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Irvington Squares off Against Wells Fargo in Fight Over Foreclosures

Paulette McQueen at Wayne Smith's rally, with Mary Szacik of NJ Communities United.
Paulette McQueen at Wayne Smith's rally, with Mary Szacik of NJ Communities United.

Irvington resident Paulette McQueen knew she had a problem in October 2010, but she thought she could overcome it.

Handling legal affairs for her elderly and ailing mother, Lavinia Curry, she missed a monthly mortgage payment to Wells Fargo & Co. on their Garwood Place home. Money was tight, because McQueen had gone on disability and only her sister was bringing home a paycheck.

But they scraped together enough funds to go to a Wells Fargo branch on Springfield Avenue ready to pay for two months.

“We had the money and tried to pay, but they wouldn’t accept it,” McQueen said. “They told me it was against the law.”

Buying a house had been her mother’s lifelong dream, realized only in 2003. Within five years, though, the Great Recession sent housing values plummeting, leaving the family “underwater,” with mortgage debt far higher than the home is worth.

“I’ve done everything I’m supposed to do,” McQueen said, working through the bank and federal programs, trying to obtain some relief. But the process has been confusing and exasperating, with Wells Fargo undermining her along the way, she said.

A Wells Fargo official did not dispute McQueen’s account, but said the situation is not as dire as it may initially appear. “There is not a foreclosure sale currently scheduled,” and Wells Fargo has attempted work with the homeowner, Kevin Friedlander, the bank’s northeast communications manager said via e-mail.

“We have attempted to review Ms. Curry for retention options on multiple occasions, but were unable to obtain all the documents needed to complete a review,” he said.

According to McQueen, though, her mother suffers from Alzheimer’s disease. McQueen obtained power or attorney for her, but even as she attempted to use that to obtain a mortgage modification, bank representatives have continued to contact her mother.

“They’re harassing her all the time, calling her when I’m not there, and of course, she doesn’t understand what they’re saying,” McQueen said. “She’ll say yes to anything.”

Such stories are commonplace in Irvington, a blue-collar town of 53,000 neighboring Newark, as foreclosures reshape the community. From 2008 through 2012, lenders foreclosed on roughly 1,775 local homes, according to Mayor Wayne Smith. That represents 8.8 percent of the township’s households.

After the former residents leave, many of those properties sit vacant, creating crime, fire, and health hazards, according to local officials. This summer, New Jersey Communities United reported Irvington has spent $14 million responding to problems connected with vacant homes.

In those desperate circumstances, Smith and city council members announced on November 16 that they will entertain the unusual step of using the township’s power of eminent domain to acquire vacant houses or occupied ones with underwater mortgages.

Eminent domain allows governments to acquire property, even from unwilling sellers, for a “public purpose.” To Irvington officials, that means helping residents keep their homes and reducing the blight caused by abandoned units. The idea would be to offer them better deals, with reduced principal or lower interest.

Such a step would pit the township against financial institutions and investment groups that now hold title to an increasingly large share of local real estate. Wells Fargo and other big banks and investors already have gone to court to try to block the only city to propose similar action, Richmond, CA.

But the banks, especially Wells Fargo, find little sympathy in Irvington.

“There are institutions that have found a way to literally steal our homes,” said Councilwoman Andrea McArdle.

Not only did lenders steer residents into mortgages with bad terms, they have been reluctant to work with them since property values plunged, she said.

The real-estate analysis company RealtyTrac currently lists 540 “pre-foreclosure” homes for sale in Irvington, as well as 128 already foreclosed upon.

At the rally where Smith announced the eminent domain plan, residents held signs reading, “Principal Reduction Now” and “Jail the Bankers.” After the politicians finished speaking, much of their audience marched off to picket a local Wells Fargo branch.

Part of that was the result of national publicity. Last month, the bank paid $869 million to the Federal Housing Finance Agency to resolve claims that it misrepresented mortgage portfolios that it passed off to the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac).

But Irvington officials and residents were more irate over a settlement Wells Fargo reached with the U.S. Department of Justice last year. The bank paid $175 million to resolve claims that its independent brokers charged higher fees and rates to African-American and Latino mortgage customers than they did to whites with the same qualifications for credit.

A Justice Department analysis of the bank’s mortgage loans in 2004-2009 found that in the Chicago area in 2007, for example, the brokers charged an average of $2,937 more to African-Americans and $2,187 more to Latinos.

Those allegations extended to more than 30,000 cases nationwide, while the Justice Department said Wells Fargo steered another 4,000 minority borrowers into risky “subprime” mortgages, at high interest rates, even though they qualified for better terms.

Thomas Perez, the assistant attorney general for the civil rights division, claimed Wells Fargo mortgage brokers imposed a “racial surtax” on minority borrowers.

Crucially, though, Wells Fargo did not admit wrongdoing under the settlement. In a statement, Mike Heid, president of Wells Fargo Home Mortgage, noted the bank was able to avoid litigation with Justice as well as with Baltimore, Illinois, and the Pennsylvania Human Rights Commission, whose claims were included in the deal.

The settlement was “in the best interest of our team members, customers, communities and investors to avoid a long and costly legal fight, and to instead devote our resources to continuing to contribute to the country’s housing recovery,” Heid said.

But on Friday, the government told a federal court in New York that a Wells Fargo vice president played “a critical role” in hiding fraudulent home loans. The bank replied that it has not seen any “facts or circumstances” to warrant the action.

Many Irvington residents know Wells Fargo in a legal setting. The San Francisco-based institution is by far the number one foreclosure plaintiff in Essex County.

