Wells Fargo will pony up $175 million to compensate more than 30,000 minority borrowers who were allegedly steered into riskier, more expensive loans during the heyday of the housing boom, the Department of Justice announced Thursday.
The Justice Department alleges the nation's largest residential home mortgage lender charged African-American and Latino borrowers higher rates and fees for home loans, even when they qualified for better terms.
The DOJ claims are based on a statistical survey of Wells Fargo Home Mortgage loans made between 2004 and 2009.
The bank denies claims that its mortgage brokers discriminated against African-American and Latino borrowers, but agreed to pay $125 million to those the DOJ believes were adversely impacted by the bank's lending practices, according to a statement released by Wells Fargo. Another $50 million is earmarked for homebuyer assistance programs in communities across the country that were hit hard by the housing crisis as well as those that were disproportionately impacted by the alleged discriminatory lending practices.
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But the announcement is bittersweet for some industry observers. While the DOJ is being cheered for leading the charge into investigating troubling patterns in bank lending, the resulting settlement is seen as "too little, too late" by some.
"While we're really glad to see this and really commend the DOJ, bank regulators should and could have acted years earlier," says Kathleen Day, spokeswoman for the Center for Responsible Lending. "The people who lost their homes because they got bad loans, it will take them generations to recover."
"It's a financial tragedy," Day adds.
On the heels of the settlement announcement, Wells Fargo announced it would discontinue its wholesale branch of mortgage origination—which made up about 5 percent of its home loan business—citing concerns about the bank's inability to monitor and manage how brokers conduct business with clients.
"[W]e are fully committed to fair and responsible lending … [t]hrough 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," the company said in a statement.
Mortgage industry experts expect more firms to follow in Wells Fargo's footsteps.
"The settlement addresses alleged Fair Housing violations," Dan Green, a loan officer with Waterstone Mortgage and author of TheMortgageReports.com, wrote in an e-mail. "As a wholesaler, it's nearly impossible to ensure Fair Housing compliance."
Meg Handley is a business reporter for U.S. News & World Report. You can reach her at email@example.com and follow her on Twitter.