The lawsuit alleges that Wells Fargo systematically discriminated against minority loan applicants, leading to denials, delays, and less favorable loan terms. It references a Bloomberg report from March 10, 2022, which highlighted disparities in loan approvals between White Americans and minority groups, based on data Wells Fargo disclosed under the Home Mortgage Disclosure Act. Read … [Read more…]
High-profile government actions against some of the nation’s largest financial firms for alleged violations of fair lending laws and loan servicing principles have sent a sobering message to industry CEOs and their boards: the buck stops at the top.
We have entered a new regulatory era, one filled with expectations that a firm’s compliance with the letter and spirit of the law has the full attention of the C-suite and boardroom — not relegated to back-office compliance department functions.
We’d be mistaken to think this new environment is transitory, tied to one presidential administration or another. While the current leadership is vocal relative to consumer protection and racial equity issues, there are permanent, institutional commitments to fairness in housing and housing finance that have been enshrined in law for decades and that transcend politics.
A number of economic, legal, policy and public pressures will continue to keep fairness issues front-and-center for the foreseeable future — particularly around lending and loan default servicing. The compliance landscape for lenders and servicers will be increasingly complex as some oversight agencies and advocates evaluate and re-evaluate what constitutes unlawful or unfair conduct.
Indeed, multiple agencies pursuing the same general goals sometimes creates inconsistencies or conflicting interpretations of policy, making it difficult for financial institutions to navigate uncharted waters, even with the best of intentions. Recent regulatory actions have targeted marketing practices, credit allocation and product offerings.
Regulators will look to ensure that a financial firm’s leadership is accountable and actively managing their fair lending and servicing efforts. Companies will be judged on whether they are maintaining appropriate compliance management systems, including monitoring, written policies, risk management, change management, testing and company culture — and whether their boards are equally focused on their oversight function.
In this swirl of challenges, financial executives who fail to pay attention can face legal costs, fines, penalties, consent orders and contested litigation — or worse. Just ask the ones who in the recent past have lost their jobs or faced reputational damage.
CEOs need to understand their firm’s capacities and get ahead of problems before they become crises. Specifically, they need to work closely with the team members who are responsible for legal and compliance monitoring to reduce legal risks, comprehend data that might indicate disparate treatment or impact, identify gaps that may exist in their knowledge and experience and structure management teams accordingly so that they reflect a comprehensive approach to compliance. And they need to engage all board members, keep them informed, seek their guidance and make them aware of their own potential legal peril.
Most importantly, financial firms should work to understand the intent, not just the letter, of multiple rules and laws, as well as the mindset of varied enforcement bodies. Strong compliance programs are prudent, meaning they are focused on avoiding regulatory challenges, even if some practices might be defensible.
If financial executives do business anywhere along the housing supply chain, they are willingly part of our nation’s effort to live up to its highest ideals of helping to create homeownership opportunities and fairness for everyone.
As part of that obligation, private sector players are endowed with a complex, at times conflicting, set of actions under often-difficult-to-construe fair lending laws. They become vehicles for delivering public policies and bear risk while trying to implement them. However, as a result, company leaders are often required to think more like partners with regulators and agencies rather than their adversaries. It warrants mention that government agencies should recognize this relationship can work both ways — they too have obligations to their private sector partners, chief among them transparency, open dialogue and technology improvements.
As an industry, we must continue to act responsibly on the issues of compliance and discrimination. The struggle for equality and fairness will forever be a continuing part of the American experiment. All of us can be part of the solution. And it starts at the top.
Brian Montgomery is a founding partner of Washington, D.C.-based Gate House Strategies.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners. To contact the author of this story: Brian Montgomery at [email protected]
To contact the editor responsible for this story: Sarah Wheeler at [email protected]
A former mortgage consultant who worked for Wells Fargo and ultimately brought a case against the company in a Southern California court over allegedly being fired for complaining about discriminatory lending practices has settled with the company, according to reporting from Los Angeles-based radio outlet KNX News.
Attorneys for both parties jointly filed papers in the Los Angeles County Superior Court on Sept. 14, explaining a settlement agreement “in principle” was reached. On Nov. 3, plaintiff Stuart Williams’ lawyers requested the case be dismissed “with prejudice,” which restricts it from being refiled.
“We strongly disagree with the claims made in this lawsuit and will vigorously defend against those claims,” a Wells Fargo representative said in a statement, as reported in 2021 by MyNewsLA.
Williams, who worked for Wells Fargo in a Beverly Hills office, said he first expressed his concerns about the alleged practices in January 2020, telling his superiors “he believed that the bank had a policy of favoring some loan originators over others.”
