago 3.86% 2.05% 1.89Baltimore 5.12% 2.80% 1.83Dallas 5.79% 3.32% 1.74

Riverside-San Bernardino 3.19% 1.87% 1.71Seattle 1.64% 0.97% 1.70Las Vegas 4.00% 2.38% 1.68Minneapolis-St. Paul 2.89% 1.77% 1.63El Paso 12.45% 7.89% 1.58Hartford 2.19% 1.58% 1.38Ft. Lauderdale 2.52% 1.86% 1.35Columbus 4.27% 4.01% 1.06Virginia Beach-Norfolk 3.20% 3.11% 1.03

Portland 1.25% 1.28% 0.98Atlanta 2.72% 2.80% 0.97

Tampa-St. Petersburg 1.92% 2.03% 0.94Raleigh 0.92% 1.01% 0.91Providence 1.19% 2.18% 0.55

4 Of the metropolitan areas reviewed, this chart does not include those with less than 100 mortgages to Latinos.


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All Wells Fargo Lending Companies Metropolitan Statistical

Area (MSA)5

Percentage of Mortgages to

LATINOs That WereSubprime

Percentage of Mortgages to

Whites That Were Subprime Disparity Between LATINOand white customers

San Francisco 1.89% 0.28% 6.82Los Angeles 8.70% 1.64% 5.30Oakland 3.09% 0.97% 3.18Philadelphia 13.96% 4.44% 3.14Tucson 27.98% 9.69% 2.89Newark 7.71% 2.95% 2.61San Diego 4.15% 1.60% 2.59San Antonio 19.89% 7.82% 2.54Milwaukee 21.89% 8.70% 2.52New York 4.45% 1.80% 2.47

Houston 14.38% 5.97% 2.41Phoenix 10.84% 5.30% 2.05Dallas 14.89% 7.54% 1.97

Sacramento 5.34% 2.86% 1.87El Paso 32.86% 17.96% 1.83Boston 5.16% 2.89% 1.78

Riverside-San Bernardino 7.97% 4.55% 1.75Nassau-Suffolk 4.96% 2.96% 1.68Kansas City 17.19% 10.44% 1.65Washington DC 4.06% 2.60% 1.56Minneapolis-St. Paul 6.47% 4.24% 1.53Las Vegas 12.89% 8.57% 1.50Miami 3.85% 2.61% 1.48Virginia Beach-Norfolk 8.03% 5.59% 1.44Baltimore 8.07% 5.64% 1.43Denver 8.16% 5.78% 1.41Hartford 5.73% 4.25% 1.35Portland 4.71% 3.53% 1.34Chicago 8.83% 6.64% 1.33Ft. Lauderdale 4.70% 3.67% 1.28Orlando 5.71% 4.79% 1.19Seattle 4.26% 3.77% 1.13Tampa-St. Petersburg 5.39% 5.57% 0.97

St. Louis 16.94% 18.43% 0.92Columbus 5.88% 8.25% 0.71Atlanta 4.48% 6.39% 0.70Raleigh 0.86% 1.51% 0.57Providence 2.89% 9.55% 0.30

5 Of the metropolitan areas reviewed, this chart does not include those in which Wells Fargo made less than 100 mortgages toLatinos.


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African-Americans and Latinos received a much larger share of Wells Fargo’s high rate loans than

of their prime loans.

In eight metropolitan areas, African-Americans received more than a 4 times greater share of WellsFargo’s subprime loans in that state than of the company’s prime loans.

Greatest Disparity Between African-American Share of Prime and Subprime Loans –


Metropolitan StatisticalArea (MSA)

African-American Shareof Prime Loans

African-American Shareof Subprime Loans

Disparity BetweenShare of Prime andSubprime

San Francisco 1.09% 13.73% 12.53

Miami 5.77% 29.90% 5.19


Milwaukee 5.74% 27.46% 4.78

San Diego 2.42% 11.51% 4.77

Nassau-Suffolk 4.46% 20.19% 4.53

Tampa-St. Petersburg 3.50% 14.86% 4.25

Oakland 5.20% 21.95% 4.22

Indianapolis 6.17% 22.62% 3.67

New York 8.96% 32.73% 3.65

In none of the fifty metropolitan areas did African-Americans receive a larger share of prime loans than of

subprime loans.

