Attorney General Lisa Madigan together with the Department of Justice announced a $175 million nationwide settlement with Wells Fargo over allegations that the bank steered borrowers of color into subprime loans more frequently than comparable white borrowers and charged borrowers of color more money for their mortgages than white borrowers were charged. The settlement will provide at least $15 million in restitution to impacted Illinois borrowers, while an additional $7 million will create a fund for down payment assistance. Currently, approximately 3,300 Illinois borrowers are estimated to be victims of discrimination by Wells Fargo.
“Every borrower should be able to access the best possible home loan terms, not be steered into more expensive products,” said Dory Rand, President of Woodstock Institute. “This settlement will bring relief those who have suffered from mortgage price discrimination and bring us closer to a more just mortgage marketplace where everyone, including people of color, can access the best loan terms possible.”
Pricing discrimination limits access to a mortgage market that is already constricted in Chicago, particularly for borrowers in communities of color. Between 2006 and 2008, prime home purchase and refinance lending in the Chicago area fell by 53.7 percent in communities of color compared to a 20.3 decline in predominantly white communities. Home loan borrowers in Chicago’s communities of color pay more for their mortgages as well. Woodstock Institute research shows that borrowers in communities of color are more than 3 times as likely to receive high cost loans as are borrowers in white communities. People of color are increasingly being shut out of prime mortgages and are relegated to more costly government-backed loans. More than 80 percent of the loans made to African American borrowers in 2010 in Chicago were backed by the Federal Housing Administration and the US Department of Veterans Affairs.
Access to affordable and sustainable mortgages will be critical to the recovery of the Chicago area’s ailing housing market, especially in communities of color that were hit hardest by foreclosures. Fair lending enforcement actions, like the one announced by General Madigan and the Department of Justice, are essential to ending lending disparities in the mortgage market.