Wells Fargo pressed by senators on race disparity in refinancing

Craig Warga/Photographer: Craig Warga/Bloomb

Senate Banking Committee Chairman Sherrod Brown and other Democratic senators called on Thursday for regulators to investigate Wells Fargo & Co.’s treatment of Black homeowners seeking to refinance mortgages during the pandemic.

In a separate letter to Chief Executive Officer Charlie Scharf, senators Elizabeth Warren and Ron Wyden, chairman of the Senate Finance Committee, demanded the bank produce by March 28 data and algorithms used to evaluate applicants and cited what they called “potentially illegal discrimination.”

The letters follow publication last week of a Bloomberg News investigation that found Wells Fargo had in 2020 approved only 47% of applications to refinance mortgages completed by Black homeowners compared with 72% of those from White applicants. The bank’s approval rate for Black applicants was the lowest among major lenders, the Bloomberg analysis of federal mortgage data found.

Wells Fargo denied any wrongdoing in response to the Bloomberg investigation, saying its own internal review of its 2020 lending decisions had found that other factors such as credit scores accounted for the disparities in approval rates. It declined to share data about its 2021 performance.

Paul Turner, a spokesman for Wells Fargo, said in an email Thursday that the bank would review the letter from senators Warren and Wyden and provide its perspective. The Bloomberg story “ignored critical information about Wells Fargo’s lending to Black homeowners,” he said, including that the bank helped more Black homeowners refinance their mortgages than any other major lender. “We are confident that our underwriting practices are consistently applied regardless of the customer’s race or ethnicity.”

The Senate Banking Committee letter was addressed to U.S. Housing and Urban Development Secretary Marcia Fudge and Rohit Chopra, director of the Consumer Financial Protection Bureau. Brown and other Democrats including Illinois Senator Dick Durbin, Raphael Warnock of Georgia and Oregon’s Jeff Merkley cited the Bloomberg findings as cause for action.

“While there can be differences in loan characteristics or borrower circumstances that result in a lender denying an application, the stark racial disparity in refinance approval rates at Wells Fargo raises questions about whether its mortgage systems and processes comply with all federal fair housing and fair lending laws and regulations,” the senators wrote, calling for a review of the bank’s mortgage refinancing process.

Like other major banks, Wells Fargo has faced scrutiny of its lending practices. In 2012, it paid $184 million as part of a federal settlement negotiated with the U.S. Department of Justice over allegations that it steered Black and Hispanic homeowners into high-interest subprime mortgages before the 2008 financial crisis. In 2019 it paid $10 million to settle a lawsuit brought by the city of Philadelphia, which accused Wells Fargo of making it harder for minority homeowners to refinance their mortgages.

In their letter, Warren and Wyden cited the bank’s past record related to its treatment of minority homeowners. “Wells Fargo is incorrigible,” Warren said in a statement to Bloomberg News. “It has repeatedly and systematically ripped off its customers and discriminated against Black Americans in the housing market. It’s long past time to break up this big bank.”

The calls for greater scrutiny of Wells Fargo came after the Federal Reserve on Wednesday started a tightening cycle by raising its main policy rate 25 basis points, bringing an end to a remarkable wealth event that saw U.S. homeowners refinance $5 trillion in mortgages over the past two years. Freddie Mac said Thursday that the average interest rate on a 30-year fixed rate mortgage in the U.S. last week rose above 4% for the first time since May 2019.