* U.S.: African-Americans, Hispanics steered into
* Bank will pay $125 million to compensate borrowers
* Another $50 million will go to eight U.S. metro areas
By Rick Rothacker and David Ingram
CHARLOTTE, N.C./WASHINGTON, July 12 Wells Fargo
& Co agreed to pay $175 million to resolve allegations
it charged African-Americans and Hispanics higher rates and fees
on mortgages even when they qualified for better deals during
the housing boom, the U.S. Justice Department said on Thursday.
The settlement is the latest in the Obama administration's
effort to eliminate discriminatory lending practices, which
contributed to high mortgage default rates in many poor
neighborhoods when the housing bubble burst.
In its consent order with the government, Wells Fargo said
it treated all its customers fairly and without regard to race
and national origin. The bank said in a statement it was
settling the matter "solely for the purpose of avoiding
contested litigation" with the U.S. Justice Department. Wells
Fargo now funds one out of every three mortgages in the United
A government investigation found 34,000 instances of Wells
Fargo charging African Americans and Hispanics higher fees and
rates on mortgages compared with white borrowers with similar
credit profiles, according to documents filed in the U.S.
District Court for the District of Columbia.
In 4,000 of those cases, minority borrowers were steered
into subprime mortgages even though they qualified for cheaper
"This a case about real people, African-American and Latino,
who suffered real harm as a result of Wells Fargo's
discriminatory lending practices," Thomas Perez, U.S. assistant
attorney general for civil rights, said at a news conference in
"People with similar qualifications should be treated
similarly. They should be judged by the content of their credit
worthiness and not the color of their skin," Perez said,
referring to Martin Luther King Jr's "I Have A Dream" speech.
In the second-largest settlement of its kind, the biggest
U.S. mortgage lender will pay $125 million to borrowers who were
allegedly charged more than their white counterparts between
2004 and 2009.
Wells Fargo will also contribute $50 million to homebuyer
assistance programs in eight metropolitan areas around the
country. The government identified those areas needing the most
help in recovering from the housing crisis.
Bank of America Corp's Countrywide Financial unit
agreed in December to pay a record $335 million to settle
Wells Fargo's settlement needs approval from a judge.
The government's probe focused on loans made through brokers.
About 5 percent of the bank's loans are currently made through
The bank will still process and close loan applications it
has already received from mortgage brokers.
But rivals 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 being originated under our name," Wells
spokesman Oscar Suris said. "If we can't control the customer
experience, we are going to get out of it."
"IT'S TAKEN A LONG TIME"
Wells Fargo will continue a practice that also leaves it
with less control over what the borrower is told: correspondent
lending, where a smaller bank makes a loan and then sells it to
In the next step in the case, Wells Fargo has agreed to
conduct a review of loans it made directly to customers and will
compensate African-American and Hispanic borrowers who were
placed into subprime loans when similarly qualified borrowers
received prime loans. Perez said he expected 3,000 to 4,000 more
victims will be found in this review.
The bank will also be required to conduct new monitoring
programs to ensure fair lending standards are in place in the
"It's taken a long time, but the remedies they have put in
place ought to ensure that anybody who is getting a loan from
Wells Fargo is getting a good deal that's not gouging them with
any additional fees," said Shanna Smith, president of the
National Fair Housing Alliance.
Wells Fargo declined to say whether it has already set aside
reserves for the settlement. The bank reports second-quarter
earnings on Friday.
The settlement with the Department of Justice also resolves
pending litigation filed in 2009 by the State of Illinois on
behalf of borrowers, and resolves an investigative complaint
filed in 2010 by the Pennsylvania Human Relations Commission.
Wells Fargo also resolved a lawsuit filed by the city of
Baltimore in 2008 alleging the bank engaged in "reverse
redlining," or intentionally targeting minority communities for
predatory mortgage loans, leading to high foreclosures in
minority neighborhoods. U.S. banks historically refrained from
making any 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 lending
goal for the city. In return, Baltimore will drop its suit.
Wells reached a similar agreement in May with the city of
Memphis, which had also filed a reverse redlining lawsuit.
In 2009, the Office of the Comptroller of the Currency
referred the Wells Fargo case to the Justice Department, whose
civil rights division took it on.
Perez, the U.S. assistant attorney general, gave examples of
how the alleged discrimination played out. In one instance, an
African-American customer in the Chicago area in 2007 seeking a
$300,000 loan paid on average $2,937 more in fees than a
similarly qualified white applicant. In another example, a
Latino borrower in the Miami area in 2007 seeking a $300,000
loan paid on average $2,538 more in fees than a similarly
qualified white applicant.
Wells Fargo shares fell 1.3 percent to $32.85 on a down day
for bank stocks.