Yesterday, the Justice Department announced an agreement by Wells Fargo to pay $175 million in order to settle claims that its independent brokers discriminated against black and Hispanic borrowers. The Wells Fargo settlement, if approved, will be the second largest residential fair-lending settlement in DOJ’s history.
DOJ found that Wells Fargo’s discriminatory lending practices resulted in African-American and Hispanic borrowers paying higher rates for loans solely because of the color of their skin. Minority borrowers were both steered into sub-prime loans and charged higher fees.
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.”
Federal law requires only that a lending practice have a disparate effect on minority borrowers to be illegal. No discriminatory intent is necessary. Data analyzed by DOJ showed that African-American borrowers, who qualified for a regular loan, were 2.9 times more likely to be steered into a sub-prime loan than white borrowers with similar credit ratings. Similarly, Hispanic borrowers were 1.8 times more likely than their white-counterparts to be steered into a sub-prime loan.
$125 million of the settlement will go to individual borrowers, while the remaining $50 million will go to a program that assists people in Baltimore, Chicago, Cleveland, an area east of Los Angeles, New York, San Francisco/Oakland, Philadelphia, and Washington make down payments and home repairs. Those metropolitan areas were found to have particularly large numbers of individual discrimination victims. In addition to ending subprime lending in 2008, Wells Fargo annouced that it will no longer finance mortgages through independent brokers.