Wells Fargo is responsible for 18.8 percent of the county’s new foreclosure cases this year, according to statistics from the Administrative Office of the Courts. Second place Deutsche Bank filed 7 percent.

The picture looks even worse for cases that actually end in foreclosures. Of pending sheriff’s sales in Essex County, Wells Fargo is the plaintiff in 31.5 percent. OneWest Bank is next at 11.6 percent.

Real-estate transaction records at the county tax board show most foreclosed properties do not weigh on banks’ bottom line. Individuals and investors, often groups working through the banks, buy most of the sheriff’s sale properties. When a bank does buy the home it foreclosed upon, the turnaround to a third party often happens within days.

Wells Fargo counters that the local foreclosure numbers reflect its gigantic status in the mortgage market, and its willingness to make loans after many lenders retrenched during the Great Recession.

“In 2012, Wells Fargo was the No. 1 originator of home loans overall and across the board in all key categories in New Jersey and nationwide, including loans to African-Americans, Asians, Hispanics, Native Americans, low- and moderate-income borrowers, and residents of low- and moderate-income neighborhoods,” Friedlander said.

“We have been extremely active in New Jersey helping customers who have encountered financial problems stay in their homes,” through counseling sessions and working with housing groups such as La Casa de Don Pedro and New Jersey Community Capital, he said.

Over the past decade, Wells Fargo has jumped headfirst into the mortgage business. Just after the turn of the century, it originated only about 7.3 percent of mortgage loans. By 2007, it ranked second in the country, but still only at 11.2 percent.

That was well behind high-flying Countrywide Financial, whose reckless practices included a heavy push of “subprime” mortgages, often to inexperienced buyers, frequently in minority neighborhoods, generally at easy initial terms but inflated longer-range interest rates.

Banks then packaged those substandard mortgages into securities, which ratings agencies mislabeled as secure, allowing them to be sold to investors large and small throughout the country and the world. When those toxic mortgages inevitably went bust, the effects spread throughout the economy, causing the recession.

With less involvement in the subprime debacle, and few overseas entanglements, Wells Fargo rode out the storm better than most. It began picking up the pieces, either directly by buying the failing Wachovia Bank, or indirectly by acquiring housing-loan portfolios from more exposed competitors like Bank of America in 2011.

Through such moves, Wells Fargo market share surged to 24 percent of loans and refinances. By last year, that soared to a reported one-third, although the bank currently puts its share at about one-quarter.

The bank’s performance has won plaudits. This month. “American Banker” magazine named Wells Fargo CEO John Stumpf its “banker of the year.”

“Wells is now the largest employer among U.S. banks (270,000 employees, or 'team members' in the Wells vernacular),” the magazine reported. “It is the fourth-largest bank by assets ($1.5 trillion) and with 6,200 retail branches from coast to coast, it is one of the few lenders with a truly national scope.”

But in its otherwise glowing profile, the magazine nevertheless noted that “struggling homeowners are much more critical of Stumpf.”

A major organization of housing advocates, the California Reinvestment Coalition, reported in April that “when asked which servicer was most difficult to work with, most counselors named Wells Fargo.”

Last year, a leading banking industry analyst, Richard A. Bove of Rochdale Securities, captured the two sides of Wells Fargo’s image. As an investor, Bove wrote, he considers it one of the best-run banks anywhere. But as a customer, Bove became so frustrated that he moved his accounts to JPMorgan Chase.

In Irvington, some question Wall Street’s agenda in buying up mortgage portfolios to turn around and foreclose on the homeowners.

“If we don’t fight back, they’ll take our homes and then rent them back to us,” said Kathleen Witcher, president of the Irvington chapter of the National Association for the Advancement of Colored People.

A prominent New Jersey real-estate lawyer doubts that banks have returned to the bad old days when “redlining,” not making loans in minority communities like Irvington, was common.

In the aftermath of the recession, major lenders are being cautious and making “data-driven” decisions about lending, said Peter Reinhart, a former president of the New Jersey Builders Association and current executive director of Monmouth University’s Kislak Real Estate Institute.

Even as foreclosures rise again in New Jersey, the state’s broader real-estate market is shaking off other effects from the downturn, Reinhart said, and “2013 actually has been a pretty good year.”

But that picture changes depending on where one looks, he said. Reinhart’s real-estate hot spots are predictable, “the nice parts of Monmouth County, the nice parts of Bergen County.” So are the sore spots, “some of the urban areas” as well as some Shore towns that have not bounced back from Hurricane Sandy, he said,

As much as anything, the sticky problems in the real-estate market may be generational, Reinhart said. Many millennials, those born from roughly 1980 to the turn of the century, stagger out of college with crushing debt into tight job and credit markets, he said.

“Just coming up with a down payment for a house is a problem,” Reinhart said.

In turn, that may make urban areas with public transit and cheap housing, Irvington in a nutshell, more attractive to future buyers, he said.

In the meantime, though, the township’s proposed use of eminent domain “may be a good thing if it stabilizes the community, stabilizes the housing market,” Reinhart said.

While he finds the many legal objections being raised by the mortgage industry “interesting,” they are also unpersuasive. Based on the precedents, Mayor Smith’s plan is “probably fine on a constitutional basis,” Reinhart said.

For McQueen, the plan offers a ray of hope after three tough years. It is about time for Irvington residents and official to work together, because they are not going to find much help from elsewhere, she said.

“The banks know that are our people are black and Latino, poor and elderly, and they’re just taking advantage,” she said.

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