In February, Wells Fargo announced its plans to lend $60 billion to African Americans as part of an effort to create 250,000 new black homeowners over the next 10 years. After months of negative press due to a fake account scandal, the pledge garnered Wells Fargo—which made a similar $125 billion commitment to Hispanic homebuyers in 2015—some much-needed positive press. Largely left out of the coverage of Wells Fargo's promise, however, is the groundswell of reverse redlining allegations that has swirled around the bank in recent years.
The term reverse redlining refers to when banks steer minority homebuyers, even borrowers who qualify for more favorable terms, to riskier, more expensive mortgages. Reverse redlining during the last housing boom was key to driving the black homeownership rate below the national homeownership rate during the Great Recession. It has also contributed to the largest wealth gap between black and white households in over two decades. In recent years, Wells Fargo has paid out over $200 million to settle reverse redlining cases. Now, after the Supreme Court's ruling that the City of Miami has legal standing in its ongoing case against the bank over the effects that bad loans have had on the city's black and brown neighborhoods, the City of Philadelphia has filed its own suit against Wells Fargo. While those cases make their way through the courts, many in the banking world still don't think black and brown homebuyers are getting a fair shake from the bank.
Mark Alston, chair of the public affairs committee of the National Association of Real Estate Brokers, a consortium of African-American real estate professionals, says just promising to lend more won't do much to reverse the toll the housing crisis took on black and brown communities. Since the foreclosure crisis, Wells Fargo has, like other banks, adjusted its lending criteria. Those changes have effectively excluded wide swaths of communities of color.
"They are approving 64 percent of white loans, but just 42 percent of black loans," Alston says. "Wells Fargo is the No. 1 mortgage lender and provides the most mortgages to black people, but they have one of the lowest approval rates for black loans. We need to have a conversation about why that is. I suspect they may need to provide more training and bring on more people who look like the communities they serve."
While Keith Corbett, executive vice president at the non-profit Center for Responsible Lending, welcomes news of the bank's new commitment to African-American homebuyers, he would like to see the bank commit to doing something for the families directly harmed by lending practices during the housing boom.
"They are approving 64 percent of white loans, but just 42 percent of black loans."
"This was the first time in the history of lending in America that communities of color had been sought after," says Corbett, whose work focuses on ending abusive lending practices. "After years of doing whatever it took to deny us credit, institutions were aggressively marketing these bad loans in our communities. You had all of these people who could have afforded good loans put into bad loans and now they are locked out of the mortgage market because they were foreclosed on. So my question to Wells Fargo is: What are you going to do for them?"
Corbett, who spent years underwriting mortgages at a black-owned institution, says even big banks like Wells Fargo are going to need to go back to the basics if they want to serve communities of color well.
"[Is Wells Fargo] going to underwrite people based on some computer model or based on the individual?" Corbett asks, adding that there are few minority-owned banks left to serve these communities. "That would take old fashioned underwriting, where you sit down with the applicant and you have a conversation. Just looking at credit scores for communities that have been locked out of credit markets for so long just won't do it."
But instead of looking for ways to expand access to good, sustainable credit products, many consumer advocates expect to be playing defense during the next four years. Reverse redlining in the mortgage market was largely ended by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which not only introduced Wall Street regulations, but also included a bevy of new rules to avoid another mortgage meltdown. The future of that law is up in the air as anti-regulatory voices have taken the reins of all three branches of government. "Dodd-Frank is a disaster," President Donald Trump said in January, "We're going to be doing a big number on Dodd-Frank."
Somewhat immune to the changes in Washington is the Consumer Financial Protection Bureau, which was designed by Congress in Dodd-Frank, to be independent of the presidential administration.
"Before Dodd-Frank, we didn't have a dedicated agency to protect consumers," says Katy Milani, a program director for the Roosevelt Institute. "There are inherent information asymmetries between financial institutions and consumers. We're talking about incredibly complex contracts. The CFPB has given consumers a place to go to for protection and has forced industry to be clearer and not screw over consumers."
But the CFPB has been under attack from Republicans since it was created. Trump's Department of Justice has already argued in a federal court case that the agency, as currently designed, is unconstitutional. The government's lawyers argue that Trump should be able to replace the bureau's director, who was appointed by President Barack Obama to a five-year term. Some Republicans have argued for replacing the agency's director with a committee as a way to slow down its work.
Wells Fargo's pledges to bring more credit to black and brown communities come at an opportune time. With the economy improving, black and brown buying power is on the rise. The question is whether these communities will truly get access to good, sustainable mortgages. Banks have complained that the CFPB and Obama's Department of Justice pursued too many fair lending cases like the ones against Wells Fargo, and they will likely find the new Washington establishment receptive to their argument. The allegations leveled against Wells Fargo in recent years suggest that the bank will have to completely revamp its company culture. In one sworn affidavit, one of their loan officer testified that her colleagues would refer to African-American customers as "mud people" and called the reverse redlining products they were offering to those clients, "ghetto loans."
With the Republican push for deregulation, we may well be returning to a time where we just trust the banks to do right by groups that they have a deep history of discriminating against.