Local homeowners may be able to cash in on last week's mortgage discrimination settlement with Wells Fargo.
The bank was accused of steering black and Latino borrowers into subprime mortgages or charging them higher fees and interest rates than white borrowers. About 34,000 homeowners in 36 states, including Pennsylvania, were discriminated against, the U.S. Department of Justice said.
Wells Fargo, the nation's largest mortgage lender, denied the allegations and said it treated all borrowers fairly. But it agreed Thursday to pay at least $175 million to settle the case.
"All too frequently, Wells Fargo's African-American and Latino borrowers had no idea they could have gotten a better deal," U.S. Assistant Attorney General Thomas Perez said. "No idea that white borrowers with similar credit would pay less. That is discrimination with a smile."
The bank will pay $125 million to borrowers who allegedly were discriminated against through loans that were originated and priced by independent mortgage brokers, then funded by Wells Fargo. The bank said it stopped funding mortgages from independent brokers on Friday.
"Wells Fargo takes pride in serving the home ownership needs of all of our customers, and we are fully committed to fair and responsible lending," Wells Fargo Home Mortgage President Mike Heid said in a statement. "Through our separate decision to no longer fund mortgages through independent mortgage brokers, we can control how that commitment is met on every mortgage that Wells Fargo makes."
About 1,030 homeowners in the Philadelphia metro area, which includes Bucks and Montgomery counties, could be eligible for a total of $2 million from the settlement, the Justice Department said.
Data for the Allentown area were not available. But the settlement covers mortgages nationwide, so there could be eligible homeowners here, though Alan Jennings, executive director of the Community Action Committee of the Lehigh Valley, said he has heard no complaints.
He suspects the number of people potentially exposed would have been minimal because the bank did not have a retail presence in the Lehigh Valley during the period when authorities alleged the discrimination happened, from 2004 to 2009.
Wells Fargo had a minimal home mortgage business in the region then; it didn't become a prominent bank until after it merged with Wachovia in 2008. It is now the largest bank in the Lehigh Valley.
"I really don't think there was much dastardly deeds being done in this market, and I don't think there's going to be very much money coming into this market as a result," Jennings said.
Residents of Bucks and Montgomery counties may be able to tap another portion of the settlement, though.
Wells Fargo will provide $50 million for homeowner assistance grants in several metro areas, including Philadelphia, which includes Bucks and Montgomery. The grants, in the form of zero percent, forgivable loans up to $15,000, can be used for down payments, closing costs and home renovation financing. Homeowners of all races will be eligible if they earn less than 120 percent of the metro area's median income.
The settlement also includes $2 million to resolve an investigation by the Pennsylvania Human Relations Commission into lending discrimination against minority homeowners in Philadelphia.
The agreement is pending court approval, and it could take two years for the settlement to be paid to mortgage holders.
If you believe you were a victim of lending discrimination by Wells Fargo, contact the Justice Department at email@example.com. Wells Fargo later will establish a toll-free phone number for affected customers.
This is the second instance in recent weeks exposing inequities in housing opportunities. In late June, Allentown officials said real estate agents treated white and minority home buyers differently. A sting revealed that nearly three out of every four times, agents steered minority buyers to properties in Allentown and white buyers to properties in the suburbs, even when they had the same job history and income.
No charges were filed, though the officials said the real estate agents violated the Fair Housing Act.
Wells Fargo violated that law, as well as the Equal Credit Opportunity Act, in its mortgage lending, the Justice Department said.
It said loan originators had the discretion to give borrowers non-prime loans even when they would have qualified for prime loans, and there was money on the line for them to do so.
"Wells Fargo permitted persons originating Wells Fargo loans to earn higher overall compensation from placing a prime-qualified borrower into a non-prime loan rather than a prime loan," the settlement says. "This combination of discretion and financial incentive resulted in African-American and Hispanic borrowers being placed into non-prime products at higher rates than similarly situated white borrowers."
Perez said the effects could be devastating.
"Those African-American and Latino borrowers who were steered into subprime loans paid, on average, tens of thousands of dollars more for their loans and were subject to possible prepayment penalties, increased risk of credit problems, default, and foreclosure, and the emotional distress that accompanies such economic stress," he said.
The settlement also calls for Wells Fargo to review mortgages made by its employees, known as retail mortgages, and to compensate minority homeowners when necessary.
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Were you discriminated against by Wells Fargo?
Contact the Justice Department at email@example.com
The government's complaint and settlement documents are on my blog at http://blogs.mcall.com/watchdog/