Real Estate Market

Wells Fargo settles on $175 million in discrimination restitutions, exists wholesale affiliations

(7/18/2012) - In the second largest fair lending settlement in the U.S. Department of Justice's history, the nation's largest mortgage lender has agreed to $175 million in restitutions for ethnic minority borrowers, as well as ethnic minority wholesale and retail lenders.

DOJ filed the settlement to resolve allegations that Wells Fargo, from 2004 through 2009, engaged in an abusive pattern of improperly steering minority wholesale borrowers into subprime mortgages or forcing them to pay higher fees, compared to white wholesale operations.

Of the settlement, $125 million in compensation goes to minority wholesale borrowers. Wells Fargo will also provide $50 million in direct down payment assistance to individual minority borrowers in communities hard hit by the housing crisis where DOJ also identified large numbers of discrimination victims.

Wells Fargo also promised to conduct an internal review of its retail mortgage lending operations. In addition to the $125 million to wholesale borrowers, the bank said it will compensate African-American and Hispanic retail borrowers who were placed into subprime loans when similarly qualified white retail borrowers received prime loans.

As is typical of such settlements, Wells Fargo "denies the claims...and is settling this matter solely for the purpose of avoiding contested litigation with the DOJ, and to instead devote its resources to continuing to provide fair credit services and choices to eligible consumers..." Well Fargo announced in a prepared statement.

In the statement, Wells Fargo also announced and end to its wholesale mortgage affiliations.

"...We are fully committed to fair and responsible lending. Through our separate decision to no longer fund mortgages through independent mortgage brokers, we can control how that commitment is met on every mortgage that Wells Fargo makes," said Mike Heid, president of Wells Fargo Home Mortgage.

Wells Fargo is also under investigation by the U.S. Department of Housing and Urban Development where the National Fair Housing Alliance (NFHA) filed a discrimination claim alleging Wells Fargo maintains and markets real estate owned (REO - bank owned properties) properties in white neighborhoods better than it does in minority communities.

Other banks were included in a NFHA investigation of discrimination related to REO properties. Also, private housing discrimination suits are on the rise.

"The National Fair Housing Alliance applauds the Department of Justice for holding Wells Fargo accountable for widespread discriminatory lending practices that we know have damaged communities across the country and undermined our nation's mortgage market...but we know much more needs to be done by our nation's banks to repair the damage to communities of color that have been long-time targets of lending discrimination," said Shanna L. Smith, president and CEO of NFHA.

Smith said large inventories of shunned bank-owned properties in minority neighborhoods have left municipalities with declining tax bases and neighborhoods with battles against public safety and health hazards.

The DOJ-Wells Fargo settlement, recently filed in the U.S. District Court for the District of Columbia, alleges that between 2004 and 2008, Wells Fargo discriminated by steering approximately 4,000 African-American and Hispanic wholesale borrowers, as well as additional retail borrowers, into subprime mortgages. All the borrowers who were allegedly discriminated against were qualified for Wells Fargo mortgage loans according to Well Fargo's own underwriting criteria.

Among a growing number of discrimination claims, the DOJ claim also said, between 2004 and 2009, Wells Fargo discriminated by charging approximately 30,000 African-American and Hispanic wholesale borrowers higher fees and rates than non-Hispanic white borrowers because of their race or national origin rather than the borrowers' credit worthiness or other objective criteria related to borrower risk.

"By reaching a settlement in this case, African-American and Hispanic wholesale borrowers who received subprime loans when they should have received prime loans or who paid more for their loans will get swift and meaningful relief," said Thomas E. Perez, assistant attorney general for the DOJ's Civil Rights Division.

"As one of the largest mortgage lenders in the country, Wells Fargo's commitment to conduct an internal review of its retail lending and compensate African American and Hispanic retail borrowers who may have been improperly placed in subprime loans is significant. We will continue to work aggressively to ensure that all qualified borrowers have access to credit on an equal basis," Perez added.

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