In October 2012, HSBC executive Irene Dorner addressed a crowd of 600 bankers, financial executives, and lobbyists at an industry conference. Four years from the financial crisis, banking industry profits had rebounded, but Dorner, recently named “the most powerful woman in banking,” warned her colleagues to avoid complacency. “Our standing hasn’t recovered in step with better balance sheets,” she said. “What we are facing is scrutiny of our behavior, our decisions, and our actions. People are asking us, ‘What on earth are you thinking, or indeed were you thinking at all? Where did you leave your moral compass?’”
While the markets have been quite forgiving of America’s banking industry, public opinion has proved less elastic. An August 2013 survey by American Banker found US banks to be deeply unpopular — far less popular than big pharmaceutical companies, energy companies, and even airlines. Americans don’t seem ready to forgive banks for the financial crisis, predatory lending, and their profit-before-people business model that is still decimating American communities.
In the aftermath of the financial crisis, Wells Fargo, the nation’s most profitable bank, suffered from what Dorner might call a “moral compass” deficit. The bank had been accused of targeting black and Latino customers for higher fees and riskier mortgages. By 2012, Wells Fargo was facing bias suits from the NAACP, the Civil Rights Division of the Department of Justice, and the cities of Memphis and Baltimore.
The testimony of whistleblowers left little doubt about the bank’s guilt. Defecting subprime loan officers testified that the bank targeted black churches and community centers, provided financial incentives for loan officers to steer blacks and Latinos towards subprime loans, and charged minority borrowers extraneous fees. Referencing the bank’s logo, whistleblower Beth Jacobson described working in Wells Fargo’s subprime division as “riding the stagecoach to hell.”
Wells Fargo never saw the inside of a courtroom. Instead, in 2012 the Department of Justice folded many of the suits into a $175 million settlement deal. As part of that settlement, Wells Fargo was ordered to spend $50 million helping low-income and minority home buyers purchase homes in regions that the bank had previously barraged with toxic loans.
But the bank saw an opportunity in its legal troubles. In a cynical act of public relations judo, Wells Fargo refashioned its greatest weakness — a record of racist subprime lending — into an advertising strategy.
Wells Fargo used the $50 million penalty to create a home ownership initiative called CityLIFT, a down payment assistance program that distributes grants to low-income families. The bank aggressively promotes CityLIFT as evidence of a corporate commitment to economic recovery and low-income home ownership, and has launched versions of the program in the San Francisco Bay Area, Philadelphia, Washington, DC, Baltimore, Prince George’s County in Maryland, Chicago, New York, and New Jersey.
CityLIFT debuted in the East Bay in Northern California in the fall of 2012. Wells Fargo offered a well-respected local Oakland nonprofit, the Unity Council, the opportunity to distribute $5 million in down payment assistance grants. These grants of $15,000–20,000 would enable the working poor to put a down payment on a house. Oakland was still reeling from the housing crisis that saw 10,508 homes in the city go into foreclosure between 2007 and 2011, and local housing nonprofits like the Unity Council are in no position to refuse free money. After cementing a partnership with the organization, Wells Fargo took out a series of radio spots in the Bay Area touting the bank’s newly formed partnership and trumpeting its commitment to low-income and minority home ownership. In one particularly obsequious segment, Unity Council CEO Chris Iglesias heaped praise on Wells Fargo for helping poor minority Oaklanders purchase homes.
Throughout the fall of 2012, Wells Fargo leveraged CityLIFT to elicit a deluge of fawning coverage in the local press. The local ABC News affiliate’s reporter called CityLIFT “a life-changing experience.” Even progressive politicians like Oakland Mayor Jean Quan publicly praised Wells Fargo: “Wells Fargo has been a strong partner in [promoting home ownership],” said Quan in a joint press release with the bank. “[CityLIFT is a] critical tool to helping Oakland and other East Bay residents achieve their homeownership dreams, especially in the wake of the foreclosure crisis.”
The CityLIFT launch in each subsequent city followed a common pattern: Wells Fargo would co-opt a local nonprofit by offering millions of dollars in grant money, leverage that partnership towards positive press coverage, and then enlist prominent local politicians to praise the initiative.
Clearly, Wells Fargo has taken Dorner’s advice. Through the CityLIFT program, Wells Fargo is appearing to align its balance sheet with moral concerns about minority and low-income home ownership. In CityLIFT, Wells Fargo found a mechanism to spin its long record of malpractices into PR gold. It has since become a template for how the bank deals with potentially damaging legal challenges.
