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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.

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