$175 million settlement reached with Wells Fargo over discriminatory lending

July 12, 2012

Online Staff Report

WASHINGTON, D.C. — Illinois Attorney General Lisa Madigan (D) and the U.S. Department of Justice announced July 12 a $175 million joint settlement with Wells Fargo over discriminatory lending practices.

The settlement resolves allegations that the lender and its brokers steered African-American and Latino borrowers into risky subprime loans more often than similarly situated white borrowers and charged minority borrowers more for their loans during the nation’s housing boom. With this settlement, Madigan is the only state attorney general to bring and resolve a fair-lending lawsuit against a national bank.

Wells Fargo’s discriminatory lending practices were illegal,” Madigan said of the allegations in the state’s lawsuit. “They helped destroy a generation of wealth in African-American and Latino communities in the Chicago metro area. Today’s settlement holds Wells Fargo accountable and requires the bank to invest in and help revitalize the same communities it helped to destroy.”

The settlement announcement concludes Madigan’s 2009 lawsuit, which alleged illegal discrimination by Wells Fargo in its lending practices against African-American and Latino homeowners. The settlement provides for at least $15 million in restitution to Illinois borrowers whose loans were originated between 2004 and 2009.

At least 3,300 Illinois borrowers are so far estimated to be victims of discrimination by Wells Fargo brokers, whether they were steered into subprime mortgages or charged higher fees than white borrowers. Illinois victims will receive at least $8 million in relief in cash payments. On average, steering victims are expected to receive a payment of $15,000, and pricing victims will receive an average $2,000 payment. However, actual damages will depend on individual circumstances, and consumers may receive more or less than the averages. Wells Fargo also agreed to identify additional victims who were discriminated against by its employees and will provide similar relief for those borrowers.

An additional $7 million will fund down payment assistance for Illinois borrowers in need.

In addition, the settlement provides for an independent administrator, who will contact identified borrowers and distribute compensation payments. Individuals who believe they were victims and have questions about eligibility also can e-mail wellsfargo.settlement@usdoj.gov for more information.

Madigan’s 2009 lawsuit alleged Wells Fargo established highly discretionary lending policies and procedures with weak oversight that permitted Wells Fargo’s employees and brokers to steer African-Americans and Latinos into subprime loans. Madigan’s complaint cited Wells Fargo’s compensation structure that rewarded employees for placing borrowers into high-cost mortgages. The complaint also alleged that African-Americans and Latinos paid more for their mortgages than whites with similar credit profiles. For example, the complaint notes that in 2007, Wells Fargo charged an African-American prime wholesale customer in Chicago an average of about $2,937 more in broker fees than a white borrower on a $300,000 loan, and a Hispanic borrower was charged an average of $2,187 more.

Combating the housing crisis on many fronts

Throughout the housing crisis, Madigan has taken actions to hold the country’s biggest mortgage lenders accountable for unlawful misconduct. In late 2011, Madigan and the U.S. Department of Justice reached the largest national fair-lending settlement in history of $335 million to resolve allegations that Countrywide — now owned by Bank of America — employed similar discriminatory lending practices against minority borrowers.

Madigan has taken multiple actions against both Countrywide and Wells Fargo. She led an earlier lawsuit against Countrywide that brought about a national $8.7 billion settlement in 2008 regarding the company’s predatory lending practices, and she reached a $39.5 million settlement with Wells Fargo over the bank’s deceptive marketing of extremely risky loans called Pay Option ARMs.

In addition to these efforts, among her most recent actions, Madigan joined U.S. Attorney General Eric Holder, U.S. Housing and Urban Development Secretary Shaun Donovan and her counterparts in February to announce a $25 billion settlement with the country’s five largest mortgage servicers over allegations of widespread “robo-signing” of foreclosure documents and other fraudulent practices while servicing loans of struggling homeowners. The settlement will provide more than $1 billion in relief to assist people in Illinois who have lost their homes, are underwater or at imminent risk of defaulting on their mortgage. The deal also calls for overhauling mortgage servicing standards to prevent future abuses by lenders.

The attorney general also continues to hold accountable market participants that contributed to the housing bubble and subsequent collapse. Earlier this year, Madigan filed a consumer fraud lawsuit against Standard & Poor’s, alleging the company compromised its independence as a rating agency by doling out high ratings to unworthy, risky investments as a corporate strategy to increase its revenue and market share.

Posted July 12, 2012

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