Rosalind Evans
In a recent industry-wide probe, Wells Fargo has emerged as a critical player caught in the scrutiny over mortgage pricing discrimination. This investigation centred on granting loan discounts, known as pricing exceptions, has raised serious questions about compliance with U.S. fair lending laws. The Consumer Financial Protection Bureau (CFPB) found that these pricing strategies disproportionately disadvantaged Black and female borrowers.
Wells Fargo, a leading name in the U.S. mortgage industry, was recently embroiled in a probe initiated by regulators examining the use of loan discounts to secure deals. Typically, these discounts range from 25 to 75 basis points and have long been a longstanding practice in the home loan sector. However, they have come under fire for potential violations of fair lending laws. The CFPB’s findings indicate a concerning trend where Black and female borrowers received fewer pricing exceptions than others.
Ken Perry, founder of a Washington-based compliance firm for the mortgage industry, highlighted the inherent risks of such practices. “As long as pricing exceptions exist, pricing disparities exist,” Perry stated. “They’re the easiest way to discriminate against a client.”
The issue extends beyond just pricing exceptions. Wells Fargo’s track record with regulators has been fraught with challenges. Over the years, the bank has faced multiple fines and settlements for various missteps in its mortgage business. This includes a $184 million settlement in 2012 for charging minorities higher fees and a $250 million fine in 2021 for failing to address mortgage business problems.
Amid this scrutiny, Wells Fargo has significantly changed its mortgage operations, including hiring the law firm Winston & Strawn to investigate high discounts in mortgage banker sales. Furthermore, the bank has redirected its focus to supporting underserved communities, as stated by a company spokeswoman: “Like many in the industry, we consider competitor pricing offers when working with our customers to get a mortgage. We are proud to be the largest bank lender to minority families.”
Despite these efforts, the bank’s internal policies and the broader industry’s practices remain under close examination. The CFPB has increased its crackdown on fair lending violations, launching multiple investigations into lending practices. The issues with pricing exceptions, such as inadequate tracking and management, risk violating the Equal Credit Opportunity Act and Regulation B.
Wells Fargo’s response to regulatory pressure includes tightening its policies from the start of the year and requiring solid documentation for competitive bids. This policy shift aligns with the bank’s strategic decision to focus on existing customers and borrowers in minority communities.
The probe into mortgage pricing discrimination, with Wells Fargo at the center, underscores a critical issue in the lending industry. While steps are being taken to rectify these practices, the situation highlights the need for continual vigilance and reform to ensure fair and equitable lending practices. As regulators intensify their efforts, how the industry will adapt to uphold fair lending principles remains to be seen.
