Wells Fargo Target Of Justice Department Probe; Agency Alleges Discriminatory Lending
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WASHINGTON -- The Department of Justice is preparing a lawsuit against Wells Fargo, the nation's largest home mortgage lender, for allegedly preying upon African American borrowers during the housing bubble and steering them into high-cost subprime loans, according to three people with direct knowledge of the probe.
The company, the fourth-largest U.S. bank by assets, is currently embroiled in pre-lawsuit negotiations with the Justice Department in hopes it will settle the accusations and avoid a public lawsuit, these people said.
The allegations mirror those in public actions taken by the Federal Reserve and a separate lawsuit filed by the city of Baltimore.
Last week, the Fed said that perhaps more than 10,000 borrowers were inappropriately steered into subprime mortgage loans or had their loan documents falsified by bank personnel. Wells Fargo agreed to pay $85 million to settle the civil charges. It did not admit wrongdoing.
In its ongoing case against Baltimore, Wells Fargo stands accused of using those same practices, but deploying them against black borrowers in majority-black neighborhoods, an act commonly known as "reverse redlining." The city alleges that the bank targeted black borrowers, knowing they'd ultimately default on their loans, but did not fear shouldering the cost because Wells sold those loans to investors. Wells Fargo denies the allegations.
"We have a very strong commitment to serving all customers along the credit spectrum, and we do so without bias," said Vickee Adams, a spokeswoman for Wells Fargo. "That's the type of responsible lending that we practice." Adams declined to comment on the Justice probe.
The previously-undisclosed Justice probe, which is being led by the Civil Rights division's Fair Lending Unit, lends credence to the city's lawsuit, sources told The Huffington Post. The official overseeing the office, Assistant Attorney General Thomas E. Perez, previously served as secretary of Maryland's Department of Labor, Licensing and Regulation, a consumer protection agency that regulates mortgage and foreclosure terms and houses the state's financial regulator.
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Taken together, the various investigations paint a picture of a lender that profited by knowingly targeting less-sophisticated borrowers, in particular preying upon those communities that traditionally lacked access to a full range of consumer credit products.
They also add up to significant blows to the bank's once-pristine reputation. Widely seen as the most innocent of the biggest mortgage lenders, Wells Fargo executives were spared the humiliation of having to answer critical questions in public from the Financial Crisis Inquiry Commission, and unlike its competitors, the bank's pre-crisis activities were never the subject of the commission's hearings.
But over the past year, that reputation has begun to crumble.
Wells Fargo has fought lawsuits from Baltimore and the city of Memphis alleging that the bank preyed upon black borrowers; settled claims it illegally steered credit-worthy borrowers into subprime loans and misled investors about the risks of mortgage-backed securities it sold; and fought investigations and regulatory actions stemming from revelations that it employed so-called "robo-signers," the agents directed by lenders to process foreclosure filings en masse without examining the underlying paperwork.
The bank, along with four other companies, is also the subject of confidential audits by the Department of Housing and Urban Development that accuse the lender of defrauding taxpayers in its handling of foreclosures on homes purchased with government-backed loans, HuffPost reported in May.
Wells Fargo is in the middle of negotiations to settle state and federal allegations that it mistreated borrowers and in some cases illegally foreclosed on them. It could cost the bank billions of dollars.
The Justice probe signals that the agency, after battling claims that it's been too easy on major mortgage firms in the wake of the financial crisis, may be toughening its approach. Its fair lending unit has about 60 open matters, Perez said in a June 1 speech. It currently has more than 15 ongoing investigations involving allegations of discriminatory lending.
A Justice Department spokeswoman declined to comment on the Wells Fargo investigation.
In an April 5 report to Congress, Perez's unit said that some of these investigations would lead to lawsuits or settlements this year.
"We're a majority African American community, and there are people in this city who take great offense when institutions take advantage of a community's historical lack of access to credit, and in some cases lack of sophistication, by putting them in loans they can't afford," said George Nilson, Baltimore's city solicitor. "It's offensive behavior and we shouldn't tolerate it."
Shahien Nasiripour is a senior business reporter for The Huffington Post. You can send him an email; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get e-mail alerts when he reports the latest news. He can be reached at 1-917-267-2335.
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0 minute ago (8:42 AM)
discrimina2 minutes ago (8:40 AM)
About a bunch of expletives time.7 minutes ago (8:35 AM)
I'm showing my disgust for Wells Fargo and the other big banks who systematic7 minutes ago (8:35 AM)
Good for the DOJ. Everybody should start thinking about talking to attorneys. Jobs, savings, 401Ks, home equities, and many other assets were practicallProblems do not go away unless we fix them at the level they broke down.
8 minutes ago (8:34 AM)
No criminal charges?Who do they think they are kidding?
The DOJ is a bad joke, and a disgrace.
8 minutes ago (8:33 AM)
How about prepping a lawsuit for the war criminals of the last administraOh, thats right.
You gave them all IMMUNITY..
13 minutes ago (8:29 AM)
Wells Fargo used to mail out checks and all you had to do was endorse them, which is the same as signing the terms of the loan. Wells Fargo was crafty in luring people into getting loans. Wells Fargo will be paying out millions, if not billions to the African American community though. Wells Fargo will be bought out after this drains their profits.13 minutes ago (8:29 AM)
I'm telling you all right now. Unless you have at least $100,000.014 minutes ago (8:27 AM)
I think anyone who talked potential borrowers who qualified for prime rate mortgages into taking subprime mortgages or the managers who authorized their emplyees to do this dishonest act are guilty of a felony and should be arrested. It does no no good to the United States to let these criminals off the hook.15 minutes ago (8:27 AM)
This investigatBut to threaten the lending institutio
"The city alleges that the bank targeted black borrowers, knowing they'd ultimately default on their loans, but did not fear shoulderin
My god, read that again!
Peeling back only one layer is not enough. Many small Mainstreet investors lost much of their life savings due to such criminal, financial fraud.
16 minutes ago (8:26 AM)
What is it with these corporate money mongers who get their rocks off by swindling blacks every chance they get? I can't understand why blacks are always the target for these financial crooks. I believe these people are afraid of blacks and the power they might possess if allowed to prosper and lead, so they do everything in their power to keep them down. Their fear is quite evident with this president alone. There are reasons for their madness.16 minutes ago (8:25 AM)
Stop the lies Wells Fargo! When you get caught with your hand inside the Cookie jar, you can't say that you had no knowledge that your hand was in the jar.And the FED's, 85 million? Really? they make that in a hour on fee's
both are in bed together
19 minutes ago (8:22 AM)
Over the last decade almost exactly corruption and discriminaThere may not be a single institutio
At times it seems that it's as if nobody even recognizes the difference between right and wrong as if they are purely a matter of opinion.
How do we begin to fix that before our society eats itself alive?
20 minutes ago (8:22 AM)
Time to pull all my money from wells Fargo and join a credit union.22 minutes ago (8:20 AM)
When Fannie and Freddy were all but ordered to buy this bad paper and the banks were told they better make loans to low income minorities or else what did anyone think would happen?It's truly amazing how this long afterward very few understand it.
Posted: 7/26/11 09:00 PM ET