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25 Geo. J. Legal Ethics 449 (2012)
Ghetto Loans: Discrimination against African American Borrowers in Mortgage Markets and the Impact of the Ibanez Decision

handle is hein.journals/geojlege25 and id is 473 raw text is: Ghetto Loans: Discrimination against African American Borrowers in Mortgage Markets and the Impact of the Ibanez Decision* DAVID CAVELL** INTRODUCTION GHETIO LOANS FOR MUD PEOPLE In 2001, Wells Fargo Bank changed the commission system for their mortgage loan officers and underwriters, structuring the new system to pay employees considerably more when consumers purchased subprime loans instead of prime loans.' Over the next few years, as a result of these changes, in the Annandale, Virginia office alone, many loan officers earned more than $600,000 per year, with some making over $1 million. To maintain their numbers, officers began deceiving and occasionally outright lying to their customers. One employee, who in 2004 made more subprime loans than any other Wells Fargo employee in the country, observed that colleagues falsified loan applications in order to steer prime borrowers to subprime loans, sometimes cutting and pasting credit reports for one customer onto another's application, or falsely claiming that the applicant did not wish to provide documentation.3 When computer software would flag subprime loans going to what should have been prime customers, underwriters would enter one of a number of stock responses, including customer has no assets, to override the system and approve the loan.4 Loans to minority borrowers were the centerpiece of this strategy. The bank put bounties on minority customers, offering cash incentives to employees who * This Note was originally written as an analysis of the disproportionate percentage of subprime loans received by African American borrowers and homeowners, and did not attempt to engage case law. The recent Ibanez decision offers a potential solution to the resulting foreclosure crisis, helping borrowers retain their homes without upsetting the entire mortgage system. Therefore, the author has added a final section that discusses that case and its implications. ** J.D., Georgetown University Law Center (expected May 2013); B.A., Tufts University (2006). The author wishes to express his gratitude to the many talented and thoughtful editors at the Georgetown Journal of Legal Ethics, to the indefatigable and insightful Professor Charles Abernathy, and to Cathleen Cavell and Katherine Drizos. 1. Affidavit of Elizabeth M. Jacobson at 5, Mayor & City Council of Balt. v. Wells Fargo, 631 F. Supp. 2d 702 (D. Md. 2009) (No: 1:07-cv-02881-BEL). 2. Affidavit of Tony Paschal at 6, Mayor & City Council of Balt. v. Wells Fargo, 631 F. Supp. 2d 702 (D. Md. 2009) (No: 1:07-cv-02881 -BEL). 3. Jacobson Aff., supra note 1, at 7. 4. Id. 449

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