Suntrust, Wells Fargo Settle Mortgage Discrimination Cases

In separate and recent actions, two of the nation's largest banks have each agreed to multi-million dollar settlements of mortgage lending lawsuits that alleged widespread discriminatory lending.  

Wells Fargo, with $1.3 trillion in assets, announced on May 29 without court substantiation that it agreed to pay the City of Memphis and Shelby County, TN $7.5 million. Of these funds, $4.5 million will be dedicated to local programs that will be available later this year for down payment assistance, financial education and home renovations. Consumers purchasing a home in either Memphis or Shelby County may qualify for grants of up to $15,000. This program will also stipulate that prospective buyers must agree to live in the homes for at least five years. Tennesseans seeking renovation assistance are eligible even if their mortgage was with another lender. 

The remaining $3 million of the settlement funds will support various existing governmental programs focused on small business development, public safety initiatives, financial counseling and neighborhood revitalization. Over the next five years, Wells has additionally pledged to lend $425 million at market rates in the city and county.  Of this lending sum, $125 million will be allocated to lending to low and middle-income homebuyers. 

The settlement will end the 2009 lawsuit filed by the city and county that accused the lender of Fair Housing Act violations causing discriminatory mortgage lending practices and unnecessary foreclosures. The governments further alleged by targeting African-American neighborhoods for deceptive and high-cost mortgage loans made as long ago as 2000, Wells left the city financially harmed. Due to lowered property tax revenues, the governments incurred increased costs for public safety and housing code enforcement as neighborhoods of foreclosed homes became abandoned and deteriorated.

None of the residents who lost a Wells Fargo mortgage to foreclosure will be directly compensated.  Commenting on this omission, Memphis Mayor A. C. Wharton told the Commercial Appeal newspaper, "Many times when lawsuits are filed the persons on whose behalf the lawsuit was filed might not be the ones to get the help. But as long as somebody is helped…the community still wins." 

By contrast, a recently negotiated settlement between the U.S. Justice Department and SunTrust Mortgage will directly benefit at least 20,000 African-American and Latino families in 34 states and the District of Columbia. These borrowers obtained SunTrust mortgage loans between 2005 and 2009. Together, these borrowers will share in a $21 million settlement of mortgage discrimination claims.

The DOJ's investigation stemmed from a referral from the Federal Reserve Board. SunTrust Mortgage, the nation's 11^th largest commercial bank, was alleged to have discriminated against African-American and Hispanic borrowers in pricing their mortgage loans. These borrowers also qualified for loans with pricing set by SunTrust's objective criteria. After reviewing documents and data covering more than 850,000 residential mortgage loans between 2005 and 2009, the DOJ's conclusion was that minority borrowers had been overcharged because SunTrust Mortgage allowed its loan officers and mortgage brokers the discretion to change a loan's pricing. The bank incentivized this discriminatory practice by sharing the inflated charges with retail loan officers and mortgage brokers.

SunTrust did not require its employees or agents to justify or document the reasons for many of the pricing adjustments not based on borrower risk. The lender also failed to adequately monitor for and fully remedy the effects of racial disparities in these pricing adjustments.   

As Assistant Attorney General Thomas Perez observed, "If you were African-American or Latino, you likely paid more for a SunTrust loan than a similarly-qualified white borrower simply because of your skin color. You paid what amounted to a racial surtax that ranged from hundreds to thousands of dollars."

Continuing Perez added, "SunTrust's African-American and Latino borrowers had no idea they could have gotten a better deal. No idea that white borrowers with similar credit would pay less. That is discrimination with a smile." 

Agreeing with Perez, Federal Reserve Board Governor Elizabeth A. Duke said, "Racial or other illegal discrimination has no place in our credit markets. We are pleased that this settlement is designed to ensure fair access to credit."

Ms. Duke is probably not the only one pleased. The consumers who lost hundreds or even thousands of dollars on these mortgage mark-ups are likely the most pleased. They got a measure of justice and will be comforted with some cash compensation.

The real tragedy in all of these discriminatory lawsuits is that they have occurred long after federal laws were enacted to protect and prevent people of color from suffering these kinds of injustices. We may have won out civil rights; but we still have a long journey towards silver rights.

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.