Wells Fargo To Pay At Least $175 Million To Black, Latino Families Targeted With Risky Loans
Great to see banks are being held accountable for helping to steer the U.S.and the world into a the Great Recessions, but does anyone feel like this is a slap on the wrist?
(flickr: Jobs with Justice)
WASHINGTON — Wells Fargo, the nation’s largest home mortgage lender, has agreed to pay at least $175 million to settle accusations that its independent brokers discriminated against black and Hispanic borrowers during the housing boom, the Justice Department announced on Thursday. If approved by a federal judge, it would be the second largest residential fair-lending settlement in the department’s history.
An investigation by the department’s civil rights division found that mortgage brokers working with Wells Fargo had charged higher fees and rates to more than 30,000 minority borrowers across the country than they had to white borrowers who posed the same credit risk, according to a complaint filed on Thursday along with the proposed settlement.
Wells Fargo brokers also steered more than 4,000 minority borrowers into costlier subprime mortgages when white borrowers with similar credit risk profiles had received regular loans, a Justice Department complaint found. The deal covers the subprime bubble years of 2004 to 2009.
Thomas Perez, the assistant attorney general for the civil rights division, said the practices amounted to a “racial surtax,” adding: “All too frequently, Wells Fargo’s African-American and Latino borrowers had no idea they could have gotten a better deal — no idea that white borrowers with similar credit would pay less.”
Wells Fargo admitted no wrongdoing as part of the settlement. In a statement, the bank also announced that it would no longer finance mortgages through independent brokers, and noted that it had ceased making subprime loans in 2008.
“Wells Fargo is settling this matter because we believe it is in the best interest of our team members, customers, communities and investors to avoid a long and costly legal fight, and to instead devote our resources to continuing to contribute to the country’s housing recovery,” said Mike Heid, president of Wells Fargo Home Mortgage.
The bank agreed to pay $125 million to compensate individual borrowers. The Justice Department estimated that the minority borrowers who had been steered into costly subprime loans would receive an average of $15,000, while the victims who had been charged more costly fees would receive $1,000 to $3,500.
In addition, the bank has agreed to give $50 million to a program that assists people in making down payments or improving their homes in eight metropolitan areas: Baltimore, Chicago, Cleveland, an area east of Los Angeles, New York, Oakland/San Francisco Bay Area, Philadelphia and Washington.
Lending data showed, for example, that in 2007 customers in the Chicago area who borrowed $300,000 from Wells Fargo through an independent broker had paid an average of $2,937 more in broker fees if African-American, and $2,187 more if Hispanic, compared with white borrowers with a similar credit risk, the complaint said.
Similarly, it said, the data showed that nationwide, an African-American borrower who had qualified for a regular loan was 2.9 times more likely to be steered into a subprime loan, and a Hispanic borrower was 1.8 times more likely, than were similarly creditworthy white borrowers. Subprime loans, which are intended for riskier borrowers, carry higher interest rates.
Wells Fargo was also facing lawsuits by several entities beyond the Justice Department, including the city of Baltimore, the state of Illinois and the Pennsylvania Human Rights Commission. It settled with all of them as part of the deal, putting to rest its fair-lending cases from the bubble years.
The focus of the settlement is Wells Fargo’s failure to police the behavior of its independent loan brokers. The complaint said that the bank had set basic credit guidelines but then had allowed the brokers discretion to charge higher rates or steer people into less attractive loans without ensuring there was no discrimination based on race or national origin
Wells Fargo and the Justice Department were unable to agree on whether the data had showed any evidence of discrimination in the lending practices of the bank’s in-house “retail” mortgage agents. Instead, they agreed to a methodology to evaluate that data further. If it finds evidence of discrimination, the victims would receive similar compensation on top of the $175 million Wells Fargo has already agreed to pay.
Under federal civil rights laws, a lending practice is illegal if it has a disparate impact on minority borrowers, even without evidence of discriminatory intent.
During the housing boom, Wall Street firms developed a huge demand for subprime loans that they purchased and bundled into securities for sale to investors, creating financial incentives for lenders to make such loans. In early 2010, the Obama administration set up a unit in the civil rights division to focus on lending bias amid the fallout from the wave of foreclosures that had set off the financial crisis.
In December, the division settled a similar lawsuit with Bank of America for $335 million over loan discrimination by its Countrywide Financial unit. In May, SunTrust Mortgage agreed to pay $21 millionin a similar case.