Wells Fargo to pay $ 175 million for racial discrimination investigation

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CHARLOTTE, NC / WASHINGTON (Reuters) – Wells Fargo & Co has agreed to pay $ 175 million to resolve allegations that it was charging African Americans and Hispanics higher rates and fees on mortgages, even when ‘they were qualifying for better deals during the housing boom, the US Department of Justice said Thursday.

The settlement is the latest in the Obama administration’s efforts to eliminate discriminatory lending practices, which contributed to high default rates in many poor neighborhoods when the housing bubble burst.

In its consent order with the government, Wells Fargo said it treats all of its customers fairly and regardless of race and national origin. The bank said in a statement it was settling the case “only for the purpose of avoiding a contested dispute” with the US Department of Justice. Wells Fargo now finances one in three mortgages in the United States.

A government investigation found that 34,000 Wells Fargo cases were charging African Americans and Hispanics higher mortgage fees and rates than white borrowers with similar credit profiles, according to documents filed with the U.S. District Court of the District of Columbia.

In 4,000 of these cases, minority borrowers were referred to subprime mortgages as they qualified for cheaper loans.

“These are real people, African Americans and Latin Americans, who have suffered real harm as a result of Wells Fargo’s discriminatory lending practices,” Thomas Perez, US Deputy Attorney General for Civil Rights, said at the time. of a press conference in Washington.

“People with similar qualifications should be treated the same. They should be judged on the content of their creditworthiness and not on the color of their skin, ”said Perez, referring to Martin Luther King Jr.’s“ I Have A Dream ”speech.

In the second-largest settlement of its kind, America’s largest mortgage lender will pay borrowers $ 125 million who would have been billed more than their white counterparts between 2004 and 2009.

Wells Fargo will also contribute $ 50 million to homebuyer assistance programs in eight metropolitan areas across the country. The government has identified the areas in need of the most assistance to recover from the housing crisis.

A Wells Fargo bank is seen in Del Mar, Calif. On January 17, 2012. REUTERS / Mike Blake

Bank of America Corp’s Countrywide Financial unit agreed in December to pay a record $ 335 million for similar charges.

Wells Fargo’s settlement requires judicial approval. The government’s investigation focused on loans made through brokers. About 5 percent of the bank’s loans are currently made through brokers.

The bank will continue to process and close loan applications it has already received from mortgage brokers.

But competitors such as Bank of America have already stopped lending through brokers, a practice that gives banks less control over what borrowers are told about loans.

“These loans are issued under our name,” Wells spokesperson Oscar Suris said. “If we can’t control the customer experience, we’re going to be fine. “

“IT’S A LOT OF TIME”

Wells Fargo will continue a practice that also leaves it less control over what is said to the borrower: matching loan, where a small bank grants a loan and then sells it to the bank.

In the next stage of the case, Wells Fargo has agreed to conduct a review of the loans it has made directly to customers and will compensate African American and Hispanic borrowers who have been placed in subprime loans when borrowers from same qualification have received top notch loans. Perez said he expected an additional 3,000 to 4,000 victims to be found in this exam.

The bank will also be required to conduct new monitoring programs to ensure that fair lending standards are in place going forward.

“It took a long time, but the remedies they put in place should ensure that anyone who gets a loan from Wells Fargo gets a good deal that doesn’t bring it with additional fees,” Shanna Smith said. , President of the National Alliance for Fair Housing.

Wells Fargo declined to say if it has ever set aside any reserves for the settlement. The bank publishes its second quarter results on Friday.

The settlement with the Department of Justice also resolves the ongoing litigation filed in 2009 by the state of Illinois on behalf of the borrowers, and resolves an investigative complaint filed in 2010 by the Pennsylvania Human Relations Commission.

Wells Fargo also resolved a 2008 lawsuit filed by the City of Baltimore alleging the bank had engaged in a “reverse red line” or intentionally targeted minority communities for predatory mortgages, resulting in high numbers. foreclosures in minority neighborhoods. American banks have historically refrained from making loans in many minority neighborhoods, a practice known as “redlining”.

The bank will spend $ 4.5 million of the $ 50 million in Baltimore. It will also pay an additional $ 3 million for local housing and foreclosure initiatives and set a five-year loan target for the city. In return, Baltimore will drop its pursuit.

Wells struck a similar deal in May with the city of Memphis, which had also filed a reverse lawsuit.

In 2009, the Office of the Comptroller of the Currency referred the Wells Fargo case to the Department of Justice, which the Civil Rights Division handled.

Perez, the Assistant Attorney General of the United States, gave examples of how the alleged discrimination played out. In one case, a 2007 Chicago-area African-American client seeking a $ 300,000 loan paid an average of $ 2,937 more in fees than a similarly qualified white candidate. In another example, a 2007 Miami-area Latin borrower seeking a $ 300,000 loan paid an average of $ 2,538 more in fees than a similarly qualified white applicant.

Wells Fargo shares fell 1.3 percent to $ 32.85 on a day of decline for bank stocks.

Reporting by David Ingram, Margaret Chadbourn, Rick Rothacker; edited by Jeffrey Benkoe, Andrew Hay, Dan Wilchins and Bernard Orr

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