Wells Fargo reiterated yesterday the statement it made this week that it prices all loans based on credit risk, not race.
"We are committed to serving all customers fairly -- our continued growth depends on it," bank spokeswoman Debora Blume said in the statement.
Banks and savings and loans are directed by the federal Community Reinvestment Act to meet the needs of low- and moderate-income areas in their regions, particularly where lending is concerned. That law doesn't apply to the country's many other mortgage players, but all have felt pressure to lend beyond comfortable suburban neighborhoods.
In 2002, President Bush "issued America's Homeownership Challenge to the real estate and mortgage finance industries to encourage them to join the effort to close the gap that exists between the homeownership rates of minorities and non-minorities," according to an administration press release touting an "Ownership Society."
"Government agencies and the public-interest groups strongly encouraged the lending industry to come up with flexible underwriting and new ways of thinking to maximize home financing opportunities for borrowers with impaired credit, and now, the very programs that they developed are being criticized," said financial-services attorney Larry Platt, a partner with K&L Gates in Washington.
John Taylor, president and chief executive of the National Community Reinvestment Coalition, which promotes fair and equal access to credit, doesn't think much of such arguments. It's not in borrowers' interests to get bad loans, and that's what happened, he said.
Subprime mortgages, designed for customers with imperfect credit, exploded in number during the housing boom. They carry higher interest rates, because of the higher risk of default. Many also came with terms advocates call questionable, such as high prepayment penalties, no escrow accounts for property taxes and adjustable interest rates.
Taylor said subprime loans were so much more profitable for lenders and brokers than traditional mortgages that they even pushed them on borrowers who qualified for cheaper, standard loans, including homeowners looking to refinance. And, because loans were resold to Wall Street investors, lenders were far less concerned than they should have been about whether borrowers could make the payments, he said.
"Up until about five, six years ago, you really could trust the process, because this kind of malfeasance was the exception -- and it was called fraud," Taylor said.
