In a lawsuit backed by the testimony of two former Wells Fargo employees, the bank is accused of targeting minority neighborhoods in Memphis, Tennessee with higher rate loans as opposed to the white neighborhoods in the city. The practice of targeting disadvantaged borrowers with riskier loans is known as “reverse redlining”.
According to the lawsuit, 43% of Wells Fargo’s foreclosures are in minority neighborhoods, despite that these neighborhoods make up only 15% of the bank’s portfolio in the city. The lawsuit also says that Wells Fargo originated more high cost loans in minority areas and lower cost loans in white neighborhoods. While this could be attributed to borrowers in white neighborhoods having better credit, the linchpin of the lawsuit is testimony from two former Wells Fargo employees who say that they were told to specifically target minority neighborhoods for subprime mortgages.
The lawsuit seeks damages under the Fair Housing Act, and Wells Fargo denies any wrongdoing in the case. Depending on the weight of the testimony provided by the two former employees, it should be interesting to see how this case shapes up.
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