The Justice Department says Wells Fargo & Co. will pay at least $175 million to settle accusations that it allegedly discriminated against qualified African-American and Hispanic borrowers in its mortgage lending from 2004 through 2009.
The settlement, which needs approval from a judge, would end the investigation into whether the fourth largest U.S. bank between 2004 and 2009 knowingly targeted minorities for risky mortgages that came with higher costs, according to documents filed in the U.S. District Court for the District of Columbia.
“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,” said a statement from the U.S. Department of Justice.
The settlement will provide $125 million in compensation for minority borrowers the DOJ said were steered into subprime mortgages, which usually carry higher fees. Wells Fargo will pay $50 million more in direct down payment assistance to borrowers in parts of the country where the DOJ identified large numbers of discrimination victims.
At a news conference, Deputy Attorney General James Cole said the government will ensure that borrowers hit hard by the housing crisis will have an opportunity to access homeownership.
Cole said the bank’s discriminatory lending practices resulted in more than 34,000 African-American and Hispanic borrowers in 36 states and the District of Columbia paying higher rates for loans solely because of the color of their skin.
Wells Fargo in May said it could face civil charges under laws that prohibit discrimination against minority homebuyers. At the time, the lender said in a securities filing it believed the charges should not be brought and said it was seeking to show the department that it is in compliance with fair lending laws.
The government investigation found that loans submitted to Wells Fargo by mortgage brokers had varied interest rates, fees, and costs based only on race and not correlated to the borrowers’ creditworthiness, according to the court document.
Wells Fargo noted in a statement that it has denied the claims.
“Wells Fargo is settling this matter solely for the purpose of avoiding contested litigation with the DOJ,” it said, “and to instead devote its resources to continuing to provide fair credit services and choices to eligible customers and important and meaningful assistance to borrowers in distressed U.S. real estate markets.”
The disclosure came after Bank of America Corp’s Countrywide Financial unit agreed in December to pay a record $335 million to settle similar charges.
Last year, San Francisco-based Wells Fargo received an $85 million penalty from the Federal Reserve Board over charges it steered borrowers into high-cost loans. The Fed ordered Wells to compensate certain borrowers between $1,000 and $20,000.
The cities of Baltimore and Memphis filed suits alleging Wells Fargo engaged in “reverse redlining,” or intentionally targeting minority communities for predatory mortgage loans, leading to high foreclosures in minority neighborhoods.
In May, Memphis agreed to drop its suit after Wells Fargo agreed to contribute $7.5 million toward local homeowner and economic development initiatives. The bank also set a $425 million mortgage lending goal in the Memphis area, including $125 million in loans for low- and moderate-income borrowers.
The Associated Press and Reuters contributed to this report.
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