Tag Archives: banks

Wells Fargo pays more than $175 million to settle case of steering minorities to worse mortgages

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This is part of what discrimination looks like today: Wells Fargo has just agreed to a big settlement for offering minorities worse terms on mortgages.

At least 34,000 African-American, Hispanic and other minority borrowers paid more for their mortgages or were steered into subprime loans when they could have qualified for better rates, according to the Department of Justice. The DOJ settled a fair-lending lawsuit with Wells Fargo, the nation’s largest mortgage lender, on Thursday…

The complaint also says that between 2004 and 2008, “highly qualified prime retail and wholesale applicants for Wells Fargo residential mortgage loans were more than four times as likely to receive a subprime loan if they were African-American and more than three times as likely if they were Hispanic than if they were white.”

During the same period, the complaint says, “borrowers with less favorable credit qualifications were more likely to receive prime loans if they were white than borrowers who were African-American or Hispanic.”

Wells will pay at least $175 million to settle the case; it denies any wrongdoing in settling. Bank of America agreed to pay $335 million in settling similar charges in December.

This is not unusual: audit studies have shown that minorities tend to have more difficulty renting, securing a car loan, getting a job, and getting mortgages compared to whites.

Even though I have looked at several news reports on this, here is what I really want to know: is this a large enough settlement for Wells Fargo to really care? In other words, is this a light fine or a heavy fine? And perhaps more importantly, how do we know that they and other banks won’t pursue similar tactics in the future?

Australian architect argues banks are pushing him to design McMansions

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One Australian architect argues that he doesn’t want to build McMansions but banks are pushing him to do so:

CANBERRA’S appetite for McMansions may have lessened but architects are complaining that it is now the banks – not the clients – who are pushing them for extra more bricks and mortar.

President of the ACT chapter of the Australian Institute of Architects Tony Trobe said he had been effectively forced to change designs to give clients extra bedrooms they did not want or need, just so they could get finance from their banks for the build.

”The banks are saying ‘no’ because they think it’s not as easy to sell a stylish two bedroom house as is to sell a three bedroom house with a garage,” he said…

Australian Bankers’ Association chief executive officer Steven Munchenberg said there was no hard and fast rule about needing at least three bedrooms.

”Nobody in the industry is saying ‘no more two bedrooms’ but the banks will take into account the re-salability of the home,” he said.

This sounds like an interesting conundrum: the architect wants a certain design but the bank wants to make sure the home can be sold down the road. Having three bedrooms makes the home more attractive to families and others who might extra space (a guest room, an office, etc.). Could the banks simply be hedging their bets here, meaning they want to ensure they aren’t stuck with an underwater mortgage or foreclosure down the road?

I do have one question: having three bedrooms in a home automatically makes it a McMansion? Having three bedrooms sounds pretty normal to me…

Foreclosing foreclosure

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Many news outlets are reporting on the escalating foreclosure paperwork mess, and the American Bar Association’s Law Journal has a roundup describing some of the most recent calls for banks to halt foreclosures entirely.

I haven’t had time to dive into the issue extensively, but my grasp of the underlying issues leads to the following two observations:

  1. I’m not sure what the banks–and especially the law firms–were thinking.  Lawyers are paid often-exorbitant amounts of money to dot i’s and cross t’s.  This is precisely what they appear to have failed to do here:  comply with important technicalities.  Why?
  2. None of the long-term fundamentals appear to have changed.  The houses in question will still be foreclosed; the only real question is how long the process will drag out.  That can’t be good for the economic recovery.

Mortgage problems continue; 9.9% have missed at least one payment

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Some new data suggests the mortgage crisis is continuing and still affecting a large number of people:

One in 10 American households with a mortgage was at risk of foreclosure this summer as the government’s efforts to help have had little impact stemming the housing crisis.

About 9.9 percent of homeowners had missed at least one mortgage payment as of June 30, the Mortgage Bankers Association said Thursday.

That number, which is adjusted for seasonal factors, was down slightly from a record-high of more than 10 percent as of April 30.

In a worrisome sign, the number of homeowners starting to have problems with their mortgages rose after trending downward last year. The number of homes in the foreclosure process fell slightly, the first drop in four years.

More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to foreclosure listing service RealtyTrac Inc. Economists expect the number of foreclosures to grow well into next year.

Even if this data were to improve soon, there would still be a long way to go to get back to anything resembling the housing markets of the 1990s or 2000s.

Banks to cut free checking?

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Some of the major banks are looking to end free checking accounts:

“The transformation of checking accounts comes at a time when banks are bouncing back from the steepest financial losses in a generation and are facing new regulations. To accelerate that recovery and recoup losses from new banking rules, financial institutions are increasingly leaning on customers who don’t now generate enough revenue for the bank.

More than half of all checking accounts are currently unprofitable, according to a report issued last month by Celent, a unit of Marsh & McLennan Cos. It costs most banks between $250 and $300 a year to maintain one of the roughly 200 million checking accounts, according to industry estimates. ”

As someone once said, there’s no such thing as a free lunch.