Wells Fargo mortgage lenders investigated for racial discrimination

Wells Fargo was embroiled in an industry-wide investigation into mortgage bankers’ use of loan waivers last year, CNBC has learned.

so called discounts Price exceptions, used by mortgage brokers to help secure deals in competitive markets. At Wells Fargo, for example, bankers can request rate exceptions that typically lower a customer’s APR by 25 to 75 basis points.

The practice, which has been used for decades in the home loan industry, has drawn the attention of regulators in recent years over violations of US fair lending laws. Black and female borrowers receive fewer discount rates than other consumers, according to the Consumer Financial Protection Bureau. detected.

“As long as there are price exceptions, there will be price disparities,” he said Ken Perry, Founder of a Washington-based compliance firm for the mortgage industry. “They’re an easy way to discriminate against a customer.”

Wells Fargo has received an official notice, known as an MRA, or demand for attention, from the CFPB regarding problems with its waiver, people familiar with the situation said. It is unclear whether regulators accused the bank of bias or lax oversight. The bank’s internal investigation into the matter has been extended until later this year, the people said.

Wells Fargo, until recently the biggest player in U.S. mortgages, has repeatedly felt the ire of regulators over missteps involving home loans. In 2012, more than that was paid $184 million To resolve federal claims that it overcharged minorities and unfairly placed them in subprime loans. It was fined $250 million in 2021 for failing to address problems in its mortgage business, and recently paid $3.7 billion for consumer misconduct on products including home loans.

The behind-the-scenes actions of regulators at Wells Fargo, which have not been reported before, took place months before the company announced it was taking control of its mortgage business. One reason for that move is increased scrutiny of lenders after the 2008 financial crisis.

Wells Fargo then hired the law firm Winston & Strawn The people, who declined to be identified, said the sale involves steep discounts to grill mortgage bankers, talking about confidential matters.

In response to this article, a company spokesperson released this statement:

“Like many in the industry, we consider competitors’ pricing offers when working with our clients to obtain a mortgage,” he said. “As part of our renewed focus on supporting underserved communities through our special purpose loan program, we spent more than $100 million last year helping minority families achieve and maintain homeownership, including by offering deep discounts on mortgage rates.”

Wells Fargo is “proud to be the largest bank lender to minority households,” he added.

The bank released this additional statement late Monday: “While we cannot comment on any regulatory matters, we do not discriminate on the basis of race, gender or age or other protected grounds.”

Regulators have recently stepped up their crackdown on fair-lending violations, and lenders other than Wells Fargo have gotten involved. CFPB was initiated There were 32 fair credit investigations last year, doubling the number of investigations launched since 2020.

Several banks have received MRAs over their lending practices over the past year, the agency said, without naming any of the companies. The CFPB declined to comment for this article.

The problem with price exemptions is that by failing to properly monitor and manage their use, lenders have violated the Equal Credit Opportunity Act (ECOA) and an anti-discrimination statute known as Regulation B.

“Inspectors found that mortgage lenders violated ECOA and Regulation B by discriminating against African-American and female borrowers in offering price discounts,” the CFPB said. said In the 2021 report.

The agency found “statistically significant differences” in the rates at which black and female borrowers received price waivers compared to other customers.

After its initial findings, the CFPB conducted further examinations and a Follow-up report The problems continued this year.

“Companies did not effectively monitor interactions between loan officers and consumers, ensure policies were followed, and loan officers did not train some consumers and others about the competitive bidding process,” the agency said.

In other cases, mortgage servicers failed to explain who initiated the price exception or ask for documentation proving that competitive bids actually existed, the CFPB said.

It monitors the accounts of several current and former Wells Fargo employees, who liken the process to an “honor system” because the bank rarely verifies that competing quotes are genuine.

“You can get half a percent off with no questions asked,” said a former loan officer who worked in the Midwest. “To get an extra quarter point, you have to go to the market manager and plead your case.”

Price exemptions are most common in expensive housing areas of California and New York, according to a former Wells Fargo market manager who said he approved thousands of them over two decades at the company. In the years when the bank achieved maximum market share, top producers chased credit growth with the help of price concessions, this person said.

In an apparent response to regulatory pressure, Wells Fargo adjusted its policies earlier this year to require tougher documentation of competitive bids, the people said. The move is in line with the bank’s decision to focus on providing home loans only to customers and borrowers belonging to minority communities.

According to Perry, while the discounts aren’t going away, many lenders have made price waivers more difficult for loan officers and improved documentation of the process.

JPMorgan Chase, Bank of America and Citigroup declined to comment when asked if they had obtained MRAs or changed internal policies regarding rate discounts.

With a report from CNBC’s Christina Wilkie