Among Latinos, the disparities were smaller, but still significant in a number of metropolitan areas.

Greatest Disparity Between Latino Share of Prime and Subprime Loans –


Metropolitan StatisticalArea (MSA)

Latino Share of PrimeLoans

Latino Share ofSubprime Loans

Disparity BetweenShare of Prime and

Subprime

San Francisco 4.48% 17.65% 3.9

Tucson 15.40% 37.20% 2.4

Los Angeles 20.25% 40.24% 2.0Oakland 7.06% 13.82% 2.0

San Diego 10.53% 20.14% 1.9

San Antonio 25.42% 47.23% 1.9


Milwaukee 3.49% 5.91% 1.7

Phoenix-Mesa 14.53% 23.95% 1.6


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Disparity Between African-American Share of Prime and Subprime Loans –All Wells Fargo Companies

Metropolitan Statistical

Area (MSA)

African-American Share of

Prime Loans

African-American Share of

Subprime Loans

Disparity Between Share

of Prime and SubprimeSan Francisco 1.09% 13.73% 12.53Miami 5.77% 29.90% 5.19Philadelphia 6.67% 32.81% 4.92Milwaukee 5.74% 27.46% 4.78San Diego 2.42% 11.51% 4.77

Nassau-Suffolk 4.46% 20.19% 4.53Tampa-St. Petersburg 3.50% 14.86% 4.25Oakland 5.20% 21.95% 4.22Indianapolis 6.17% 22.62% 3.67New York 8.96% 32.73% 3.65

Ft. Lauderdale 10.79% 38.46% 3.56Pittsburgh 2.36% 8.37% 3.55

Kansas City 4.49% 15.92% 3.55Raleigh 10.89% 38.52% 3.54Hartford 4.40% 15.34% 3.48

Cleveland 6.33% 21.73% 3.44Los Angeles 5.13% 17.47% 3.41Chicago 9.04% 30.20% 3.34Cincinnati 5.08% 16.94% 3.33Newark 7.37% 23.38% 3.17

Sacramento 3.41% 10.76% 3.15St. Louis 7.16% 21.67% 3.03Charlotte 10.88% 32.99% 3.00Baltimore 11.80% 35.13% 2.98Memphis 16.60% 47.39% 2.85

Portland 1.14% 3.19% 2.80

Seattle 2.11% 5.84% 2.77Houston 5.32% 14.75% 2.77Washington DC 17.49% 48.31% 2.76Little Rock 8.68% 23.64% 2.72

Detroit 19.41% 50.61% 2.61Orlando 5.53% 14.29% 2.58Birmingham 18.60% 47.20% 2.54Minneapolis-St. Paul 2.08% 5.28% 2.54Denver 2.54% 6.45% 2.54Louisville 5.73% 14.31% 2.50San Antonio 2.35% 5.86% 2.49Columbus 6.43% 16.05% 2.49

Dallas 6.85% 16.62% 2.43

Virginia Beach-Norfolk 13.75% 32.80% 2.39Tucson 1.37% 3.25% 2.37Wilmington 8.28% 18.99% 2.29Riverside-San Bernardino 4.52% 9.93% 2.20

Boston 7.33% 16.03% 2.19El Paso 1.45% 3.11% 2.14Atlanta 18.77% 39.72% 2.12Phoenix 1.75% 3.62% 2.07New Orleans 19.07% 39.07% 2.05

Las Vegas 5.26% 10.51% 2.00Providence 4.90% 6.99% 1.43


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This study analyzes 961,773 purchase, refinance, and home improvement loans made in 2004 by WellsFargo Bank, Wells Fargo Home Mortgage, Wells Fargo Financial, Wells Fargo Funding, Wells FargoJoint Venture, and Wells Fargo Mortgage Venture.

The information was obtained through the Home Mortgage Disclosure Act (HMDA) which requiresdepository and lending institutions to report the number and type of loans correlated by the race, gender,income, and census tract of the applicants, and the disposition of those applications, in each MetropolitanStatistical Area (MSA) where loans are originated.

