So if the 37 4/22/10 - FINANCE - BILL 100093, etc. bar from 2008 was 24.7 percent, you dramatically fell below that in 2008.
The bar stayed the same for 2009. You still fell below the bar. If the bar is the same in 2010, you slightly fall below the bar. So my question is, has your strategic plan changed? Does it need to change, and where are you setting your own bar in terms of home purchase loans for African Americans? Where should you be at now? Let's forget 2008.
The lending to African Americans in 2010 I think at the percentage rate of percent is, I 18 believe, is accurate for this point in 19 time. The market is continuing to 20 contract, and we actually expect that 21 lending overall will in 2010 decline year 22 over year from 2009. So I think that 24 23 percent is likely to be an appropriate 24 peer average for 2010.
In terms of 38 4/22/10 - FINANCE - BILL 100093, etc. African American to white denial ratios, where do you fall?
And the data that I have is for 2008. We do not yet have 2009 data. But for 2008, Wachovia's denial rate was at 40.7 percent. That is only slightly higher than the 40.1 percent of --
Okay. The ratio is at 1.19, which is significantly less than the 1.38 reported by the top depositories in the City of Philadelphia.
I'm talking 39 4/22/10 - FINANCE - BILL 100093, etc. about home purchase loans.
So for home purchase originations, Councilman Goode, is that for African Americans or for all home purchase originations?
For home purchase loans, what is the African American to white denial ratio?
The denial ratio is 1.51. That is not what is contained in this document. We went back and did a full review of all of our HMDA data and our submissions to the federal regulators. We did a comparison to the Econsult data. We have recognized that there is a difference in the data between Econsult and the data that we submitted to the federal regulators, and we are working collaboratively with Econsult to identify where those differences occurred and why the information is not the same.
Can Mr. Huang approach the witness table. (Witness approached witness 40 4/22/10 - FINANCE - BILL 100093, etc. table.)
Lee Huang. I'm a Director at Econsult Corporation. Last name is H-U-A-N-G.
In terms of home purchase loans, what is the African American to white denial ratio for Wachovia?
According to our analysis, calendar year 2008, home purchase prime single-family loans in Philadelphia, African American --
Sir, please speak into the mike and a little slower, please.
Sure. The African American to white denial ratio for calendar year 2008, 1.87. What 1.87 means is that African Americans were 87 -- excuse me; that the denial ratio for African Americans was 1.87 times greater than the denial ratio for whites. 41 4/22/10 - FINANCE - BILL 100093, etc.
So Wachovia denied African Americans more than whites at a higher ratio than our other depositories; is that true?
Than the aggregate of all depositories. All depositories in aggregate, the African American to white denial ratio was 1.39 and the aggregate for all banks, not just the depositories, was 1.98.
So we set the bar in terms of the aggregate of all depositories?
No. Actually, when we do our rankings of City depositories, we compare them in comparison to all City banks, not just depositories.
Okay. If we set the bar in terms of all depositories, it's a fair statement to say that Wachovia is more likely to deny African Americans more so than the aggregate of other depositories?
Than the other 42 4/22/10 - FINANCE - BILL 100093, etc. depositories that the City does business with. That would be a correct statement.
We are not at this time able to explain that, because we don't believe that that data accurately reflects our performance.
That's not the question I asked. I asked whether you can explain why you deny African Americans more than whites even more so than the aggregate of our other depositories. Do you think that's a fair question, to ask why you deny African Americans more than whites more than anyone else does?
I think that the HMDA data cannot explain denial rates, because there are credit factors that are not included in the HMDA data.
The credit factors are the same for every financial institution. 43 4/22/10 - FINANCE - BILL 100093, etc.
So why do you deny African Americans more than whites at the level that you do?
Thank you, Madam Chair. And since I put my light on, I know there was a lot of other questions answered, but I guess -- I don't know. I'll just speak for myself, but I think others have sort of the same frustration here. With all due respect -- and I'm not trying to lecture or give a sermon here, but Councilman Goode even said that he asked a lot of questions when you had 44 4/22/10 - FINANCE - BILL 100093, etc. your meeting on Monday. Obviously we weren't there. But it seems like there's still a lot of questions you can't answer, and I guess I don't understand that. I mean, I would think you would come in here with every possible figure, every possible answer that has anything to do with loans to minority groups. It's no secret that this Council, a lot of members, are really -- that's a key issue to them, certainly Councilman Goode and a lot of other people. It just seems that there's still -- you still don't have a lot of answers to questions. You don't have figures that you should have. You don't have explanations. And I guess I just don't get it. I don't know how else to say it. I just don't understand why -- you should have everything right there, because this is no secret. He's not tripping you up here. This is something that's been asked for a long time. So I don't know. That's more 45 4/22/10 - FINANCE - BILL 100093, etc. of a statement than a question. If you have anything to say about that, you can.
