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The $175 million fair lending settlement Wells Fargo Bank reached with the U.S. Department of Justice will provide some relief for minority borrowers who were allegedly discriminated against, but it will probably fall far short of fully compensating them for damages they suffered.
The government estimated that 4,100 black and Hispanic borrowers were victimized in South Florida; they would receive about $10 million among them. That amounts to $2,439 per borrower, yet many may have suffered much more damage from being placed into a subprime loan or being charged excessive broker fees.
Wells Fargo denied the federal allegations of discrimination. Still, the DOJ charged that the bank systematically placed more minority borrowers in risky loans than it did whites with similar incomes and credit histories from 2004 through 2009.
Miami-Dade County led the nation in subprime loans in 2006, the Business Journal found using federal data obtained by Compliance Technologies and reported in a series of stories in January. Throughout South Florida, nearly 57 percent of black borrowers and half of Hispanic borrowers that year received a high-rate/subprime loan, while only 28 percent of white borrowers did. Even upper-income minorities with good credit scores were more likely to get a subprime loan.
Consequently, the foreclosure rate for black and Hispanic homeowners in South Florida is much higher than the regional average.
According to the DOJ allegations against Wells Fargo, some of that disparity occurred because loan officers and brokers singled out minorities.
The DOJ alleged that Wells Fargo charged about 30,000 black and Hispanic borrowers higher broker fees and interest rates because of their race or national origin, instead of their credit worthiness. In 2007 in South Florida, the bank charged prime mortgage borrowers with a $300,000 loan about $3,657 more in broker fees not based on borrower risk if they were black and $2,538 more if they were Hispanic than they did non-Hispanic whites, according to the DOJ.
The bank also discriminated against 4,000 borrowers from these minority groups by steering them into subprime mortgages, while non-Hispanic white borrowers with similar credit profiles received prime loans, the DOJ charged. Black borrowers were four times as likely to receive a subprime loan, while Hispanic borrowers were three times more likely.
“The subprime loan is probably 1.5 to 2 percentage points higher, at least, and that could be $10,000 to $15,000 over several years,” said Weston attorney Roy Oppenheim, who specializes in foreclosure defense. “If they default because of that difference and they are foreclosed upon, they aren’t being in any way compensated for those damages in this settlement …. A few thousand dollars is chump change.”
Wells Fargo could end up making additional payments beyond $175 million, as it agreed to review its home lending program and compensate black and Hispanic borrowers who were placed into subprime loans when they could have received less expensive prime loans.
Oppenheim said it is good that the DOJ is addressing the problem, but the department does not have the resources to prosecute the country’s largest banks and hold them fully accountable. In late 2011, the DOJ reached a $335 million settlement with Bank of America’s Countrywide Financial Corp. over discriminatory lending allegations. In May, SunTrust Mortgage settled DOJ allegations of discriminating against black and Hispanic borrowers with higher fees and interest rates for $21 million.
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