For the first time, the 2004 lending data available under HMDA includes information regarding theAnnual Percentage Rate (APR) for individual loans. APR information is available for high-cost orsubprime loans, which are defined as first mortgages with an APR at least 3 points above the Treasuryrate and second mortgages with an APR at least 5 points above the Treasury rate. On average for 2004,this meant first mortgages with APRs above 8% and second mortgages with APRs above 10%. At today’sTreasury rate of 4.53 on a 30-year bond, a high cost loan would have an APR above 7.53% on a firstmortgage or 9.53% on a second mortgage.

Applicants with Hispanic or Latino ethnicity were counted only as Hispanic or Latino and not counted inthe data for race. For example, someone who was considered Latino ethnicity but Black race was countedonly as Latino in our calculations and not counted as African-American.

Methodology


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Wells Fargo’s reduced prepayment penalties for future borrowers does not change the millions of dollarsin equity that Wells Fargo has already stripped from homeowners who were forced to pay an unfairprepayment penalty, often just to get the interest rate that their credit warranted in the first place.

Prime Loans for Prime Borrowers

From the beginning of our campaign, ACORN charged that Wells Fargo routinely put prime borrowersinto expensive subprime loans. In response to these charges and despite evidence showing otherwise,Wells Fargo maintained that only subprime borrowers got loans from Wells Fargo Financial.

ACORN also charged that this practice had the most severe impact on low-income and minoritycommunities, whose limited assets are being siphoned off. In addition to the racial lending data includedin this report, a study we released earlier this year found that the higher cost, or “subprime,” loans madeby Wells Fargo Financial are unequally concentrated in lower-income and minority neighborhoods, in

stark contrast to Wells Fargo Home Mortgage’s lower rate, or “prime,” loans which are concentrated inupper-income and white neighborhoods. One out of every five of the mortgages made by Wells FargoFinancial was in a minority neighborhood compared to just one out of every twenty mortgages made byWells Fargo Home Mortgage, the prime lender.

Now, Wells Fargo has announced an improvement for a problem they denied even existed. Given thecompany’s blatant lies on this subject, to the media and to state Attorney Generals, there is no reason totrust that the company will implement this policy adequately. This, along with other practice reforms,must be made permanent and enforceable by Court order. Otherwise, Wells could revert to its old waysof doing business.

The prime borrowers who Wells Fargo overcharged must be compensated for the excess interest and feesthat they were charged.

Inaccurate Reporting to Credit Bureaus

Rather than reporting the actual loan size to the credit bureaus, Wells Fargo routinely reported the loansize as the total of all the payments the borrower would make over the life of the loan, including interest.The balance was similarly reported as the total of the remaining payments the borrower would make. Thisserved several purposes designed to prevent homeowners from refinancing out of their high interest Wellsloan.

It appears that since the start of our campaign Wells Fargo has changed this practice and now reports theactual loan balance to the credit bureaus. However, Wells has not made an official statement regardingthis practice.

Misleading and Deceptive Sales Tactics

Loan Optimizer: Until recently, Wells Fargo used a very deceptive form called the ‘Loan Optimizer’ toconvince borrowers of the benefits of refinancing with Wells Fargo. The form deliberately hid from theborrowers the thousands of dollars they would be charged in discount points. In addition, the form was


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used to sell the customer on the amount of interest they would save over the life of the loan with their newWells Fargo mortgage, but did not mention that their mortgage would have an adjustable interest rate,which would affect those savings. Wells Fargo has since changed these parts of the form, but it is unclear

how many thousands of borrowers Wells Fargo tricked into refinancing through the use of this tactic.

Single Premium Credit Insurance

Wells Fargo continued to finance thousands of dollars of single premium credit insurance into theirmortgages, long after other lenders announced that they stopped this practice and both Fannie Mae andFreddie Mac vowed they would no longer buy loans which included this insurance. Wells Fargo finallyeliminated single premium credit insurance in their mortgages when new federal regulations went intoeffect which would count the financing of these insurance policies toward the calculation of “points andfees” for HOEPA purposes. However, Wells Fargo continued to include single premium insurance in theirnon-real estate loans.

