Good morning, it is an honor to be here today with the Deputy Attorney General and our partners, to discuss the department’s at least $175 million settlement with Wells Fargo for steering and pricing discrimination in its wholesale mortgage lending.
And I am honored to be joined today by Illinois Attorney General Lisa Madigan who has been a national leader among state attorneys general in the wake of this housing crisis. She is a zealous advocate on behalf of the people of Illinois on a range of issues, including fair lending and protecting the rights of consumers. I appreciate her leadership and partnership. U.S Attorney Ronald Machen is unable to be here today; he has been an invaluable partner in this case.
I would like to acknowledge the contributions of the Office of the Comptroller of the Currency (OCC). The Comptroller Tom Curry is here with us today. The OCC has been an excellent partner in this case. The work of the OCC and our other regulatory partners is essential to the effective enforcement of our fair lending laws.
At the core of the complaint is a simple story. If you were African-American or Latino, you were more likely to be placed in a subprime loan or pay more for your mortgage loan, even though you were qualified and deserved better treatment. This is a case about real people-African American and Latino- who suffered real harm as a result of Wells Fargo’s discriminatory lending practices.
It is about the 80 year old African-American resident of the Baltimore area with a 714 credit score and a rock solid credit file who received a subprime loan instead of a prime loan, and who was not told that she may have qualified for a prime loan with better terms. By the time she realized she had an adjustable rate mortgage, and not the fixed rate she thought, it was too late. The damage was done. This is also about communities such as the one in the city of Chicago that Attorney General Madigan and I visited last year where house after house was either boarded up or had a for sale sign.
Today’s settlement with Wells Fargo is the second largest fair lending settlement in the department’s history. The settlement shows that while we will vigorously investigate lending practices for discriminatory, and other illegal, conduct, we will work constructively with responsible lenders like Wells Fargo that are willing to take the necessary steps to ensure equal credit opportunity for all. I have spent considerable time in recent weeks with a number of senior leaders of Wells Fargo. We have had open and frank discussions. We have at times agreed to disagree. In the end, we were able to reach a resolution, and I commend Wells Fargo for taking significant, meaningful actions to implement strong fair lending policies, to ensure that discrimination is absent from their current and future lending, even before they knew the full results of our investigation.
We began our investigation in 2009, and received a referral in 2010 from the Office of the Comptroller of the Currency, which conducted its own parallel investigation of Wells Fargo’s lending practices in the Baltimore and Washington, DC metropolitan areas, and made a finding of discrimination.
The department’s lawsuit is the culmination of a thorough investigation by the Department of Wells Fargo’s lending policies, practices, and procedures, which included a review of internal company documents and non-public loan-level data on more than 2.7 million Wells Fargo loans originated between 2004 and 2009. The period we examined is important to note for it was during this period – the subprime boom – that some of the most harmful practices occurred.
The complaint alleges that, between 2004 and 2008, Wells Fargo Bank NA discriminated by steering approximately 4,000 African-American and Hispanic wholesale borrowers, as well as additional retail borrowers, into subprime mortgages when non-Hispanic white borrowers with similar credit profiles received prime loans. People with similar qualifications should be treated similarly; they should be judged by the content of their creditworthiness and not the color of their skin. Yet, our investigation revealed that African-American borrowers who obtained a loan from a broker working with Wells Fargo were almost three times more likely to be placed in a subprime loan than similarly qualified white applicants. Latinos were almost twice as likely to be placed in a subprime loan by a broker working with Wells than similarly qualified white applicants.
The complaint also alleges that, between 2004 and 2009, Wells Fargo discriminated by charging approximately 30,000 African-American and Hispanic wholesale borrowers higher fees and rates than non-Hispanic white borrowers because of their race or national origin rather than the borrowers’ credit worthiness or other objective criteria related to borrower risk. What did this mean in reality? It meant that an African-American wholesale customer in the Chicago area in 2007 seeking a $300,000 loan paid on average $2937 more in fees than a similarly qualified white applicant. And these fees were not based on any objective factors relating to credit risk. These fees amounted to a racial surtax. A Latino borrower in the Miami area in 2007 seeking a $300,000 paid on average $2,538 more than a similarly qualified white applicant. The racial surtax for African Americans in Miami in 2007 was $3,657.
