Wells Sued Over Pricing

The complaint, filed Friday in the Los Angeles County Superior Court, alleges that Wells systematically discriminates against borrowers in predominantly African-American and Hispanic neighborhoods by denying them the benefits of its loan origination computer program, Loan Economics, which allows loan officers to offer discounts that lower the overall price of the mortgage.

Since the program’s launch in spring 2002, Wells has refused to allow certain Los Angeles minority neighborhood branch offices to utilize the software, resulting in more expensive loans “than those given to similarly situated borrowers from non-minority neighborhoods, irrespective of credit worthiness or other legitimate business reasons,” the lawsuit said.

Wells has not yet seen the lawsuit but said it is “keenly aware” that its growth depends on its success in serving diverse customers with a wide range of credit histories, according to an e-mailed statement to MortgageDaily.com.

“Wells Fargo is committed to equal access to credit for all, and our underwriting and pricing policies do not treat customers differently based on their race, income or where they live,” the San Francisco-based banking behemoth, which was reportedly the second largest originator last year with volume of $298 billion, said in the statement. “We price for risk, not race, and we market to individual customers, not to neighborhoods.”

But without the program, minority-neighborhood borrowers paid approximately $500 to $10,000 more in fees at closing than a similarly situated borrower who was afforded the program discounts, the complaint alleges, and some were charged higher interest rates.

“It is our belief that Wells Fargo thought minority borrowers were less savvy than non-minority borrowers and would not question excessive fees and charges,” said Jeffrey Fleitman, one of the attorneys representing the borrowers, in an announcement.

“Wells Fargo has refused and continues to refuse to permit all the minority neighborhood loan officers to use the program,” and thus “minority neighborhood loan applicants have been, and continue to be, forced to pay more for their home loans,” the suit said.

Despite unwittingly having pricier loans than adjacent non-minority branches, each of the minority-area located offices closed approximately between 960 to 2160 in two years since the program’s inception, according to the complaint.

Because “thousands of borrowers have been affected,” the lawsuit seeks certification as a class action and, among other damages, an injunction barring Wells Fargo from continuing its discriminatory lending practices and restitution of the costs they incurred because of these practices, the announcement said.

The lawsuit against Wells Fargo Bank and its home-financing subsidiary, Wells Fargo Home Mortgage, does not involve subprime arm Wells Fargo Financial, which had been the target of various attacks by consumer advocacy group ACORN, or the Association of Community Organizations for Reform Now, for alleged predatory lending practices related to high-cost loans.