Sir, I'd like to be as helpful as possible here. To the issue as to why Wells Fargo declines African Americans more than all other depositories in the City of Philadelphia, our data indicates that that is not correct, that our denial ratio is 1.5 times versus all other lenders at 1.9 times. So --
For all depositories, and I have Wachovia for 2008 at 1.5 times.
Mr. Huang, what did you say the denial ratio was for all depositories?
For all City 46 4/22/10 - FINANCE - BILL 100093, etc. depositories for calendar year 2008, 1.39.
So even if your denial ratio was 1.5, that's still worse than 1.39. But I'm actually going to trust our consultant before I trust you.
So that being it is -- at 1.5 to 1.9, it is slightly higher. Mr. Huang is perhaps a statistical -- could explain the statistical importance of that. I don't think that it is a significantly meaningful difference between 1.39 and 1.5. That said, however, I think it is important to note, as I was about to say earlier, that there are credit factors, FICO scores, debt-to-income ratios, loan-to-value ratios --
It is the same, and it does -- 47 4/22/10 - FINANCE - BILL 100093, etc.
To the degree that underwriting standards are different across different organizations, you will necessarily receive different outcomes in terms of lending. In the prior years --
If you loan less to black people, you loan less to black people.
No. 15 Because by virtue of -- comparatively speaking, if I look at Wachovia's performance in home purchase origination --
No. I'm actually saying the way it actually is calculated, if African Americans received percent or 20 percent or 10 percent of 23 your home purchase loans, who received 24 the rest?
For 200 -- 48 4/22/10 - FINANCE - BILL 100093, etc. in the first quarter of 2010, African Americans received percent, Hispanics 4 received 4.8 percent, LMI borrowers 5 received 49 percent, LMI tracts received 6 61 percent -- 7
That's not 8 my question. Who received the rest of 9 the home purchase loans in terms of -- 10
All other 11 groups received the rest of the home 12 purchase loans, and those were the groups 13 that I was identifying here. 14
What 15 percentage of home purchase loans were 16 received by whites? 17
Okay. You 20 loan less to African Americans and you 21 deny African Americans more. 22
That is 23 not -- that denial rate was well within 24 the experience of our peer lenders in the City of Philadelphia and nationally as 49 4/22/10 - FINANCE - BILL 100093, etc. well.
It's higher than the other depositories, and I'm still not voting for your contract.
Even if you look at the Econsult at 1.5, Citigroup is at 1.58, Bank of America is at 1.70, Sovereign Bank is at 1.71, Toronto-Dominion Bank of the North is at 1.96, PNC Financial Services is at 2.32.
PNC did 31 percent of their loans to African Americans, Sovereign did 30 percent of its loans to African Americans, Citizens did 56 percent of its loans to African Americans.
And while that is true, I also do not believe that that's a fair representation of our lending because of how large our overall lending is.
I think 50 4/22/10 - FINANCE - BILL 100093, etc. that the --
How familiar were you with the Econsult report prior to this hearing? When did you get it? When did you review it? When was the Econsult report released? Please, sir.
Well, we delivered it in February of this year. I'm not sure when it was posted to the website and made publicly available.
And what is your standard operating procedure -- let me just be clear on my own information. This report was done at the request of?
The Treasurer's 51 4/22/10 - FINANCE - BILL 100093, etc. Office.
And procedurally what happens after a report has been completed, period? Let me not editorialize. What happens with a report like this once completed? (Witness approached witness table.) MR. DiSILVESTRO: Hello. My name is Mark DiSilvestro. I'm in the Treasurer's Office. After we receive the report from Econsult, we post it on Philadelphia's website at phila.gov, and that was done approximately the end of March. I don't have the exact date.
Is a formal notification given to all those parties referred to in this report so that the information is universal at the same time -- the awareness of the information is universal at the same time? MR. DiSILVESTRO: A 52 4/22/10 - FINANCE - BILL 100093, etc. notification did not go out to all of the authorized depositories.
Is that standard operating procedure, that you not notify those that have been discussed, covered in the report? MR. DiSILVESTRO: All of the authorized depositories are aware that this study is done every year.