All too frequently, Wells Fargo’s African-American and Latino borrowers had no idea they could have gotten a better deal. No idea that white borrowers with similarly credit would pay less. That is discrimination with a smile.
African-American and Hispanic customers of Wells Fargo in at least 82 geographic markets across at least 36 states and the District of Columbia, the complaint alleges, were victims of Wells Fargo’s discriminatory practices.
Of the approximately 34,000 total victims identified in our complaint, roughly half are Latino and half are African Americans.
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. The effects can be devastating and last for years. An OCC survey of large national lenders reported that as of June 30, 2011, 28.1 percent of subprime loans nationwide are seriously delinquent or in foreclosure, compared to 5.5 percent of prime loans. The decision to place someone in a prime vs. a subprime product can have huge consequences. The impacts of lending discrimination and the harm to a person’s credit can be far reaching - inhibiting a range of opportunities that affect a person’s ability to find housing, good employment or access higher education.
And the collateral damage to whole communities when widespread patterns or practices of lending discrimination occur deprives minority communities of economic opportunity. That is why the proposed consent order we filed today addresses both the individual harm and the harm to communities.
The settlement will provide $125 million in compensation to approximately 34,000 qualified wholesale borrowers who either charged higher prices or steered to subprime loans based on their race or national origin. Borrowers will be compensated for the direct costs and other harm that they experienced. We know that prime-qualified borrowers who were steered to subprime loans generally experienced greater harm and their average compensation, which we expect to be about $15,000, will be higher than the compensation for pricing victims.
As I mentioned, this case is not simply about individuals and families who were victims of discrimination. It is also about communities, and under the terms of this settlement, Wells Fargo has agreed to commit an additional $50 million to a community improvement program based on its successful Neighborhood Lift program which is designed to improve communities hit hardest by the housing crisis. We have identified eight areas that will receive this important investment: metropolitan Washington DC; Chicago, Baltimore, Philadelphia, the bay area of Oakland-San Francisco; New York City, Cleveland, and Riverside/San Bernadino/Ontario, California. These are areas where the United States alleges in the complaint were heavily impacted by Wells Fargo’s discriminatory practices.
In addition to the $125 million in direct relief for wholesale borrowers, and the $50 million investment in eight heavily impacted areas, Wells Fargo has agreed to conduct an internal compliance review of a subset of its retail subprime loans during the period of 2004 to 2008 to identify any prime qualified African-American or Hispanic retail customer who was improperly placed in a subprime loan. Wells Fargo will compensate these borrowers in an amount similar to the amounts paid to borrowers who received subprime Wells Fargo loans from Wells Fargo’s wholesale division. All amounts paid to retail customers will be in addition to the $125 million in relief for wholesale customers.
While the federal government must be a credible deterrent to those who would choose to violate our fair lending laws, the best policing is often policing that comes from within. That work is vital to ensuring fair and equal treatment for borrowers. And the success of thoughtful and comprehensive compliance work and attention to fair lending is reflected in the fact that the vast majority of lenders are not violating the law. That is why I believe that Wells Fargo should be commended for implementing strong fair lending policies and agreeing to conduct the internal review of its retail lending for the period during the mortgage boom. I have been impressed with their leadership and believe that we will continue to work in a collaborative fashion because we have a shared interest in ensuring equal credit opportunity for everyone.
Deputy Attorney General Cole described the important accomplishments of the Fair Lending unit. We will continue our efforts to ensure that those harmed by discriminatory conduct during the mortgage boom get compensation. We will also investigate and bring enforcement actions to confront emerging discriminatory practices in the credit market. We will continue to aggressively enforce the law to protect the rights of all who face discrimination to ensure fair and equal access to credit for all as the law requires.
Lastly, but perhaps most importantly, I want to commend our dedicated team of attorneys, economists, investigators, and support staff as well as all of our sister agencies who are here today and are involved in the effort to ensure equal opportunity to access the American dream. I mentioned the important role that the OCC and the Illinois AG have played in this case. I mentioned US Attorney Ron Machen, and I also want to commend the U.S. Attorneys from virtually every corner of the country who have provided invaluable assistance. This has been a true team effort, and we will continue to use every tool in our law enforcement arsenal to ensure that all people have equal opportunity to access the American dream.