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Unfortunately, Wells Fargo is back in the news. They are back this time on the wrong side of a suit brought by the City of Philadelphia.
The City is going after Wells for discriminating against minority borrowers in their mortgage lending. They claim Wells charged higher rates to Black and Latino borrowers for their loans as compared to what they charged white applicants.
As a result of the higher rates, more minority borrowers ended up in foreclosure negatively affecting the City, its property values, and tax revenues.
The City now wants to recover its losses for fair lending violations. Violations they say are the direct result of lender closing cost credits provided to the borrowers realized from the higher rates charged.
The suit alleges Wells charged higher rates to minority borrowers with the same credit scores as whites. What it doesn’t address is that these higher rates were charged so the premium price could cover some of the borrower’s closing costs. This is a standard practice to assist those with limited assets.
The key would be to determine how much assistance was provided and how the applicants benefitted from the assistance. The smoking gun would lie in the pricing and how Wells may have unfairly profited. If they profited!
Or, could it be that Wells fell out of favor with the current city administration? Maybe they lost favor politically, financially, or both? In light of their recent bad press, maybe the city sees an opportunity to better their finances without having to once again raise taxes?
Banks and lenders better watch this case very carefully. It could have severe ramifications. With the new HMDA rules and regulators, municipalities will have much more data for review to help them decide on potential fair lending actions against lenders.
In this case, could no good deed go unpunished? Might Wells be penalized for trying to assist more first-time and low-to-moderate income homebuyers realize their American Dream?
What effects might this have on future lending to those with limited funds?
