Wells Fargo Settles Discrimination Claim, Ends Wholesale Lending
Wells Fargo agreed to pay $175 million to settle claims that its independent mortgage brokers targeted minority borrowers and steered them into subprime loans, HousingWire reported July 12. The bank also announced that it was shuttering its wholesale lending operation.
According to HousingWire, the San Francisco-based bank indicated that it had stopped funding mortgages originated by independent brokers through its wholesale lending channel as of July 13. Wells said its decision was not directly connected to the settlement. The bank will fund and close current applications.
The $175 settlement puts to rest allegations from the U.S. Department of Justice and the Office of the Comptroller of the Currency that mortgages priced and sold by brokers in Wells’ wholesale lending program between 2004 and 2009 discriminated against more than 34,000 African-American and Hispanic borrowers, HousingWire reported. Wells Fargo denied the allegations in the July 12 settlement announcement.
According to the lawsuit, mortgage brokers directed approximately 4,000 minority borrowers into costly subprime loans funded by Wells even though they qualified for less risky prime mortgages, HousingWire reported. The DOJ further alleged that an additional 30,000 minority borrowers paid increased fees and costs for their loans due to their race.
“These African-American and Hispanic borrowers were placed into subprime loans, with adverse terms and conditions such as high interest rates, excessive fees, prepayment penalties and unavoidable future payment hikes, when similarly qualified (white) borrowers received prime loans,” the suit indicated, HousingWire reported.
The differences also appeared on prime loans provided to minority borrowers. In 2007, Wells wholesale brokers in Miami charged African-American borrowers an average of $3,657 more for a prime loan than they charged whites, the suit alleged.
“An applicant’s creditworthiness, and not the color of his or her skin, should determine what loans a borrower qualifies for,” Deputy Attorney General James Cole told HousingWire.
According to HousingWire, Wells claimed that it ceased funding subprime mortgages through its independent brokers in 2007, and halted all subprime lending for the remainder of its channels in 2008.
The bank will initiate an internal investigation of subprime mortgages originated through its retail branches between 2004 and 2008, and will compensate any impacted consumers.
“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,” Mike Heid, president of Wells Fargo Home Mortgage, told HousingWire.
As part of the bank’s settlement, it will allocate an additional $50 million for community development and foreclosure prevention programs in Baltimore, Chicago, Cleveland, New York, Philadelphia, Riverside, Calif., and Washington, D.C.
The agreement encompasses related allegations from the Illinois Attorney General and the Pennsylvania Human Relations Commission.