Memphis Makes Peace with Wells Fargo on Mortgages

Posted by John Branston on Thu, May 31, 2012 at 8:44 AM

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Can something good come out of the biggest real estate collapse and mortgage fiasco in Memphis history?

Mayor A C Wharton hopes so. On Wednesday, Wharton along with Shelby County Mayor Mark Luttrell and Wells Fargo officials held a news conference to talk about “our relationship” and the settlement of a lawsuit over people who had "unpleasant experiences" with home loans. The harmony was in stark contrast to the nasty lawsuit alleging that Wells Fargo made deceptive loans to poor people that caused a foreclosure crisis and depleted city coffers. The lawsuit became a touchstone for media reports about subprime mortgages and poverty in Memphis at a time when the city is losing residents to the suburbs and trying to improve its image.

In the agreement, described as a "term sheet" with details yet to be completed, Wells Fargo gives $7.5 million to Memphis and Shelby County to assist low-income borrowers who want to buy or fix up homes. Some of that will go to financial education ("Hands-On Banking" Wells Fargo calls it) for students as young as middle school as well as adult would-be homebuyers. A total of $4.5 million is marked for grants of up to $15,000 for renovation assistance. The homes do not have to be financed by Wells Fargo. Luttrell said "the lion's share" of the money will go to Memphis.

"This is a good and sound starting point," Wharton said. "Quite frankly, if you look at the age at which most lawsuits come to an end, this one was filed in 2010, and now its may 2012, to bring about this kind of relief, that's a baby walking in two months."

Wharton said he was mainly concerned about putting money in the hands of consumers now as opposed to what they might get six or seven years down the road.

"Lawsuits tend to go on and on," he said. "When you see an opportunity to get some money on the table, sometimes it's best to take that opportunity."

Wells Fargo was represented by Leigh Collier, regional president for the Mid-South.

"What a win-win for the citizens of Memphis and Shelby County," she said. She touted the benefits of "financial literacy" and said “we are thrilled to come to an agreement with the city and the county.”

Wells Fargo has set a goal of making $425 million in loans to local borrowers in the next five years, with $125 million of that targeted for low-income and middle-income buyers. Collier said the amount is "based on historical data we don't publish" when asked how it compares to the amount that Wells Fargo loaned in the five years preceding the housing collapse and the amount it would probably have loaned in Memphis and Shelby County over the next five years without this agreement.

The loans will be market rate, currently under 5 percent, rather than the sub-prime loans with confusing details and higher rates that got so many borrowers in trouble, Collier said.

Memphis City Councilman Harold Collins, whose Whitehaven district was the focus of a story in The New York Times in 2010 about blacks losing decades of economic gains because of foreclosures, was not impressed with the agreement.

"Typical of most settlements like that," he wrote in an email. "They place some crazy restrictions on people that might apply. You have to go to some training from a non profit? They know most people will NOT do that stuff and thereby Wells Fargo will not have to forgo the money. Question: Did Wells Fargo impose these kinds of challenges on these people BEFORE they approved their loans? What about doing these BEFORE they were foreclosed?"

One question is whether anyone will want to buy a blighted house in a declining neighborhood under any terms. Wharton said that with the assistance of community development corporations, he thinks there will be a market.

"Some of these neighborhoods are remarkably stable, and with the idea that I am not gong to be the only one trying to renovate a house, that is what's going to bring them in," he said.

City Attorney Herman Morris, who grew up in the Binghampton neighborhood in Memphis, said the deal will help stabilize neighborhoods by promoting ownership over renting.

"I think folks would rather live in homes that they own if they can," he said.

Webb Brewer, the former head of Memphis Legal Services now working as a private attorney with the city and county on the housing issue, said "We were in for a long haul had we continued on with the litigation. It would have been a long, grueling, expensive fight for everyone. You don't know what you would get down the road."

Brewer said the important parts are the $7.5 million in "hard money" and the commitment to make $125 million in standard loans in low and moderate-income areas once targeted for sub-prime loans.

He agreed that the issue of fraudulent loans remains unresolved.

"Education does not address cases where pretty sophisticated borrowers were deceived. I am an attorney who practices in that area and sometimes I wold look at a loan and say, 'hey, what does that mean?' Education doesn't fix that, but a lot of that lending has gone by the wayside anyway with the change in the market."

If nothing else, the settlement lets Memphis move on with a best-foot-forward campaign that was going to be difficult enough without the worst-foot-forward campaign in the lawsuit against Wells Fargo.

Comments (8)

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Councilman Collins is exactly right about this "settlement." It's just as illusory as the $25 billion national "settlement" the major mortgage companies entered into a few months ago because Obama & Co., which has done next to nothing to deal, effectively, with the mortgage foreclosure crisis, twisted the arms of several state AG's who recognized what a sellout it was and tried to resist its finalization.

When all is said and done, Wells Fargo will fork over very little in the way of real money, very few, if any, of the people they screwed with their discriminatory policies will be able to avail themselves of the "incentives" and "programs" the "settlement" supposedly provides (much less come anywhere close to being made whole for the discrimination they suffered), and the politicians will go down the road pretending they actually did something for their constituents, when, in reality, they let WF off the hook with little more than a slap on the wrist.

