08 May 2012

Wells Fargo Loan Discrimination

Story first appeared in Bloomberg Businessweek.
Wells Fargo & Co., the largest U.S. mortgage lender, faces a U.S. probe over claims that it neglects bank-owned homes in minority communities, according to Seattle Banking Lawyers.

The U.S. Department of Housing and Urban Development is examining allegations that the San Francisco-based bank violated fair-lending laws, said the person, who asked not to be identified because the review isn’t public. If the agency finds violations and can’t reach an agreement to have the bank remedy them, the matter may be transferred to the Department of Justice, the person said.

The Obama administration has boosted scrutiny of banks to discourage loan discrimination after the housing bust led to record defaults. The U.S. has conducted at least two other reviews of fair-lending practices by the bank in the past year.

The National Fair Housing Alliance is hopeful that they will be able to work with Wells Fargo to identify practices and procedures to correct the existing discriminatory behavior.

The nonprofit organization, which announced the claims in an April 10 statement, said Wells Fargo violated the Fair Housing Act by allowing homes it owns in minority neighborhoods to remain in a state of disrepair. The NFHA said it reviewed 218 properties in eight cities, finding that properties in white neighborhoods were better maintained and marketed than similar buildings in areas with large black and Hispanic populations.

‘Fair and Consistent’

Wells Fargo conducts all lending-related activities in a fair and consistent manner without regard to race. That includes the marketing and maintenance standards for all foreclosed properties for which they are responsible, according to a San Diego Real Estate Defense Lawyer.

The lender has its own property manager, Premiere Asset Services, which conducts monthly checks of homes and performs maintenance, including lawn care, debris removal and protecting vacant houses from the elements. Wells Fargo doesn’t know if it owns the properties cited in the report or whether it acts as a trustee or servicer for them.

The case is part of a larger investigation by the NFHA and four member groups, which evaluated 39 marketing and maintenance attributes -- such as accumulated trash, broken or discarded for-sale signs, and dead lawn grass -- at more than 1,000 bank- owned properties. The probe was funded by a HUD grant, the nonprofit said in its report. The group said it plans to announce a complaint against another large U.S. bank next week.

Separate Probe

Wells Fargo had been negotiating with the Justice Department to resolve a separate probe into whether it directed blacks toward subprime loans, a person familiar with the matter said in July. The investigation, conducted by the department’s Civil Rights Division, focused on the lender’s actions during the housing bubble, the person said at the time.

That same month, the company settled Federal Reserve claims that it steered reliable borrowers into subprime loans and falsified information in mortgage documents. Wells Fargo agreed to pay an $85 million fine, the largest assessed by the Fed in a consumer-protection enforcement case at the time, and compensate clients.

Riskier Borrowers

Employees at the firm’s Wells Fargo Financial unit pushed customers who may have been eligible for prime interest rates into loans carrying higher rates intended for riskier borrowers, the central bank said in a July 20 statement announcing the accord. The company didn’t admit wrongdoing in agreeing to settle, the Fed said.

Wells Fargo still faces a 2008 lawsuit by the city of Baltimore alleging a pattern or practice of illegal and discriminatory mortgage lending leading to foreclosures on Wells Fargo loans in minority neighborhoods.

Bank of America Corp. agreed in December to pay a record $335 million to compensate customers of its Countrywide Financial unit who were charged more for home loans based on race and national origin. Countrywide, which the bank acquired in 2008, steered minorities into higher-cost subprime mortgages from 2004 to 2007, even when they qualified for prime loans, the Justice Department said in a Dec. 21 statement.

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