Department Of Justice Targets Wells Fargo For Inappropriately Steering African Americans Into High Cost Subprime Loans
Wells Fargo's problems just keep mounting. The nation's fourth largest bank by assets is now in talks with the Department of Justice (DOJ) in hopes of settling accusations that it inappropriately steered African American borrowers into high cost subprime mortgage loans, according to Bloomberg. It is hoped that the settlement negotiations will put an end to the case that the DOJ is preparing to avoid the negative publicity of a lawsuit.
According to the article, the DOJ has said that over 10,000 borrowers African American borrowers were inappropriately placed in expensive subprime mortgages during the housing bubble. Wells Fargo has agreed to pay $85 million to resolve the civil charges, while making no admission of wrongdoings. The allegation of preying on black borrowers is similar to actions taken by the Federal Reserve in another lawsuit filed by the city of Baltimore. In that case Wells Fargo is accused of doing the same thing but using the practice against black borrowers in majority black neighborhoods, an act called "reverse redlining." Baltimore claims that the bank targeted black customers, knowing that they couldn't afford them and they would default, but didn't care about shouldering the cost since Wells Fargo was going to sell those loans to investors.
The combined investigations and allegations paint an ugly picture of a predatory lender profiting by targeting less sophisticated borrowers and preying on the communities that traditionally lacked access to a full range of consumer credit products. Because of these claims and other investigations Wells Fargo's once pristine reputation has began to crumble over the last year. Once deemed to be the most innocent of the biggest Wall Street lenders, Wells Fargo executives were spared the humiliation of testifying before the Financial Crisis Inquiry Commission and unlike its competitors, the bank's activities before the crisis of 2008 was never raised in the hearings.
However, over the last year or so the bank has been hit with lawsuits from Baltimore and Memphis alleging that the bank preyed on black borrowers; settled claims it illegally steered credit worthy borrowers into higher cost subprime mortgage loans and misled investors about the risks involved in owing mortgage backed securities (MBS) that it sold; and fought investigations and regulatory actions related to the employment of "robo-signers" to expedite foreclosure filings by doing so en masse without examining the underlying documentation. The bank is trying to settle claims by federal and state authorities that if illegally foreclosed on borrowers' homes, a case that could ultimately cost the firm billions. Finally, the bank and four other companies is the subject of the Department of Housing and Urban Development audits revealing that the lender defrauded taxpayers in its handling of foreclosures on homes purchased with government backed loans.