The fact is, once WF's motion to dismiss was denied, a huge hurdle in the life of that lawsuit, they knew the handwriting was on the wall, and that they'd have to settle. If the city had held WF's feet to the fire, the discovery process would have been devastating to WF. Would it have been expensive? Probably, but the settlement that could've been wrung from WF if their conduct had been held up to public scrutiny would probably also have been considerably more favorable to the plaintiffs.

That's why its lawyers (the same firm, ironically enough, that touts itself as a civil rights paragon, having been Martin Luther King's lawyers during his sojourns in Memphis) advised a quick and dirty settlement, which they skillfully negotiated in the bank's favor, and why the settlement has been accompanied by the local media's willingness to dutifully distribute the city's PR about the settlement instead of actually investigating it and disclosing how lousy it really is.

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Posted by M_Awesomeberg on 05/31/2012 at 9:38 AM

I love the part about financial literacy and hands-on banking training. To be conducted, no doubt, by a non-profit set up by an insider for the purpose of cashing those Wells-Fargo checks. I wonder if they'll train people in how to go into government for fun and profit. Purchasing Government Officials with Other People's Money 101 should be most educational. Extra credit if you can find a way to write this money off your taxes even if it never actually gets spent.

How, pray tell, are they going to grant loans to low income home buyers who, by definition, can't qualify to buy a low-income home? Let me guess. Most of that money will go to entrepreneurs who will use it to slap on a coat a paint and rent it to people who can't qualify to buy it.

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Posted by Jeff on 05/31/2012 at 12:47 PM

Awesome and Jeff, you both make good points. Yes, this settlement is a sham that reads good, however doesn't do any good, what so ever.

What would you have had the city and the, so called civil rights attorneys do? Go through discovery, deal with the big money lawyers of WF, put up with delaying tactics that could and would have taken years to litigate to a final conclusion? Who would that have helped?

Awesome, as a person with over 30 years experience, you know that delay in justice sometimes is a win in itself. This is the same thing I was saying about any pending lawsuit over the creation of msds. With a long delay, who actually wins or loses?

I personally know some people that would benefit from this settlement. Had they been previously harmed? Probably not. No, the majority of the people harmed probably will not benefit from this settlement. It is hoped that this settlement will help the next batch of home buyers and people seeking to refinance. If that occurs, then it is at least some solace.

Hell, I wasn't harmed, however, if I decided to sell and rebuy, this settlement would most certainly help me.

Awesome, stop being so negative all of the time. You have to understand it is better to win a war with little gain than to win every battle with horrendous losses.

Thank You

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Posted by oldtimeplayer on 05/31/2012 at 7:10 PM

Regarding the Wells Fargo deal with the city to lend money to high-risk and low-income families; Isn't this what put our country into the financial mess it is in now? Loaning money to those who are risks and are unstable in money income.

Also, there is nothing in the Tennessee State Constitution that allows the city or state to be involved into the housing business.

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Posted by CHG on 05/31/2012 at 8:19 PM

OTP: lemme see if I understand: you, who go on endless, ad nauseum, obsessive/compulsive tirades of negativity against anything or anyone you disagree with have the balls to tell someone ELSE not to be so negative? I find it hard to believe anyone could be that oblivious.

Oh, and when you've litigated (and settled) as many cases as I have (which will be---hmm, let me see---NEVER), then you can lecture me about the costs and benefits of litigation vs. settlement. Until then (and I know this will fall on deaf ears, since everything you're told does), STFU about things you know ABSOLUTELY NOTHING about. I know you think your claim of having been a party in a lawsuit makes you an expert on lawsuits, but that's as stupid as thinking that having had an operation performed on you makes you an expert on surgery. Then again, you probably believe that too.

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Posted by M_Awesomeberg on 05/31/2012 at 11:34 PM

Awesome, you are still in rare form. You are quick for a put down but never available for any lucid facts other than citing your vast experience.

You have never attempted to bring anything to the table, only to denigrate. It must be a lonely life you live.

But as the Japanese used to say, " be happy in your work".

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Posted by oldtimeplayer on 05/31/2012 at 11:46 PM

It might help somebody maybe. Hurrah. Until the next time the banks find innovative new ways to steal money and property. OTP, your metaphor would be appropriate - except nobody won the war. In the balance, there was no gain at all. The banks come out ahead. That's why they settled. The banks are the house and the house never loses.

Bartcop's Second Law states that if someone makes a mistake that puts money in their pocket, they'll keep making the same mistake. Until they are stopped. This settlement doesn't stop anything. Big banks and big corporations consider lawsuits and settlements to just be part of doing business. They don't change until the lawsuits and settlements make the cost of doing business greater than the cost of changing the way they do business.

The city and the Federal settlements with the banks, and the complete lack of criminal accountability for anyone involved, means that we will be having this discussion again one day. Provided next time they don't actually succeed in destroying the world. If you're paying attention at all, they're still trying very hard to do just that.

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Posted by Jeff on 06/01/2012 at 7:52 AM

Memphis gets screwed again ! These thieves (Wall Street) belong in jail ! The amount they stole is pennies of what they actually stole ( which they will never actually release how much they really stole). Now they can do this again, because with us striking a deal, we can't prosecute them for their previous crimes, and of course, now they know what mistakes they made, and just learned how not to get caught the next time. Time maybe to start keeping our monies under our bed.(like they did during the previous depression).

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Posted by mphseason on 06/03/2012 at 10:28 AM
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