Wells Fargo Reaches Settlement with Justice Department
7/13/2012, 5:56 p.m.
SAN FRANCISCO - Wells Fargo & Company has reached a definitive settlement agreement between Wells Fargo Bank and the U.S. Department of Justice (DOJ) that resolves the DOJ's previously disclosed claims that some Wells Fargo mortgages may have had a disparate impact on some African-American and Hispanic borrowers.
The DOJ claims are based on a statistical survey of Wells Fargo Home Mortgage loans between 2004 and 2009, and the claims primarily relate to mortgages priced and sold to consumers by independent mortgage brokers. While Wells Fargo denies the claims, the company has agreed to pay $125 million to borrowers that the DOJ believes were adversely impacted by mortgages priced and sold by independent mortgage brokers through its Wholesale channel.
Wells Fargo is settling this matter solely for the purpose of avoiding contested litigation with the DOJ, and to instead devote its resources to continuing to provide fair credit services and choices to eligible consumers, and important and meaningful assistance to borrowers in distressed U.S. real estate markets.
This settlement also resolves pending litigation filed in 2009 by the State of Illinois on behalf of borrowers there, and resolves an investigative complaint filed in 2010 by the Pennsylvania Human Relations Commission.
While not part of the DOJ settlement, Wells Fargo, on its own volition, also announced today that on July 13 it will discontinue funding mortgages that are originated, priced and sold by independent mortgage brokers through its mortgage Wholesale channel. Mortgages sold by independent brokers in this manner currently represent five percent of the Company's home mortgage funded volume. Mortgage brokers operate as independent businesses and are not employed by Wells Fargo. Therefore, 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. After July 13, 2012, the Company will no longer accept new applications for loans originated by independent mortgage brokers through its Wholesale channel, but will work to ensure existing applications are processed and closed.
"Wells Fargo is settling this matter because we believe it is in the best interest of our team members, customers, communities and investors to avoid a long and costly legal fight, and to instead devote our resources to continuing to contribute to the country's housing recovery," said Mike Heid, president of Wells Fargo Home Mortgage. "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. 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."
The Company stopped making subprime loans through independent mortgage brokers in 2007 and stopped all subprime home lending in 2008. During the period in which Wells Fargo originated subprime loans, the Company implemented industry-leading procedures to identify applicants who might be eligible for a prime-rate product. In keeping with Wells Fargo's commitment to strong fair and responsible lending controls, the Company has agreed with the DOJ to undertake an internal lending compliance review of a small percentage of subprime mortgages delivered through its Retail channel during the period of 2004 to 2008 and will rebate as appropriate.