The plaintiff also claimed the alleged practice was a violation of the Uniform Deceptive and Abusive Practices (UDAAP) Act since it adversely impacted customers who patronized consultants with less favored originations.
Williams also claimed that Wells Fargo Home Mortgage management “made it mandatory for mortgage consultants such as himself to refuse loan applications from borrowers who are members of racial minorities, the elderly, the disabled, unmarried women and others protected by the ECOA [and] the FHA,” according to the initial complaint.
The suit also claimed that borrowers were adversely impacted by the alleged policies and that loan applications were illegally refused.
The suit in total alleged “wrongful termination, rescission of contract, intentional and negligent misrepresentation, breach of the implied covenant of good faith and fair dealing and a violation of the state Labor Code,” the reporting said.
Wells Fargo in 2022 pledged $210 million to racial equity after it was criticized for lending practices that resulted in Black borrowers receiving mortgage refinances at much lower rates than other institutions.
ST. LOUIS — BJC HealthCare and Washington University in St. Louis are expanding their “Live Near Your Work” program to support employees and revitalize underserved neighborhoods. The program now offers forgivable home loans, benefiting employees and communities.
“The Live Near Your Work program was designed to ease the financial burden of buying a home for BJC and Washington University employees, while helping to improve the economic health of our region,” said Deidre Griffith, BJC vice president of community health improvement.
This program, open to all eligible employees, now offers $12,500 forgivable home loans, a significant increase from the program’s inception in 1997. The expansion includes neighborhoods hit hard by historical disinvestment, particularly in the City of St. Louis and North St. Louis County, aligning with local initiatives to advance racial equity and economic opportunities.
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Applicants can use the forgivable loan toward a down payment or closing costs, with the loan forgiven after five years if the employee continues to live in the home and maintains a benefits-eligible position at BJC or Washington University.
Lisa Weingarth, senior advisor for St. Louis initiatives at Washington University, emphasized the institutions’ commitment to making St. Louis a healthier and more prosperous place for all. “We do that by delivering excellent patient care to the region, supporting local businesses, and expanding economic and educational opportunities for our combined workforce of more than 52,000 employees,” Weingarth stated.
The “Live Near Your Work” program has been around for 26 years, with BJC and Washington University consistently increasing its budget, eligible neighborhoods, and loan sizes. Today, both institutions allocate $300,000 each per year to support the program.
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As part of its broader affordable housing initiatives, Wells Fargo will sponsor a homeownership program alongside the Asian Real Estate Association of America.
The Wells Fargo-AREAA alliance will focus specifically on sustainable homeownership for first-time homebuyers and low to moderate-income Asian American, Native Hawaiian and Pacific Islander (AANHPI) communities.
AREAA found in its annual report that 72% of White Americans own homes. Yet, there are several Asian subcategories where homeownership is 55% or less, including Native Hawaiian, Indonesian, Korean, Pakistani, Hmong, Sri Lankan, Burmese, Bangladeshi, and Nepalese.
Additionally, the initiative will also feature a housing affordability symposium as well as regional events across the U.S. for homebuyers.
“We are committed to being a part of the solution and breaking down the systemic barriers that make homeownership more difficult to attain,” said Valeria Esparza-Chavez, head of Home Lending, Asian Segment at Wells Fargo.
The partnership comes after the bank was hit by several scandals related to its lending practices.
The bank repeatedly misapplied loan payments, wrongfully foreclosed on homes, illegally repossessed vehicles and charged surprise overdraft fees, affecting 16 million customers’ accounts, according to the CFPB. Wells Fargo eventually agreed to pay $1.7 billion to settle multiple consent orders last December.
Additionally, Bloomberg reported in March 2022 that only 47% of Black homeowners who completed a refinance application with Wells Fargo in 2020 were approved, compared with 72% of white homeowners. (The bank denied any wrongdoing.)
Since then, Wells Fargo announced plans to invest an additional $100 million to advance racial equity through its $210 million special purpose credit program.
Earlier in April, the bank announced a 10-year partnership with Dallas megachurch affiliate T.D. Jakes Group to build “inclusive communities.”
WASHINGTON — After years of proposals, counterproposals, interagency disagreement and political intrigue, the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency appear poised to finish their modernization of the Community Reinvestment Act’s implementing rules.
FDIC Chairman Martin Gruenberg said last fall that he expected the three agencies would finalize a joint rule updating the CRA in early 2023. But the intricacies of the rule, a shake-up of leadership and a string of midsize bank failures this spring likely contributed to pushing back that timeline, according to Jesse Van Tol, CEO of the National Community Reinvestment Coalition.
