Ex-Workers Allege Race-Based Loan Approach at Wells Fargo

The city of Baltimore has beefed up its groundbreaking racial discrimination lawsuit against Wells Fargo with sometimes shocking testimony from a pair of the megabank’s former subprime-loan officers.

The two whistleblowers claim their co-workers targeted black ZIP codes and churches, used software to “translate” marketing materials into African-American vernacular, and referred to subprime loans in minority communities as “ghetto loans” and to borrowers as “mud people.”

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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 “riding the stagecoach to Hell.”

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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.

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Chief Judge Benson E. Legg scheduled the June 29 hearing, despite having already received hundreds of pages of filings and having heard from lawyers for the city and the San Francisco-based lender three times in open court, to make a final determination about whether the city has enough evidence to warrant moving forward with the discovery phase of the case.

The city’s attorneys, who include fair-housing specialists from Washington, D.C., argue such a hearing is an improper and highly prejudicial “mini-trial” that would “serve no point” in light of its amended complaint.

The city has alleged Wells Fargo targeted minority neighborhoods and borrowers for high-rate subprime loans–a practice known as reverse red-lining, which is illegal under the federal Fair Housing Act, according to the city’s legal team. The city wants tens of millions of dollars to compensate for the collateral costs of Wells Fargo’s foreclosures, such as increased police and fire department expenditures.

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“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,” Wells Fargo spokesman Kevin Waetke wrote in an e-mailed statement late Monday. “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.”

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The city cited vacancy statistics showing that, of 379 foreclosures on Wells Fargo loans between 2005 and 2008, 222 were vacant after the Wells Fargo loan was “originated” and 107 remain vacant at present.

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