Okay. All right. MR. DiSILVESTRO: Because every year after the report is published, every year we have an RFI that goes out, and they need to submit comments about the study, the long-term strategic plan.
That is helpful. Given that background, at what point did Wachovia become aware of the report? Wachovia -- not you, sir. I'm now speaking to the bank officials here. At what juncture, what point did Wachovia/Wells Fargo become aware of the 53 4/22/10 - FINANCE - BILL 100093, etc. report?
And what happens internally when you receive reports of this type and you do -- what happens internally?
Internally we prepare for the request that comes from the Treasurer's Office to all depositories to respond to the study. That has not come out yet.
There is a request that comes from the Treasurer's Office to all the depositories asking that we review the study in-depth and respond to the queries. If you go through the study, for each institution there are questions, and we are asked to respond to them in a formal notification that goes back to the Treasurer's Office.
Is there a 54 4/22/10 - FINANCE - BILL 100093, etc. timeline, a deadline attached to that?
Yes. And usually it comes out in the end of April or May, May 1st. It has not come out yet.
So is it fair to say that internally the colleagues at Wells Fargo/Wachovia have read the report?
And addressed the inquiries being made by the Treasurer's Office?
So given the numbers as they exist here and knowing the legitimate concerns raised by my colleague, what remedies or corrective action does an institution like yours consider to move to a place where the numbers more aptly reflect what's happening with your peers?
The lending study is a year lag. So the lending study that 55 4/22/10 - FINANCE - BILL 100093, etc. just became final is on 2008 data, which I am sure all of Council is well aware what was happening in the banking industry and specifically with Wachovia. In the debt that you have, there is a page that shows exactly what was happening with Wachovia. Part of the solution, not specifically to that element, but part of the solution was the acquisition by Wells Fargo and the pulling together of two very strong institutions fundamentally. So the activity going forward to increase our lending back to where it had been in previous years prior to the spiraling that was going on in 2008 for Wachovia Bank is part of this acquisition.
So then is it fair for one to assume that -- for me it would beg the question, what has Wells Fargo's experience, track record been in these areas?
I can speak to that. So our track record has been 56 4/22/10 - FINANCE - BILL 100093, etc. excellent. Wells Fargo nationally has been the number one lender consistently to African Americans, Hispanics, Asians, low- and moderate-income communities and low- and moderate-income borrows.
So with that rich track record, help me understand why that was not sustained during the acquisition.
So in 2008 when we operated as two separate companies, as Councilman Goode pointed out, our lending to -- Wachovia's lending to African Americans was at the 10.4 percentage range. In 2009, as the companies were coming together, you see a significant increase in lending to African Americans up to the 20.1 percent range. And now in 2010 in the first quarter, we are at percent lending to 22 African Americans. 23 So what we are seeing here is 24 the merger, the coming together of the two companies and the commitment that 57 4/22/10 - FINANCE - BILL 100093, etc. Wells Fargo has always had in this area being able to be lived out through Wachovia as well.
Yes. So you went from 22.1 percent down to 9 and 10 percent, then back up to 20 percent, and you act like that's progress.
And we're 58 4/22/10 - FINANCE - BILL 100093, etc. at percent at this time. 3
So you went 4 from 22 percent to 24 percent, and you 5 think that's progress when it still 6 probably falls below the bar. 7
So as I am 8 looking at the combined Wachovia and 9 Wells Fargo, if you look at it on a 10 combined basis -- I did a pro forma for 11 2008 for the African American community. 12 On a combined basis for home 13 purchase originations in 2008, the Wells 14 Fargo/Wachovia combined entity would have 15 been the number one lender to African 16 Americans in the City of Philadelphia. 17
So we're 24 at a crossroads. And do you fully grasp the issue raised by my colleague 59 4/22/10 - FINANCE - BILL 100093, etc. Councilman Goode?
I do fully grasp it, and my response to it is this, that because of the very large size of Wachovia/Wells Fargo, percentages become distorted. So that we could in fact by unit volume produce the largest number of home purchase originations, refinance originations in the City of Philadelphia compared to all other peer lenders, but because of how large our overall production is, our percentages appear to be very low. So, for example, we may originate some 600 or 700 units of home purchase originations to African Americans in the City of Philadelphia and the next closest lender may be at 300 units and we might be doing twice what all other lenders are doing on average, but we don't get credit for that because our total origination, the denominator in the calculation of the percentages, is so much larger than all other of our peer 60 4/22/10 - FINANCE - BILL 100093, etc. lenders. So we believe that by virtue of unit volume, that that is a more fair representation of our commitment and our reach and our impact on the African American community in terms of moving African Americans into homes as purchases and in maintaining homeownership through refinances. So I do fully understand the percentage that he's working with, but I also fully appreciate the impact is not purely in percentages. It is in units actually originated, lending that actually takes place in the community.
