Mortgage Lenders Behaving Badly

Both Wells Fargo and Countrywide have come under fire for alleged unfair practices.

Countrywide's lawyer has thus far been unable to adequately explain why it created what would appear to be correspondence with a borrower, after the fact, that had never been sent. On Countrywide's behalf, there are a lot of regulations and procedures that have to be followed by mortgage companies and one employee who "forgot" something can cause a big problem for those in charge. But, this story is just outrageous, and should never have happened. When a corporate attorney can't even come up with a defense for it, that really says something.

And Wells Fargo is not only being accused of predatory sub-prime lending, but of racism as well. A significantly higher percentage of black people than white people in the Baltimore area are facing imminent foreclosure due to exorbitant interest rates. It's also alleged that they were charged higher fees. As I've explained before, sub-prime loans are by their nature more expenive in terms of both rate and fees and they do often compensate Loan Officers much better than conventional loans do. But as I've also explained, the price of these are set by a pool of investors who are willing to loan money to people who are not worthy of receiving it - and they expect a return on their investment.

So the real question is did Wells Fargo prey on black people, in particular, by putting those who would have qualified for conforming loans into these higher priced loans or did this many people happen to have the profile of a sub-prime borrower? It will be interesting to see what the facts will ultimately show. In either case, the unfortunate fact remains that many low income people, regardless of race, were loaned money that they clearly could not afford to pay back due to lax underwriting guidelines. This is currently being addressed not only legislatively, but also by investors and mortgage companies who just don't want to risk any more of their money (or risk going out of business like so many competitors) amidst the chaos.

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