Call Provisions

Wells Fargo Financial used to include call provisions in its mortgages, allowing Wells Fargo to demandfull payment on the mortgage even if it was before the end of the loan term and the borrower had beenpaying on time. Wells Fargo’s August 30 announcement stated that the company’s loans do not includecall provisions, but it is unclear when they made this change.

Additional Lending Practices that Wells Fargo Must Change

There are a number of other problems at Wells Fargo, which the company has still not addressed. This

includes the following:

► Wells Fargo increases a borrower’s loan amount and reaps additional profits by packing loans withuseless but expensive products such as the Home and Auto Security Plan which can cost a borrower over$2,000 and which is financed into their high interest loan.

► Wells Fargo Financial continues to solicit customers for its higher interest loans by mailing live checksto homeowners in lower income and minority neighborhoods. The checks are sent as part of a targetedmarketing strategy in which immediately after the homeowner cashes or deposits the check, and therebyenters into a loan with Wells, a loan officer runs a credit report and can view the homeowner’s debts andmonthly payments. The loan officer then calls the homeowner with a pitch to refinance and consolidate

their debt.

► At their loan closing, many customers have been given an unsolicited Home Equity Line of Credit. Insome cases this was in the form of a credit card, which borrowers did not realize was secured by theirhome. In other cases, borrowers have not even been aware of the existence of this second mortgage.

► Wells Fargo Financial also secures their mortgages with the borrower’s car in addition to the home,and this is not due to high loan-to-values. Rather, this practice has two effects. First, it makes it easier forWells Fargo to collect on their mortgage. If a homeowner is behind on their payment, Wells Fargo can


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threaten to repossess their car, and rather than waiting for the entire foreclosure process, Wells can takethe car on a much shorter timeline. Secondly, if the homeowner wants to sell their car, they have to getWells Fargo to release the title to it. When the homeowner contacts Wells, the company can solicit them

about financing their new car.

► Wells Fargo misleads borrowers about adjustable interest rates. Borrowers are often led to believethey are receiving fixed interest rates when their loans actually contain a variable rate, which can oftenonly go up. Wells Fargo Financial loans frequently contain variable interest rates that might start at 11%,which would also be the floor – or the lowest the rate can ever go – and have a ceiling of 17%.Structuring the loan with a variable interest rate also let Wells Fargo Financial avoid restrictions in statelaw on the length or amount of prepayment penalties until an Office of Thrift Supervision ruling put anend to this.

► Wells Fargo also disguises a borrower’s actual monthly payment by hiding the cost of taxes and

insurance. Wells borrowers are frequently led to believe that the monthly payments they are quoted willtake care of property taxes and homeowners insurance (like most of their previous mortgages). In othercases, they are simply quoted a monthly payment, and believe it is comparable to their previous monthlypayment, when in fact the new figure does not include these charges, but they are never informed of thedifference. Not paying property taxes can lead to foreclosure or future refinances to pay off overdueamounts; not paying insurance obviously leaves families vulnerable to a worst-case scenario where theirhouse burns down and they have no insurance coverage.

ACORN, the Association of Community Organizations for Reform Now, is the nation's largestcommunity organization of low- and moderate-income families, with over 150,000 member familiesorganized into 700 neighborhood chapters in 60 cities across the country. Since 1970 ACORN has takenaction and won victories on issues of concern to our members. ACORN’s priorities include: betterhousing for first time homebuyers and tenants, living wages for low-wage workers, more investment inour communities from banks and governments, and better public schools. ACORN achieve these goals bybuilding community organizations that have the power to win changes -- through direct action,negotiation, legislation, and voter participation. ACORN’s website is at www.acorn.org.

739 8th St. SE ACORN Financial Justice Center 1024 Elysian Fields AveWashington, DC 20003 757 Raymond Ave., #200 New Orleans, LA 70117(202) 547-2500 St. Paul, MN 55114 (504) [email protected] (651) 644-5061 [email protected]

financialjustice@acorn org

(2005) A Case of Black and White - Inequalities in Wells Fargo's Lending

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