Wells Fargo and the Justice Department have reached a $175 million settlement agreement over charges that the bank routinely steered black and Latino borrowers into expensive, dangerous subprime home loans throughout the housing bubble.
Wells Fargo has been a standout bad actor among banks, both during the subprime lending boom and the recession it spawned. Watchdogs have shown that Wells Fargo fails to maintain foreclosed properties in black and Latino communities with the same care it does in white neighborhoods, leading to further depression of home values and more blight. Its mortgage servicing arm has been at the center of complaints about banks’ refusal to work with underwater borrowers, despite massive federal incentives. And it is an industry leader among banks that are launching their own versions of payday loans, which are such significant debt traps that the Defense Department has identified them as a national security threat and Congress has barred lenders from making them to servicemembers.
The Justice Department charges that Wells Fargo, which is the nation’s largest originator of home loans, steered tens of thousands of black and Latino borrowers into more expensive loans, while white borrowers with the same credit profile received prime loans. Research has shown that black communities around the country lost hundreds of millions of dollars in wealth during the foreclosure crisis, widening the racial wealth gap to historic proportions.
In a release this morning, the Justice Department describes the steering settlement, which must be approved by the court:
The Department of Justice today 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. Wells Fargo will also provide $50 million in direct down payment assistance to borrowers in communities around the country where the department identified large numbers of discrimination victims and which were hard hit by the housing crisis.
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 .