Housing Advocates Applaud Wells Fargo Settlement
Advocates for those facing foreclosure are applauding the Obama Justice Department after it announced a settlement deal with Wells Fargo Bank over allegations the financial giant steered Latino and African-American borrowers into sub-prime mortgages or charged them higher fees than whites with the same credit ratings.
Kevin Stein, with the California Reinvestment Coalition, says the Justice Department's attention to bad lending practices is long overdue.
"Many folks have been saying over the last few years that the lending has been problematic,” he says. “A lot of bad and expensive loans. It was worse for borrowers of color and neighborhoods of color."
Wells Fargo admits no wrongdoing, but it will pay at least $175 million in compensation. The Justice Department estimates that 2,100 Wells Fargo customers in the Bay Area may receive some compensation.
"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," said Wells Fargo Home Mortgage President Mike Heid.
The bank wishes "to instead devote our resources to continuing to contribute to the country's housing recovery," Heid said in a statement.
Deputy U.S. Attorney General James Cole said, "The department's action makes clear that we will hold financial institutions accountable, including some of the nation's largest, for lending discrimination.
"With today's settlement, the federal government will ensure that African-American and Hispanic borrowers who were discriminated against will be entitled to compensation and borrowers in communities hit hard by this housing crisis will have an opportunity to access homeownership," Cole said.
The lawsuit alleges that 30,000 African-American and Hispanic home buyers received subprime or more costly loans through independent brokers who arranged the funding through Wells Fargo's wholesale mortgage program between 2004 and 2009.
Another 4,000 allegedly obtained their mortgages directly from Wells Fargo's retail mortgage program, according to the lawsuit.
The proposed settlement provides that the bank will pay $125 million to borrowers who obtained loans through the wholesale program.
It will also pay $50 million in grants of up to $15,000 for mortgage down payments for residents of eight urban areas identified by the Justice Department as having experienced significant harm from the alleged bias.
One of those areas includes San Francisco, Oakland and Fremont.
U.S. Attorney Melinda Haag of San Francisco estimated that part of the settlement will provide $3 million in assistance to 2,100 local home buyers.
Wells Fargo also agreed in the proposed pact to review whether any African-American or Hispanic borrowers who obtained subprime loans directly from the bank were eligible for prime loans instead.
The bank agreed to make cash rebates in such cases, with funds that would be additional to the $175 million settlement.
Wells Fargo was one of the nation's largest residential mortgage lenders in the last decade and became the largest in 2008, according to the lawsuit.
The bank also announced that beginning on Friday, it will stop funding mortgage loans sold by independent brokers through the bank's wholesale channel. It said that such mortgages currently represent 5 percent of the bank's home mortgage volume. The closure of the wholesale program was not required by the settlement.