“You had a mini banking crisis in the spring that certainly pulled people away from this. You had a leadership transition at the Fed as well with [former Vice Chair Lael] Brainard’s departure, [and] you’ve gotten new Fed governors who came on board.” he said. “The light at the end of the tunnel is here, and I think we will see the final rule in October.”
Congress passed the CRA in 1977 as a way to address de facto lending discrimination faced by communities of color. The act requires that banks be graded on how equitably they are lending to low- and moderate-income customers and neighborhoods in their service areas, typically determined by where they have branches and deposit-taking automated teller machines. Banks need to receive a satisfactory mark in order to merge with or acquire other banks.
Given the advent of mobile banking, both banks and community groups have long agreed on the need to update the CRA — the most recent comprehensive overhaul of the rules was conducted in the 1990s.
Former Comptroller of the Currency Joseph Otting previously attempted to reform CRA implementation during the Trump administration, but community organizations argued the proposal effectively allowed banks to ignore underinvested communities and they threatened to sue the OCC when the plan was finalized in 2020. Otting’s proposal also failed to gain the support of Fed officials. The Biden administration then took on the task of reform, starting from scratch under the leadership of former Brainard.
The banking agencies issued a notice of proposed rulemaking in May 2022, but banking trade organizations raised a variety of concerns about the proposal. Banks argued that it would be too difficult to attain satisfactory ratings under the change, particularly under the retail lending portion of CRA exams. Banks also argued that the 90-day comment period was too short for banks to meaningfully respond to the proposed changes under the Administrative Procedure Act and hinted at a legal challenge if the rule was finalized as written.
Banking groups on Tuesday asked regulators to delay issuing the final joint rule due to uncertainty created by a constitutional challenge to the Consumer Financial Protection Bureau’s funding structure and by the recent capital changes regulators have proposed as part of the Basel III accords.
But the regulators appear unfazed by that criticism. Ian Katz, a Washington analyst with Capital Alpha Partners, said that may be due in part to the closing window of opportunity that regulators have to finalize the rule and avoid a congressional repeal after the 2024 election. The Congressional Review Act allows Congress to nullify a regulation within 60 legislative days of its finalization with a majority vote in both chambers and approval of the president. Katz said that a real threat of an override exists if Republicans win the House, Senate and White House.
“If the administration wants to make sure that the rule can’t be nullified by a Republican administration and Congress, it probably needs to finalize it by roughly mid-2024 to avoid the other CRA, the Congressional Review Act,” Katz said. “I think they’ll put it out before then.”
But in addition to racing against the clock, experts say regulators also have to take their time to ensure that the final rule is not vulnerable to a legal challenge.
“CRA is complicated, and the proposal gives the banks a lot of different pieces they can attack. The banks are also asserting that the regulators are going beyond their statutory authority and that the proposal, if unchanged, would be vulnerable to a legal challenge,” Katz said. “I imagine the regulators have been taking a look at that and will try to make sure they put out something that won’t be easy to strike down in court.”
Van Tol said the agencies are highly sensitive to industry concerns and have spent a lot of time making certain the law complies with statutory authority. To craft a durable rule, the agencies — particularly the Fed, which is leading the rewrite — are likely to take all the time they have. Van Tol said this puts pressure on regulators to ensure the rule withstands the test of time.
“Because the banking trades have threatened to sue them, I think they are trying to make sure that they’ve dotted the i’s and crossed their t’s in such a way that the rules are best protected,” said Van Tol.
Ye the delay in finalization can’t all be attributed entirely to industry pressure, Van Tol said. CRA-related rules have historically been very difficult to get done, in part because the details are very complex and also because they require interagency collaboration.
“It’s an interagency ruling, it’s much more complicated to coordinate amongst three agencies — two of whom have boards — who have to vote on the proposal,” he said. “The Fed [officials] are perfectionists. If you give them time, they’ll take it. They’ll take as much time as they need to get to something they’re satisfied with.”
Dennis Kelleher, CEO of the public advocacy organization Better Markets, said part of the problem is that industry turmoil and agency turnover made an already tedious process more difficult.
“I think anyone thinking it was going to be finalized earlier this year was overly optimistic,” Kelleher said. “It would have been record-breaking for them to do all that and finalize by earlier this year. While we always prefer rules to be finalized sooner than later, we’re more interested in rules being finalized that are effective, workable, durable and achieve the intended goal. If that takes more time than less, better to get it right than be quick about it.”
When reached for comment, officials at the OCC indicated they are working on the rule and incorporating public feedback.
