Wells Fargo, once the largest mortgage lender in America, was accused of discrimination through the common industry practice of offering mortgage loan discounts to select borrowers, CNBC reported.
The bank received Matter Requiring Attention (MRA) notice from the Consumer Financial Protection Bureau (CFPB) on problems with loan discounts, CNBC reported on Monday, citing anonymous sources.
It is unclear whether Wells Fargo was accused of discrimination or sloppy oversight, the report noted.
Loan discounts — known as pricing exceptions — is when a lender makes exceptions to its established credit standards. Whether certain borrowers – based on race, gender and age – received fewer pricing exceptions, violating U.S. fair lending laws has been on regulators’ radar in recent years.
According to the CNBC report, mortgage bankers at Wells Fargo would request pricing exceptions that typically lowered a customer’s Annual Percentage Rate (APR) by between 25 and 27 basis points to help secure deals in competitive markets.
Wells Fargo received the MRA from the CFPB a couple of months before the company announced it was scaling down its mortgage business in January. On the heels of regulatory pressure, Wells Fargo adjusted its policies in 2023 that would require hard documentation of competitive bids, sources told CNBC.
After receiving an MRA from the CFPB, Wells Fargo hired a law firm to look into mortgage bankers’ such practices whose sales included high levels of discounts, the report said.
Wells Fargo declined to comment on any regulatory matters but noted “we don’t discriminate based on race, gender or age or any other protected basis.”
“As part of our renewed focus on supporting underserved communities through our Special Purpose Credit Program, we have spent more than $100 million over the last year to help more minority families achieve and sustain homeownership, including offering deep discounts on mortgage rates,” a spokesperson said in an e-mailed response.
CFPB’s probe into mortgage lenders
The CFPB’s probe into mortgage lenders was shared back in Fall 2021.
Its findings showed that mortgage lenders violated U.S. fair lending laws by discriminating against African American and female borrowers in the granting of pricing exceptions based upon competitive offers from other institutions.
Since then, regulators conducted additional examinations and again found that mortgage lenders violated “Equal Credit Opportunity Act (ECOA) and Regulation B by discriminating in the incidence of granting pricing exceptions across a range of ECOA-protected characteristics, including race, or age.”
“In several instances, examiners identified policies and procedures that were not designed to effectively mitigate ECOA and Regulation B violations or manage associated risks of harm to consumers,” according to a CFPB’s report in the summer of 2023.
“Some policies permitted mortgage loan officers to request a pricing exception by submitting a request into the loan origination system without requiring that the request be substantiated by documentation. While those requests were subject to managerial review, there were no guidelines for the basis for approval or denial of the exception request or the amount of the exception,” said the report.
The report didn’t share names of the mortgage lenders that indicated they violated ECOA and Regulation B.
The CFPB declined to comment on HousingWire’s request for comment.
Wells Fargo was repeatedly slapped with hefty fines regarding its missteps involving home loans recently.
Wells Fargo paid $3.7 billion for consumer abuses on products including home loans in December 2022 and was fined $250 million in 2021 for failing to address problems in its mortgage business.
The CFPB has been tightening its screws on fair lending practices. In 2022, the regulator carried out 32 fair lending investigations, more than doubling the number of probes it started in 2020.
The article has been updated with Wells Fargo’s comment on Tuesday Dec. 12 at around 10:00 am ET.