Thank you for that. Econsult, as you conduct your research, is that -- you're a researcher; I'm not. Is that a factor in you gathering your data or gathering your findings?
Some of the more commonly accessed parts of our report are 61 4/22/10 - FINANCE - BILL 100093, etc. the rankings, and in order to account for and create a somewhat level playing field for the larger players and the smaller players, we use a wide array of categories, in all, and we try to mix 7 and match raw levels with percentages 8 with denial ratios. So we try to account 9 so that it's neither unfairly biased 10 towards or against the big players by 11 accounting for both the raw numbers and 12 the percentages. 13
Equal to -- well, in the case of 2008, the biggest players in terms of prime loans originated were Wachovia as well as Sovereign, Bank of America, Citizens, TD Bank North/Commerce.
Point of 62 4/22/10 - FINANCE - BILL 100093, etc. information, and I hope I heard correctly Wells Fargo. You said your volume is much larger compared to the other banks?
Our overall volumes tend to be very large comparatively. And I'd also like to note for the record that the volumes that are reported in the Econsult study for 2008 are 1,000 units short for Wachovia. So there's a significant difference in the number of loans that we have reported to the federal regulators and the number of loans that we have been given credit for in the Econsult document. So I personally feel very uncomfortable defending percentages that appear not to be accurate because of the differences in what we have reported to the federal regulators and what is reported in the Econsult document.
Well, if 63 4/22/10 - FINANCE - BILL 100093, etc. your volume is larger, then you have more money to provide for loans. Why wouldn't you have a larger percentage goal set for African Americans instead of being in that small pool of maybe -- whatever the ratio is? If you have more money, then you have a bigger pool to loan money and then you can provide more money to more people. So it seems to me that the ratio should be higher, because you have more money to provide. You're a big guy.
And while I think that appears to be true in some cases, if we were to do the full percentage -- I don't have my calculator in front of me, but say, for example, if we were to say -- exactly have pure parity with all of other peers or exceed peer, we in some cases, depending on what community we're talking about, would be in the position of doing, say, 90 percent of all lending that took place within that particular city just by virtue of our total originations. 64 4/22/10 - FINANCE - BILL 100093, etc.
What does that have to do with the percentage you lend to African Americans?
It is relevant from the standpoint of every segment is impacted by our total origination volume. So whether you're African American, Asian, LMI borrower or LMI tract, those percentages are impacted by the total origination volume that is there.
So 60 percent went to whites, percent to 15 African Americans. What percentage to 16 Latino? 17
Latino was, 18 in the first quarter of 2010, 4.8 19 percent. 20
I don't 65 4/22/10 - FINANCE - BILL 100093, etc. have that immediately available. I don't have that immediately available.
Okay. Are you familiar with the demographics of Philadelphia?
I have seen it in the report, and I believe that Philadelphia is 40 percent African American. Is that correct?
Thank you very much. Questions, other questions? (No response.)
Anyone else here to testify on this bill? (No response.)
Thank you very much for your testimony. This bill 25 will be held until the call of the Chair. 66 4/22/10 - FINANCE - BILL 100093, etc. We will now end our hearing and go into our public meeting. The Chair recognizes Councilman Goode to call on Bill -- I'm sorry; Councilwoman Blackwell. I'm sorry.
Thank you, Madam Chair. We move that Bill No. 9 100093 be reported out of Committee with a favorable recommendation and also a recommendation for suspension of the rules so as to be considered at our next session of Council. (Duly seconded.)
Thank you. It has been moved and seconded that Bill 17 100093 be reported out of Committee with a favorable recommendation and a request for the suspension of rules so that this bill can be heard at Council's next session. All in favor will say aye. (Aye.)
Is there any opposition? 67 4/22/10 - FINANCE - BILL 100093, etc. (No response.)
There being none, this meeting is adjourned -- the motion is passed, and the meeting is adjourned. Thank you. (Committee on Finance concluded at 2:20 p.m.) - - - 68 CERTIFICATE I HEREBY CERTIFY that the proceedings, evidence and objections are contained fully and accurately in the stenographic notes taken by me upon the foregoing matter on April 22, 2010, and that this is a true and correct transcript of same. ______________________________ MICHELE L. MURPHY RPR-Notary Public (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)