Doris Dancy, another former Wells Fargo Financial employee, spoke during a deposition of the pressures she felt to dangle deceptively low teaser rates in front of black homeowners to induce them to refinance into loans that, once the teaser rate expired, carried interest rates of between 11 percent and 17 percent. Dancy left Wells at the start of 2008, after just six months, she said, because "I thought this was an unethical and dirty trick… I knew it was going to cause folks to lose their homes."
A fourth whistleblower, Michael Simpson, a former branch manager overseeing a Wells Fargo Financial office in Memphis, said "Money corrupted Wells Fargo and clouded the judgment of upper management. The enormous amounts of money coming in from subprime loans meant that unethical and dirty managers like my district manager were supported and rewarded." In 2006 alone, according to data provided by a trade association covering the subprime-mortgage market, Wells made $28 billion in subprime home loans.
The city of Memphis and the local county government have sued Wells for"unfair, deceptive, and discriminatory" lending practices that officials there contend cost them tens of millions in tax dollars and caused rampant blight. The city of Baltimore has filed a similar suit, though a federal judge there has instructed the city to narrow its claims. In February, Wells paid $10 million to settle a separate class-action suit charging that it improperly added attorney's fees to the refinancings of 60,000 or so military veterans.
The bank has also admitted to Congress that it illegally seized the homes of 17 active-duty combatants and overcharged more than 3,000 military families on their mortgages. It denies, however, the charges of a racial bias in its lending.
Just like JPMorgan Chase, Wells too has been a big player in the poverty industry. The bank provided much of the initial seed money to those behind Advance America, today the largest payday lender with more than 2,000 stores across the country, and it still provides multimillion-dollar lines of credit to Advance America and several other large chains. Wells has angered consumer advocates by offering its own payday product carrying a triple-digit interest rate.
In July, Wells agreed to pay (without denying or admitting guilt) $85 million to settle charges filed by the Federal Reserve that it pushed borrowers into high-interest subprime loans, even though they qualified for lower-rate loans, and for falsifying documents. The Fed touted the fine as the largest it had ever imposed in a consumer-enforcement case. But the fine seemed a pittance given the $4 billion in profits the bank booked in the previous quarter. In a prepared statement, the company's CEO, John Stumpf, referred to "the alleged actions committed by a relatively small group of team members."
Wells took $25 billion in TARP money at the end of 2008 — and has spent more than $12 million on D.C. lobbyists in the 30 months since then. Stumpf, a Wells man since 1998 and CEO since 2007, was in a top position when the worst of the bank's practices occurred. But who cares about a raft of charges that they targeted black homeowners and falsified loan documents when Wells has booked $37 billion in pre-tax profits over the past two years? Stumpf is paid an annual salary of $6.6 million but received $12 million in additional compensation in 2009 and $14 million more in 2010 — or just under $40 million in two years.
The sins of Citi start with Sandy Weill — the perfect poster boy for the subprime era. It was in 1986 that Weill, then a 53-year-old Wall Street castoff looking for his next act, bought a mangy, third-rate lender called Commercial Credit.You're buying a loan shark, his otherwise loyal personal assistant said of this chain of storefront lenders in the business of gouging working-class customers looking for financing on small purchases like refrigerators and bedroom sets. But Weill saw its potential, aggressively moving Commercial Credit into subprime mortgages and then using the profits to go on a buying spree. A dozen years later, he merged his company with Citibank and took over as co-CEO.
It's hard to overstate the destructiveness of Weill's greed. By the time he made his play for Citi, Weill had already swallowed up Travelers Insurance, Smith Barney, and Salomon Brothers. Except a Depression-era law, the Glass-Steagall Act, dictated that banks, with their federally insured deposits, couldn't take over insurance companies or Wall Street investment houses. But Weill put together this behemoth anyway and went about masterminding the repeal of Glass-Steagall, which happened in 1999.
The repeal of Glass-Steagall set the stage for the financial meltdown that would follow years later. The rationale for Glass-Steagall was never more clear than in the final months of 2008, when federal officials faced the potential for widespread bank failure largely because of the great risks taken by its investment-banking arms.
Yet the pain Weill inflicted on the world didn't end with the role he played in the repeal of Glass-Steagall. There was Citi's takeover in 2000 of The Associates, a subprime-mortgage lender widely considered the industry's most predatory. Two years later, Citigroup paid a then-record $215 million to settle charges leveled by the FTC that The Associates, renamed CitiFinancial, used deception to convince customers to refinance at usurious interest rates — and agreed to reform its ways. Still, the company would set another record when in 2004 itpaid the Federal Reserve $70 million (without admitting its guilt) to resolve new charges against CitiFinancial. But what did a few hundred million dollars in settlements matter when compared to the tens of billions of profits Citi was reaping? A top-five subprime lender, Citi made $38 billion in subprime home loans in 2006 alone, a year in which the bank reported $28 billion in profits.
It wasn't just the origination of subprime home loans that drove profits. Like JPMorgan Chase and other goliaths born with the end of Glass-Steagall, Citi played the securitization game as well. The bank wrangled more than $20 billion in mortgage-backed deals in 2006 alone. On October 19, Citi agreed to pay $285 million (without denying or admitting guilt) to settle a complaint filed by the SEC charging that the bank had defrauded its own clients by selling them shares in a rigged mortgage-backed security.
It was just another slap on the wrist, really, given that two days earlier, the bank reported profits of $4 billion in the year's third quarter.
Bank of America
Bank of America's story is similar to that of the other big banks. It paid $137 million to federal and state authorities to settle charges that it rigged bids on municipal bonds, defrauding schools, hospitals, and a long list of municipalities, and it coughed up an additional $20 million to resolve claims by 160 or so military personnel claiming they had been illegally booted from their homes in a foreclosure.
Bank of America was the first major bank to get into the subprime-mortgage business when it purchased a multibillion-dollar subprime lender in 1992 (it bought a second huge player several years later). Its employees have as much explaining to do as any bank about the "robo-signing" scandal — which saw bank employees swearing they had done the necessary due diligence to prove the bank had the right to seize an individual's home, when they had not. During a deposition, for instance, one Bank of America employee asked how she could be expected to actually look over the paperwork when she was signing 7,000 to 8,000 foreclosure documents per month.
Like the other banks, Bank of America is also an enabler of the poverty industry, giving Advance America, the giant payday chain, a $265 million line of credit — allowing it to borrow money at 3 percent interest and loan it out at 400 percent.
The bank paid $1.35 billion to Freddie Mac in 2010 to put to rest claims (largely inherited with its purchase of Countrywide at the start of 2008) that it misled Freddie about loans sold during the subprime boom — and then a report by the inspector general for the agency overseeing Freddie said that dollar figure didn't come close to paying for Countrywide's sins. Bank of America proposed a payment of $8.5 billion to settle claims by private investors that Countrywide deceived them in its sale of mortgage-backed securities — except the deal was blocked by, among others, the FDIC and the attorneys general of New York and Delaware.