Wells Fargo & Co. (WFC) Thursday agreed to settle the Department of Justice claims that its mortgages may have disparately impacted some African-American and Hispanic borrowers.
The company will pay $125 million to borrowers presumed to have been impacted by mortgages priced and sold by independent brokers through its Wholesale channel.
Wells Fargo will further pay $50 million to the City of Baltimore and certain areas impacted by the housing crisis, thereby eliminating a suit filed by Baltimore in 2008.
The DOJ based its claims on an analysis of Wells Fargo Home Mortgage loans between 2004 and 2009, which revealed that some borrowers may have indeed been unfairly impacted. Wells Fargo denies the claims.
Extraneous to the settlement, Wells Fargo, starting tomorrow, will halt funding mortgages originated by independent mortgage brokers via its mortgage Wholesale channel. Such mortgages account for five percent of Wells Fargo's home mortgage funded volumes.
"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...," said Mike Heid, president of Wells Fargo Home Mortgage.
The settlement with the DOJ also resolves pending suit filed in 2009 by the State of Illinois, and puts an end to a complaint by the Pennsylvania Human Relations Commission.
Wells Fargo also has agreed to review a small percentage of subprime mortgages effected through its Retail channel during 2004 to 2008 and will rebate as appropriate. The company stopped making subprime loans through independent mortgage brokers in 2007 and stopped all subprime home lending in 2008.
WFC is trading at $32.94, down 1.00%, on a volume of 13.3 million shares on the NYSE.
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