Wells Fargo Bank on Thursday agreed to pay $175 million to settle allegations by the Department of Justice that it targeted black and Hispanic neighborhoods in cities such as Baltimore and Chicago and steered those borrowers into high-cost subprime loans.
The settlement will provide $125 million in compensation to nearly 34,000 borrowers harmed by Wells Fargo’s lending practices. Another $50 million will be allotted to eight cities to fund community improvements in neighborhoods hard-hit by foreclosures.
“The settlement shows that while we will vigorously investigate lending practices for discriminatory, and other illegal, conduct, we will work constructively with responsible lenders like Wells Fargo,” said assistant attorney general Thomas Perez at a Thursday press conference.
Wells Fargo did not admit any wrong doing in settling the lawsuit with the DOJ.
The Justice Department’s investigation found that Wells Fargo’s wholesale lending arm from 2004 through 2008 steered minority borrowers into subprime loans.
“Our investigation revealed that African-American borrowers who obtained a loan from a mortgage broker were almost three times more likely to be placed in a subprime loan than similarly qualified white applicants,” Perez said.
Hispanics were almost twice as likely to be placed in a subprime loan by a broker than similarly qualified white applicants.
“While Wells Fargo denies the claims, the company has agreed to pay $125 million to borrowers that the DOJ believes were adversely impacted by mortgages” it purchased from independent mortgage brokers, the company said.
In addition to agreeing to the $175 million settlement, Wells Fargo Home Mortgage voluntarily decided to shut its wholesale lending channel where it ranked first nationwide. (See related story on the NMN website.)
After July 13, the giant mortgage lender will stop accepting new applications for loans originated by mortgage brokers.
“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 WFHM president Mike Heidi.
The settlement also resolved a lawsuit with the Illinois attorney general Lisa Madigan. “Wells Fargo’s discriminatory lending practices were illegal. They helped destroy a generation of wealth in African-American and Latino communities in the Chicago metro area,” Madigan said of the allegations in the state’s lawsuit.
“Today’s settlement holds Wells Fargo accountable and requires the bank to invest in and help revitalize the same communities it helped to destroy.”
This story was first published in National Mortgage News, a Collections & Credit Risk sister publication.