Wells Fargo Shareholder Resolution 2009

Report on Racial Disparities in Home Preservation Rates

WHEREAS, mortgage foreclosures in 2007 and 2008 threaten the stability and profits of virtually all lending companies, including Wells Fargo.   Federal Reserve Chair Ben Bernanke testified in March 2008 that total losses on subprime mortgage foreclosures in the fourth quarter of 2007 exceeded 50% of the principal balance;

A report by Merrill Lynch has projected that losses on subprime mortgages could reach $250 billion, based upon the forecasted 2.3 million loans expected to default in 2008 and 2009; (1)

Wells Fargo has made a good effort to clear its books of subprime loans but has estimated it will record $65 billion in losses on $498 billion of Wachovia loans after its proposed purchase;

Conventional subprime loans often include high fees and do not require escrowing of taxes and insurance, placing the burden of paying these large lump sum expenses on the homeowner[s];

Borrowers of high-cost conventional subprime mortgages are ten to twenty times more likely to go into default on their mortgage than those with prime loans; (2)

Data shows that families receiving high-cost conventional subprime loans are more likely to end in foreclosure than families receiving Community Development Financial Institution (CDFI) subprime loans.(3) In a 2008 study, high-cost conventional subprime loans had a default rate four times higher than a representative CDFI's subprime loans, as of September 2007;

This lowered default rate is a product of the solid lending practices (including fixed-rate loans without prepayment penalties, no balloon payments, escrow for taxes and insurance, fully documented income, and standard prime-level fees) allowing CDFIs to attain a much lower delinquency rate on subprime loans than conventional subprime lenders;

The 2007 Federal Home Mortgage Disclosure Act (HMDA) data reveals that the incidence of high-cost conventional subprime loans issued to African Americans was 34%, and 29% to Latinos, while the incidence of subprime loans to white borrowers was only 11%.   Further, the Federal Reserve concluded that this disparity in the incidence of high-priced loans could not be adequately explained by borrower income or by other borrower-related or lender factors in the HMDA data; and

Preventing foreclosure through home preservation can save lenders 87% of the cost lost during the foreclosure process per home.(4) The cost of borrower defaults to the Company and its shareholders is high, and creates a negative impact on shareholder value.

RESOLVED, shareholders request that the Board publish a report to shareholders, omitting proprietary information and at a reasonable cost, of the Company's home preservation rates from 2003 to 2008. This report should include data for African-American, Latino, and white mortgage borrowers.

Supporting Statement
Preserving homeownership curtails losses for our Company and halts the negative impacts of foreclosure on communities: e.g., abandoned houses, increased crime, devaluation of neighboring homes and erosion of the tax base.

(1) Center for Responsible Lending, Issue Brief Aug 2008
(2) Risky Borrowers or Risky Mortgages, Center for Community Capital, October 2008
(3) ibid
(4) Federal Reserve, February 2006




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