Wells Fargo & Co agreed to pay $175 million to resolve allegations by the U.S. Justice Department that it discriminated against qualified African-American and Hispanic borrowers in its mortgage lending.
At the same time, the bank said it would stop making loans through mortgage brokers, who the government said submitted loans to Wells Fargo that had varied interest rates, fees and costs based only on race and not correlated to the borrowers' creditworthiness.
There are a lot of pieces to that, and borrowers - especially those who are in the midst of getting new Wells Fargo mortgages - may wonder what it means for them. Not all of the answers are evident yet, but here are a few.
I'm in the middle of refinancing with Wells. Now what?
If you've already filed your application with a mortgage broker, your loan should go through as planned. Wells said it would stop taking new broker applications on Friday, July 13. Mortgages already in the pipeline are expected to go through.
Will this make it harder to get a mortgage in the future?
Many experts, especially those who value the brokerage process, say it will. Bank of America, Citi and JPMorgan Chase have all stopped doing mortgage loans through brokers, and the theory is that the fewer outlets brokers have, the more business they will squeeze into fewer companies.
"This is going to force the same amount of lending through a smaller opening" says Rob Chrisman, a mortgage industry analyst in San Rafael, California. "It will impact the borrower in the form of higher rates or worse prices or a longer wait time to get the loan."
But with mortgage interest rates flirting with historic lows, getting a mortgage is already a slow and difficult process and this won't make it worse, suggested Donald J. Frommeyer, president of the National Association of Mortgage Brokers and an Indianapolis mortgage broker. "Things have been tightening up for the last 12 months."
Consumers can comparison shop for their own loans, either by checking individual lenders or shopping through an aggregation websites like HSH Associates or Mortgage Marvel. But Chrisman pointed out that individuals may not have the pull to fast track their mortgages the way a broker handling large numbers of loans can.
I think I was one of the victims here. Will I get money, and when?
Wells has agreed to pay $125 million to borrowers who paid more for their loans than comparable white borrowers. A judge must still approve the settlement. After that, money should flow quickly, says Sam Garcia, publisher of Mortgage Daily, a trade publication.
The government must name a settlement administrator within 60 days, provide that person with a list of borrowers due settlement funds. At that point, the administrator will have six months to complete all payments. Wells Fargo has already provided the government with a list of potentially affected borrowers (those who took out loans between 2004 and 2009). As is typical in settlement cases, there will be a special website and phone number set up, but it isn't ready yet.
I didn't borrow money yet, but I'd like to buy a house. Is there anything here for me?
Wells is also paying $50 million to set up a Wells Fargo Borrower Assistance Program of down payment help for borrowers in areas that the Justice Department had highlighted as having many discrimination victims. Those areas include Baltimore, Chicago, Cleveland, Philadelphia, Oakland, San Francisco and Washington, D.C. Those funds will be given out as forgivable loans maxing out at $15,000. Their interest rates will be 0 percent, and 20 percent of the loan will be forgiven every year, explained Garcia. To qualify, borrowers have to earn less than 120 percent of the area median income, and they don't have to use a Wells Fargo mortgage.
Am I getting a fair rate now?
In settling the complaints, Wells did not admit to any prejudicial lending. But the Justice Department had alleged African-American and Latino borrowers were being steered to subprime mortgages carrying higher rates. One way to check your rates is to get a copy of your credit score at the Fico web site. You'll learn whether you have an excellent, mediocre, or subprime score. Then you can get comparison quotes, based on your credit score, at many online banks and brokers. Don't agree to any mortgage without comparison shopping rates elsewhere.
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