Wells Fargo to Pay $175 Million to Settle Case of Race Discrimination in Mortgage Lending
WASHINGTON -- Wells Fargo & Co has agreed to pay $125 million to resolve allegations it discriminated against certain borrowers on the basis of race and national origin in its mortgage lending, the U.S. government said on Thursday.
Wells Fargo also agreed to contribute $50 million to help those buyers making down payments or improving their homes in some metropolitan areas around the country, including Baltimore, Chicago, Cleveland, Los Angeles, New York, Philadelphia and Washington. The government identified those areas needing the most help in recovering from the housing crisis.
The settlement, which needs approval from a judge, would end the investigation into whether the fourth-largest U.S. bank between 2004 and 2009 knowingly targeted minorities for risky mortgages that came with higher costs, according to documents filed in the U.S. District Court for the District of Columbia.
"An applicant's creditworthiness, and not the color of his or her skin, should determine what borrowers pay and what loans they qualify for," Deputy Attorney General James Cole said in a press conference. "Put simply, there is no place for discriminatory lending in the marketplace, and it will not be tolerated."
Wells Fargo in May said it could face civil charges under laws that prohibit discrimination against minority homebuyers. At the time, the lender said in a securities filing it believed the charges should not be brought and said it was seeking to show the department that it is in compliance with fair lending laws.
The government investigation found that loans submitted to Wells Fargo by mortgage brokers had varied interest rates, fees, and costs based only on race and not correlated to the borrowers' creditworthiness, according to the court document.
The Obama administration has mounted a campaign to closely monitor banks in order to ensure loan discrimination practices that were a part of the housing bust and led to record defaults are eliminated.
Wells Fargo said it is settling the 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, and important and meaningful assistance to borrowers in distressed U.S. real estate markets."
The bank said the settlement also resolves pending litigation filed in 2009 by the State of Illinois on behalf of borrowers, and resolves an investigative complaint filed in 2010 by the Pennsylvania Human Relations Commission.
The Justice Department looked at more than 34,000 loans made to borrowers in 36 different states and Washington, D.C., in assessing the penalty.
The disclosure came after Bank of America Corp's Countrywide Financial unit agreed in December to pay a record $335 million to settle similar charges.
Last year, San Francisco-based Wells Fargo received an $85 million penalty from the Federal Reserve Board over charges it steered borrowers into high-cost loans. The Fed ordered Wells to compensate certain borrowers between $1,000 and $20,000.
Previously, the cities of Baltimore and Memphis filed separate suits alleging Wells Fargo engaged in "reverse redlining," or intentionally targeting minority communities for predatory mortgage loans, leading to high foreclosures in minority neighborhoods.
In the agreement announced Thursday, Wells will pay $4.5 million of the $50 million to Baltimore, plus another $3 million for local housing and foreclosure initiatives. In return, the city will drop its suit.
In May, Memphis agreed to drop its suit after Wells Fargo agreed to contribute $7.5 million toward local homeowner and economic development initiatives. The bank also set a $425 million mortgage lending goal in the Memphis area, including $125 million in loans for low- and moderate-income borrowers.
The bank said the Justice Department claims are primarily related to mortgages priced and sold to borrowers by independent mortgage brokers.
As of July 13, the bank said it will voluntarily stop making mortgage loans through independent brokers. These loans account for 5 percent of the mortgages it makes. The company said it stopped originating subprime loans through brokers in 2007 and ended all subprime home lending in 2008. The bank said it will work to ensure existing applications are processed and closed.
The Wells Fargo case was initially referred to the Justice Department in 2009 by the Office of the Comptroller of the Currency, overseeing the nation's largest banks, and was taken the civil rights division.
The victims of the discrimination will be compensated, according to the Justice Department. Wells Fargo will be required to conduct new monitoring programs to ensure fair lending standards are in place in the future.
Copyright 2012 Thomson Reuters. Click for Restrictions.
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