Three years after it began looking into allegations that Wells Fargo had systematically discriminated against minority loan applicants by pushing them into risky, high-cost subprime loans — regardless of their qualifications — the U.S. Dept. of Justice has come to a $175 million settlement with the bank.
$50 million of the settlement is to be set aside for direct down payment assistance to borrowers in communities identified by the DOJ as having both a large number of discrimination victims and which were hard hit by the housing crisis.
The remaining $125 million is to go to approximately 34,000 borrowers who received their mortgages through third-party mortgage brokers. For those victims of discrimination that got their subprime loan directly through Wells Fargo, the has agreed to conduct an internal review of its retail mortgage lending to identify these customers and compensate them accordingly. Compensation for this last group will be in addition to the $175 million.
The DOJ alleges that between 2004 and 2009, Wells Fargo’s underwriting criteria pushed thousands of black and Hispanic borrowers into subprime loans when they were qualified for prime mortgages. An even larger number of minority borrowers were put into loans with higher fees and rates than those loans given to white borrowers with similar levels of risk.
“The department’s action makes clear that we will hold financial institutions accountable, including some of the nation’s largest, for lending discrimination,” said Deputy Attorney General James M. Cole. “An applicant’s creditworthiness, and not the color of his or her skin, should determine what loans a borrower qualifies for. 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.”
A year ago, the bank’s Wells Fargo Financial subsidiary was hit with an $85 million settlement over allegations of steering customers toward subprime loans.
Speaking of inheriting bad businesses, Wells Fargo was stung last summer to the tune of $590 million in a class-action lawsuit over the Pick-A-Pay loans offered by Wachovia, which Wells acquired when it failed.