Wells Fargo to pay $175 million to settle lending bias allegations
Wells Fargo & Co.'s settlement of allegations that it overcharged minorities for home loans and wrongly steered them into subprime mortgages requires the bank to pay $125 million in damages, including about $10 million to African Americans and Latinos in the Los Angeles area.
The settlement, announced Thursday by theU.S. Justice Department, also requires the San Francisco company, by far the nation’s largest home lender, to provide $50 million in down-payment assistance to residents of areas where the alleged discrimination had a significant effect.
Those regions include the San Francisco Bay Area and the Inland Empire but not Los Angeles County, where Wells Fargo already has provided an assistance plan for buyers.
The $175-million total is the second-largest fair-lending settlement by the civil rights arm of the Justice Department. The largest, reached in December, requiresBank of America Corp.to pay $335 million to settle claims againstCountrywide Financial Corp., the aggressive Calabasas lender it acquired in 2008.
Another former Wells Fargo unit — the now-defunct subprime storefront lender Wells Fargo Financial Inc. — was the target of a separate investigation by the Federal Reserve. Wells Fargo agreed last year to pay $85 million to settle allegations that Wells Fargo Financial employees improperly pushed borrowers into more expensive subprime loans and exaggerated income information on mortgage applications.
Wells Fargo, which never admitted any wrongdoing, settled to avoid protracted litigation with the government “and to instead devote our resources to continuing to contribute to the country’s housing recovery,” Mike Heid, president of Wells Fargo Home Mortgage, said in a statement.
The agreement covers lending from 2004 through 2009 in the wholesale section of Wells Fargo Home Mortgage, which made loans of all kinds, including prime and subprime mortgages, through independent brokers.
Pending further review, additional damages may be paid to borrowers who got loans directly from retail employees of Wells Fargo Home Mortgage, the Justice Department said.
Heid said Wells Fargo would quit lending through brokers after Friday, joining several large lenders such as Bank of America and JPMorgan Chase & Co. that have abandoned the wholesale channel. Wells Fargo originates about a third of U.S. home loans, but only about 5% is through brokers.
“Mortgage brokers operate as independent businesses and are not employed by Wells Fargo,” Heid said. “Therefore, Wells Fargo cannot set loan prices for independent mortgage brokers nor control the combined effect of the negotiations that thousands of these independent mortgage brokers conduct with their customers.”
However, the Justice Department complaint also describes wrongdoing by Wells Fargo’s direct-to-consumer operations, and says senior executives had been made aware that brokers were overcharging blacks and Latinos but didn’t stop it.
The government complaint said it identified more than 30,000 minority borrowers who were overcharged or wrongly steered into loans with disadvantageous terms. Of those, about 4,500 were in the Los Angeles area — the most of any area in the country. The Justice Department said it had found 4,100 alleged victims in the Miami metropolitan area, 4,000 in greater New York, 3,500 inWashington, D.C., and its suburbs and 3,200 in the Chicago area.
“At the core of the complaint is a simple story,” Assistant Atty. Gen. Thomas E. Perez said at a news conference in Washington. “If you were African American or Latino, you were more likely to be placed in a subprime loan or pay more for your mortgage loan, even though you were qualified and deserved better treatment.”
Deputy Atty. Gen. James M. Cole told the news conference that the “systemic discrimination” created violations of the Equal Credit Opportunity Act and the Fair Housing Act that allegedly took place in at least 82 geographic markets across 36 states and the District of Columbia.
“This resulted in more than 34,000 African American and Hispanic wholesale borrowers paying an increased rate for loans simply due to the color of their skin — including approximately 4,000 African American and Hispanic wholesale borrowers who were steered into subprime mortgages,” Cole said.
The Center for Responsible Lending, an advocacy group for low- and moderate-income borrowers, said the settlement “highlights the benefits of new mortgage rules to combat predatory lending.”
“The impact of discriminatory pricing on African American and Latino communities has been severe and will take generations to remedy,” the center said. “We commend [the Justice Department] for pursuing this and other cases to address pricing discrimination and the steering of borrowers into bad home loans.”