The deal additionally stipulates that Wells will pay NFHA to review a "fair housing training module" to be released to the public and requires the bank to pay NFHA an undisclosed hourly fee for consulting in three areas: production of fair housing training materials for the public; monitoring of the bank's REO portfolio; and identification of additional communities in which to conduct monitoring.
HUD's $11 million portion of the settlement is just one-third as large as NFHA's. Individual homeowners will receive no compensation, and there is no requirement that Wells Fargo improve its foreclosure maintenance beyond its existing best-practice standards. In addition to helping NFHA negotiate the deal, HUD's Pratt signed the settlement document on behalf of the government.
Wells may have been a relatively easy mark for NFHA. The bank previously paid $175 million to the city of Baltimore to settle allegations that it had steered African-American and Hispanic borrowers into high-cost, subprime loans and contributed to a cascade of inner-city defaults and blight.
As the nation's largest mortgage servicer, it is responsible for collecting payments, working with troubled borrowers and handling foreclosures for millions of homes. The bank and its chief executive officer, John Stumpf, have also been the target of numerous hecklers and demonstrations by those claiming it has abused homeowners.
Wells declined comment on why it settled. One alternative would have been to shun HUD's administrative process and resort to the courts—a move that could have provoked both a costly fight with the government and further bad publicity.
Sandler, the bank attorney, declined to comment on specific lenders but says HUD's procedures—and the NFHA's connections—have left banks cornered. Based purely on the legal merits, banks would be well advised to refuse to cut deals with the NFHA and litigate instead, he says.
"However, that can be hard for a bank to do when HUD adopts NFHA's claims without meaningful evaluation of their merit and demands that the bank settle with NFHA or face prolonged government enforcement proceedings," Sandler says.
Next: A close look at the NFHA's evidence of wrongdoing and financial incentives raises questions about whether the real victims are minority homeowners or banks and their shareholders.