Justice Dept. Accuses Wells Fargo of Preying on Black Borrowers

As banks around the country have faced lawsuits by pension funds, regulators, and other agencies over their mortgage-lending practices during the housing market collapse, Wells Fargo now battles allegations of discriminatory lending.

(July 27, 2011) — Walls Fargo — the nation’s largest home mortgage lender and the fourth-largest US bank by assets — is the target of a lawsuit by the Department of Justice for allegedly preying on black borrowers during the housing bubble.

Currently, in an effort to dodge a public lawsuit and settle the accusations, the bank is in the midst of pre-lawsuit negotiations with the Justice Department, the Huffington Post has reported.

This is not the first time the bank has battled allegations over its lending practices. Earlier this month, Wells Fargo agreed to pay $125 million to a group of pension funds to settle a lawsuit over the sale of mortgage pass-through certificates.

A group of investors including pensions funds in Detroit and New Orleans brought a proposed class-action lawsuit in 2009, accusing Wells Fargo and several underwriters of misleading them about the risks of mortgage-backed securities they purchased from 2005 through 2007 worth over $67.5 billion. A federal judge in San Jose, California in 2010 threw out claims against underwriters including Goldman Sachs, JPMorgan Chase, and UBS and narrowed the claims against Wells Fargo.

Similarly, in late June, Bank of America agreed to pay $14 billion to a group of investors who had bought unsound mortgage-backed securities through the bank’s Countrywide Financial subsidiary.

“This is another important step we are taking in the interest of our shareholders to minimize the impact of future economic uncertainty and put legacy issues behind us,” Brian T. Moynihan, the bank’s chief executive, said in a statement. “We will continue to act aggressively, and in the best interest of our shareholders, to clean up the mortgage issues largely stemming from our purchase of Countrywide.”

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742