""Wells Fargo"":https://www.wellsfargo.com/ wrote a check for $175 million on Thursday to settle claims that independent brokers drove a disproportionate number of otherwise creditworthy minority borrowers to higher-priced variable mortgages in the lead-up to the financial crisis.[IMAGE]
The payout will tie off a suit filed by federal authorities earlier Thursday that claimed discriminatory practices from 2004 to 2009 had negatively impacted more than 34,000 black and Hispanic borrowers.
Under the settlement, Wells Fargo will pay $125 million to wholesale borrowers believed to have been adversely affected by the alleged practices.
The lender will pony up another $50 million to finance direct payment assistance for eight metropolitan areas that saw the worst impact.
Wells Fargo denied any of the claims and took action Thursday to stop originating loans with independent mortgage brokers by Friday, a move that it billed as one separate from the settlement and ensuing controversy.
The lender cited the independence of brokers and businesses as the main reason why, claiming that their relationship with wholesale lenders prevents Wells Fargo from setting loan prices and participating directly in negotiations.
The mortgage giant said in a statement that the decision will impact 5 percent of the residential mortgage business it enjoys, and that it would work to close and process existing applications after Friday.[COLUMN_BREAK]
""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"":https://www.wellsfargo.com/about/corporate/executive_officers/heid, president of Wells Fargo Home Mortgage.
""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,"" he added.
The ""Justice Department"":http://www.justice.gov/ filed suit Thursday with claims that independent mortgage brokers had turned some 4,000 qualified black and Hispanic wholesale borrowers to subprime loans, many of them adjustable-rate mortgages with excessive fees, high interest rates, and other adverse terms and conditions.
Interest rates for borrowers with these variable loans shot through the roof during the financial crisis, resulting in a mudslide of foreclosures, short sales, and other distress for homeowners.
According to court documents, minority borrowers applying for residential loans with Wells Fargo were much more likely to receive these loans than white borrowers with roughly the same credit.
The suit claimed that black borrowers were four times more likely to fall into loans with subprime terms and conditions during these years. Hispanic borrowers were three times as likely.
Speaking at a conference earlier Thursday, Justice Department Deputy Attorney General ""James Cole"":http://www.justice.gov/dag/meet-dag.html said that the deal with Wells Fargo, the second-largest in fair lending history, ""makes clear that we will hold financial institutions accountable, including some of the nation's largest, for lending discrimination.
""An applicant's creditworthiness, and not the color of his or her skin, should determine what loans a borrower qualifies for. With today's settlement, the federal government will ensure that African-American and Hispanic borrowers who were discriminated against will be entitled to compensation and borrowers in communities hit hard by this housing crisis will have an opportunity to access homeownership,"" he said.