The $175 million fair-lending settlement that federal authorities announced late this week with mortgage giant Wells Fargo offered both sides the chance to claim some measure of victory and move past a three-year-long investigation.
With the settlement, Wells Fargo was able to deny—contrary to the allegations of the Justice Department—that it unlawfully discriminated against minority borrowers related to mortgages originated during the housing boom. But at the same time, the Justice Department, which has been pursuing fair-lending cases more energetically during the Obama administration, was able to claim its second-largest prize following a $335 million settlement with Countrywide last year.
Countrywide—what’s left of it—is owned by Bank of America, which made the ill-fated purchase August in 2008.
"All too frequently, Wells Fargo's African-American and Latino borrowers had no idea whatsoever that they could have gotten a better deal," assistant attorney general Thomas Perez said at a press conference in Washington. "No idea that white borrowers with similar credit would pay less. That is discrimination with a smile."
Much of the alleged wrongdoing involved the bank's wholesale lending channel, which utilizes outside mortgage brokers, and Wells suggested in a press release that any bad conduct was beyond the bank's control because mortgage brokers operate as independent businesses.
"Wells Fargo cannot set loan prices for independent mortgage brokers nor control the combined effect of the negotiations that thousands of these independent mortgage brokers conduct with their customers," the bank stated.
As reported by National Mortgage News, Wells separately announced that it will shutter its wholesale channel. (See related stories on this website.)
The settlement also frees up resources inside the Justice Department, and in particular in the Civil Rights Division's Fair Lending Unit, to pursue similar cases against other banks.
Perez would not comment Thursday on other specific probes, but did say, "We have other investigations pending."
Anand Raman, a lawyer at Skadden Arps who often represents banks, said, "The Justice Department sees as part of its mission going after big settlements, and I would not be surprised if this is not the last such resolution."
When pressed on why the Justice Department agreed to settle a case involving what it alleged was a racial surtax on loans, rather than going to court, Perez said, "There are real people affected, and we were able to reach a resolution with Wells now to provide assistance for people."
"When you have protracted litigation, that can take years," Perez added. "There's obvious mutual litigation risk on everyone's side. And our goal here is to help people, and to come to a resolution that can in fact help ensure equal credit opportunity."
Like many recent fair-lending cases, the government's case against Wells Fargo did not allege that the bank, or the mortgage brokers with whom it did business, discriminated against minority borrowers intentionally.
Instead, the Justice Department relied on statistical analysis to show that minority borrowers were far more likely than whites to be steered into subprime loans even though they qualified for prime mortgages, and that minorities were also more likely to pay higher rates and fees.