Wells Fargo has created several similar programs, including one called UrbanLIFT, which distributes $12 million in grants to nonprofits working to “advance community stabilization.” UrbanLIFT emerged from a 2012 lawsuit filed by the National Fair Housing Alliance (NFHA). The NFHA caught Wells Fargo violating the Fair Housing Act, a federal law that makes it illegal for property sellers to discriminate in the sale, rental, and financing of housing; the suit charged the bank with neglecting upkeep on bank-owned properties in minority neighborhoods, and directly contributed to spiraling property values and urban blight. These discriminatory patterns caused minorities to disproportionately shoulder the financial burden of the housing crash — between 2007 and 2010, as home prices plummeted, Latino families lost 44 percent of their wealth and African American families 31 percent, while white families lost only 11 percent.
The NFHA took its case to the US Department of Housing and Urban Development (HUD), which adjudicates Fair Housing Act disputes, and in September, Wells Fargo settled for $42 million. The agreement required Wells Fargo to directly disburse $11.5 million to organizations that are “stabilizing and strengthening communities of color.” The bank then re-branded this mandatory payout as a Wells Fargo community development initiative, and UrbanLIFT was born. The NAACP, which had originally sued Wells Fargo for racist subprime lending practices in 2012, now advertises UrbanLIFT on its website.
Finding housing organizations willing to criticize Wells Fargo can be difficult since the bank has worked hard to co-opt the very organizations tasked with monitoring banks’ activities. Dan Ellis is Executive Director of Neighborhood Housing Services (NHS), one of Baltimore’s largest housing nonprofits and a local partner for CityLIFT that distributed more than $4.5 million dollars in Wells Fargo-backed down payment assistance grants. In August, Ellis penned an op-ed in the Baltimore Sun which reads like a Wells Fargo Press release: “Making Baltimore affordable is the key, and CityLIFT is pointing us in the right direction,” he writes.
Yet Ellis says he can still impartially assess Wells Fargo’s performance as a mortgage lender: “Obviously, if Wells Fargo is still involved in bad practices, I care about that, but that doesn’t mean we can’t do our best to right the wrongs of the past,” he says. He shrugs off any suggestion that the CityLIFT money may cloud his judgment. “It’s not like it’s blood money,” he says.
But while Wells Fargo massages its image and nestles itself into the nonprofit sector, its conduct in the aftermath of the financial crisis reveals a different set of priorities: the bank blatantly flouts federal guidelines designed to help low-income homeowners modify their mortgage and continues its voracious displacement of families.
Prominent housing advocates who do not receive Wells Fargo grants charge the bank with rapacious foreclosures practices and systematic disregard for communities’ welfare. “Wells Fargo has not turned over a new leaf,” says Kevin Stein, associate director of the San Francisco-based California Reinvestment Coalition (CRC), a consortium of more than 300 nonprofits and public agencies that advocates for low-income communities and monitors the performance of commercial banks. In fact, Stein and the CRC identify Wells Fargo as the most aggressive perpetrator of foreclosures in California.
In a 2013 CRC survey of foreclosure and housing counselors across the state of California, Wells Fargo consistently ranked ahead of Bank of America and Chase as the bank that most often denies homeowners legally-required principal reductions and loan modifications, and instead moves towards foreclosures. According to the Alliance of Californians for Community Empowerment, Wells Fargo is responsible for 20 percent of houses currently in the process of foreclosure in the state of California — more than any other lender.
This amounts to nearly 12,000 properties throughout the state that tend to be concentrated in African American and Latino neighborhoods. Although CityLIFT helped between 200–250 families buy homes in Oakland, the bank is dispossessing a far greater number of families through its aggressive foreclosure division.
The bank’s maleficence is not going totally unnoticed by the authorities. In October, New York Attorney General Eric Schneiderman sued Wells Fargo in federal court for failing to follow federal guidelines that require banks to work with homeowners to avoid foreclosures. Schneiderman says that Wells Fargo exhibits “a pattern of obstructive practices designed to avoid reasonable modifications to loan terms by burying homeowners in paperwork and besieging them with bureaucratic delays and dead ends.” The result has been an avalanche of improper Wells Fargo foreclosures in the state of New York.
Still, in the third quarter of 2013, Wells Fargo posted a record $5.6 billion in profits. By expending a minuscule amount of that capital on homeownership programs, the bank has recast itself from a greedy and racist villain whose behavior helped precipitate the crisis into a fierce champion of homeownership for all and an ally of nonprofits, homeowners, and local politicians — all while continuing to foreclose on those same communities.
Wells Fargo is selling itself as the solution to the crisis it helped cause. The bank offers up programs like CityLIFT and UrbanLIFT as evidence of a new day of beneficent lending, and too many progressives in government and nonprofits — seemingly believing the crisis’s misery can be staved off with aggressive charitable giving and awareness campaigns — are buying it. But programs like CityLIFT and UrbanLIFT aren’t solutions to the housing crisis. They’re sleights of hand, deflecting attention away from predatory banking practices and creating the illusion that Wells Fargo’s commitment to minority and low-income communities goes beyond the profits the bank can wring out of them.