Dr. Boyce Money: Wells Fargo's Bad Relationship With the Black Community

Wells Fargo was recently hit with another discrimination suit in the state of Illinois. This is the second high profile lawsuit alleging that the company has engaged in predatory lending in black and Latino neighborhoods. The suit was filed by Illinois Attorney General Lisa Madigan and presents evidence that black and Latino customers were being guided toward higher cost loans even when they qualified for lower cost loans.

Obviously, these lawsuits are not good PR for a company that is one of the primary sponsors for Tavis Smiley's yearly State of the Black Union event.

"I'm talking of the worst of the worst bad loans that were sold in the run-up to the collapse of the housing market," the attorney general said in a press conference about the suit.

The attorney general should be commended for taking on this lawsuit. Just a few months ago, Wells Fargo was accused of engaging in similar practices in black neighborhoods in the city of Baltimore. Christopher Chestnut, a prominent attorney in the state of Florida who pursues racial bias cases, stated that, "The factual allegations plead in both Illinois and Maryland courts indicate a trend of predatory inequity in lending by Wells Fargo. The alleged behavior is alarming, depressing and unnecessary."

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Refinancing, Not as Easy as it Used to Be

Your Refinancing Checklist
Interest rates for 30-year mortgages haven't been this low since the Eisenhower administration. But in this current economic crisis, refinancing isn't the easy choice it once was. If you're interested in refinancing, here's what you'll need:

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Refinancing, Not as Easy as it Used to Be

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Excellent Credit
To get the best rates, you'll need a score of 720 or higher. So to figure out whether refinancing is a good deal for you, your first stop is finding out your credit score.

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Home Equity
The next step is determining how much equity you have in your house already in your existing mortgage. Ideally, you should have at least 20% equity, and that must be on your home's existing appraised value. So if your home has lost value in the bad economy, you might want to reconsider.

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Unencumbered First Mortgage
Before you refinance, you need to clear out any outstanding home equity loans or lines of credit or any second mortgage. Previously, these things would not have held up a refinancing, but today it could cause a lender to say no.

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Conforming Loan
A "conforming loan" is one that is under $417,000, which makes it available for purchase on the secondary market. If you live in a high-cost area where mortgages run higher than that, you may not qualify for the lowest rates for your refinance.

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Have Patience
Layoffs have left banks understaffed and the financial crisis is keeping other financial types busy, so you may not get the fast service you desire. If you want to refinance, you may have to wait your turn.

Mr. Chestnut is right. There appears to be a pattern in Wells Fargo's business practices and hopefully its day in court will reveal any possible deception. Genma Holmes, a blogger and entrepreneur concerned with social justice, has taken it upon herself to challenge Tavis Smiley and those connected to the State of the Black Union for their decision to promote Wells Fargo within the black community. In light of Smiley's campaign to hold President Barack Obama accountable, Holmes has argued that Smiley himself should be held accountable for his business relationship with Wells Fargo.

My position on this issue is clear: Companies found to discriminate should be taken to task, and we are fortunate to have an attorney general within the Obama administration (Eric Holder) who might be willing to do that. At the same time, predators are less likely to make you into a victim if you protect yourself from being good prey. This means that educating our children on financial literacy is critical, so they know how to shop for the best loan products when buying a home. Additionally, broader financial training in the black community could be beneficial to ensure that we don't buy into the latest products being presented by companies who simply choose the right spokesperson. There is no substitute for education and preparation. Perhaps Tavis Smiley's great book, 'Covenant with Black America' should include a chapter on fighting predatory lending. Given his relationship with Wells Fargo, I hope that wouldn't be a conflict of interest.

While the Wells Fargo suit is going to be interesting, there is a more general and painful economic devastation occurring in the black community. Black unemployment is nearly twice that of whites, and having lower wealth levels also implies that our community has a smaller financial cushion to soften the jobs disparity. But in the midst of darkness there is always an opportunity to grow, so perhaps our financial challenges will help us focus on more important values in our community. We've made it through much worse, and we are certainly going to make it through these difficult times.

Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of "Financial Lovemaking 101: Merging Assets with Your Partner in Ways that Feel Good." To have Dr. Boyce commentary delivered to your email box, please click here.