“The OCC has been working with the Federal Reserve and FDIC to modernize and strengthen the Community Reinvestment Act to expand financial inclusion and opportunity for all Americans, especially the underserved,” they noted in an email. “The agencies received hundreds of detailed and thoughtful comments on the notice of proposed rulemaking, and we are working together to consider the suggestions.”
The FDIC and the Fed did not comment for this story.
Van Tol said that for all the bluster about a possible legal challenge, he is skeptical that banks would actually follow through on their threat to sue their prudential regulators over the rule.
“I think the trades sending that letter [on Tuesday] is just an attempt to continue to delay, which is really just an attempt to kill it,” Van Tol said. “It will be interesting to see if they do. I think it’s one thing to sue the CFPB; I think it’s another thing entirely to sue your prudential regulator. I wouldn’t want to be in that position.”
He added that banks also must toe a fine line in opposing the CRA, given how such a stance could contradict banks’ previous stated commitments to racial justice.
“Some banks will think twice — many of them having made statements about their commitment to racial equity, their commitment to the community in the wake of George Floyd — about suing over a rule that fundamentally is about lifting up underserved communities,” he said. “I think obviously that’s the reason why they work through their trades, to shield themselves from criticism.”
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JPMorgan Chase is expanding an effort to help close the gap in homeownership between Black and Hispanic communities and the rest of the country.
Residents of some 3,000 additional Black-majority and Hispanic-majority Census tracts in 16 U.S. markets will be eligible for up to $5,000 in grants that are designed to help with down payments and closing costs.
The program’s expansion, announced Wednesday, may help an additional 1,000 customers obtain mortgages, according to Cerita Battles, head of community and affordable lending at JPMorgan.
The bank does not expect to make a profit on the program, particularly as credit conditions worsen, she said. “At the end of the day, this is a long-term sustainable investment,” Battles said.
Chase Home Lending has already spent more than $30 million to help more than 6,000 prospective homebuyers in majority-minority neighborhoods make down payments and pay closing costs, according to the bank.
The $3.7 trillion-asset bank launched the effort in 2021 as part of a five-year racial equity commitment. The year before, nationwide protests sparked by the death of George Floyd prompted industry leaders to reconsider how they serve historically disadvantaged groups.
Following advice from regulators, JPMorgan launched a special-purpose credit program that provides mortgage assistance in majority-Black and majority-Hispanic neighborhoods. Under those programs, which are authorized under a provision of federal law, financial institutions can extend credit access to people who might otherwise be denied access to credit, or might be charged unfair rates.
When the bank rolled out the Chase Home Buyer Grant program, it looked first to provide credit access to Black Americans, who face the nation’s lowest homeownership rates. A year later, the program was extended to Hispanic Americans, a group that has the second-lowest homeownership rate.
The grants are made available to any resident of eligible majority-Black and majority-Hispanic neighborhoods — not only to members of specific racial groups — in part because residents of minority communities often fail to identify their race for fear that they may not receive a loan, Battles said.
The adoption of special-purpose credit programs has historically been stifled by criticism that they favor certain races over others. But attitudes have begun to change as regulators have assured banks that the programs do not violate the law, Battles said.
Blair Bernstein, a spokesperson for the American Bankers Association, reaffirmed the trade group’s support for special-purpose credit programs, calling them “an important tool that allows banks to expand access to credit for underserved communities.”
“Homeownership helps build wealth, and these important, responsibly managed programs provide opportunities for more borrowers, particularly as the cost of homeownership rises,” Bernstein said.
Yet, there are still some who question JPMorgan’s program, Battles said.
“There’s still a lot of education that’s still necessary, because all lenders are not participating in this space today,” she said. “I think it’s very necessary for us to be very intentional about our explanation around it — the how and why.”
JPMorgan has gotten support from nonprofit groups that focus on closing the homeownership gap.
“Homeownership is one of the most important ways to build generational wealth that families can pass down,” said Valerie Navy-Daniels, senior vice president of resource development at NeighborWorks America, a nonprofit organization that supports housing access and affordability. “We thank Chase and other banks for addressing this critical issue.”
Battles said that JPMorgan will be encouraging local market participants to support and promote the Chase Home Buyer Grant program and similar initiatives. She noted that funding from other institutions can be layered on top of the $5,000 grant.
“I would assume that we will likely expand this, expand this program again and go into some other markets, especially if we see the need in the value of going into those particular markets,” Battles said.
To those who doubt whether the grant program makes financial sense, Battles said: “There’s a cost to not being able to serve all who aspire to homeownership.”