Special to the Daily World
The Department of Justice recently filed the second largest fair lending settlement in the department’s history to resolve allegations that Wells Fargo Bank, the largest residential home mortgage originator in the United States, engaged in a pattern or practice of discrimination against qualified African-American and Hispanic borrowers in its mortgage lending from 2004 through 2009.
The settlement provides $125 million in compensation for wholesale borrowers who were steered into subprime mortgages or who paid higher fees and rates than white borrowers because of their race or national origin. Based on our estimates of the number of victims in the metropolitan Atlanta area, approximately $3 million in damages could be provided to 1400 homebuyers who were steered into subprime mortgages or who paid higher rates and fees than white borrowers because of their race or national origin.
Additionally, Wells Fargo has agreed to conduct an internal review of its retail mortgage lending and will compensate African-American and Hispanic retail borrowers who were placed into subprime loans when similarly qualified white retail borrowers received prime loans. Compensation paid to any retail borrowers identified in the review process will be in addition to the $125 million to compensate wholesale borrowers who were victims of discrimination.
“The department’s action makes clear that we will hold financial institutions accountable, including some of the nation’s largest, for lending discrimination,” said Deputy Attorney General James M. Cole. “An applicant’s creditworthiness, and not the color of his or her skin, should determine what loans a borrower qualifies for. With today’s settlement, the federal government will ensure that African-American and Hispanic borrowers who were discriminated against will be entitled to compensation and borrowers in communities hit hard by this housing crisis will have an opportunity to access homeownership.”
The settlement, which is subject to court approval, was filed recently in the U.S. District Court for the District of Columbia in conjunction with the department’s complaint, which 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 when non-Hispanic white borrowers with similar credit profiles received prime loans. All the borrowers who were allegedly discriminated against were qualified for Wells Fargo mortgage loans according to Well Fargo’s own underwriting criteria.
The United States also alleges that, 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.
“Wells Fargo preyed on African-American and Hispanic borrowers and as a result, those borrowers have suffered significant financial harm,” said United States Attorney Sally Quillian Yates of the Northern District of Georgia. “Today, the Department of Justice is endeavoring to right that wrong, and to put lenders on notice that they will be held accountable for discriminatory practices.”
“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 Civil Rights Division.
The United States’ complaint alleges that African-American and Hispanic wholesale borrowers paid more than non-Hispanic white wholesale borrowers, not based on borrower risk, but because of their race or national origin. The United States’ complaint also alleges that, as a result of Wells Fargo’s policies and practices, qualified African-American and Hispanic
wholesale borrowers were placed in subprime loans rather than prime loans even when similarly-qualified non-Hispanic white borrowers were placed in prime loans.
The discriminatory placement of wholesale borrowers in subprime loans, also known as “steering,” occurred because it was the bank’s business practice to allow mortgage brokers and employees to place a loan applicant in a subprime loan even when the applicant qualified for a prime loan. In addition, Wells Fargo gave mortgage brokers discretion to request exceptions to the underwriting guidelines, and Wells Fargo’s employees had discretion to grant these exceptions.
The department began its investigation into Wells Fargo’s lending practices in 2009 and received a referral in 2010 from the Office of the Comptroller of the Currency (OCC) which conducted its own parallel investigation of Wells Fargo’s lending practices in the Baltimore and Washington, D.C. metropolitan areas.
This case was prosecuted by the Fair Lending Unit in the Civil Rights Division’s Housing and Civil Enforcement Section. For more information on the task force, visit http://www.stopfraud.gov. Individuals who believe that they may have been victims of lending discrimination by Wells Fargo and have questions about the settlement may email the Department at firstname.lastname@example.org. For further information contact the Department of Justice’s Office of Public Affairs at 202-514-2007.