March 7, 2008
Illinois Attorney General Lisa Madigan issued subpoenas to Countrywide Home Loans and Wells Fargo Financial Illinois to determine if they unfairly steered African-American and Latino borrowers into higher cost or otherwise inappropriate home loans in violation of fair lending and civil rights laws, her office said Thursday. Madigan’s probe comes on the heels of a Chicago Reporter study that found the Chicago area led the country in high-cost home loans for the second year in a row. The study also found marked disparities in loan pricing between white and non-white borrowers. African-American borrowers were three times as likely as white borrowers to receive a high-cost home loan, and Latino borrowers were twice as likely.
"The difference in cost between the home loans sold to white borrowers and those sold to African-American and Latino borrowers is alarming," Madigan said in a statement.
She said income level does not appear to account for the differences in pricing. The wealthiest African-American homeowners were still more likely than the poorest white borrowers to get placed in high-cost loans.
"The aim of these investigations is to find out the reasons for these pricing disparities and if those reasons are not based on valid underwriting criteria and creditworthiness to hold the lenders responsible for their actions," she said.
Loans similar to subprime
From 2004 to 2006, Wells Fargo & Co., the parent of Wells Fargo Financial Illinois, sold high-cost loans to 64 percent of its African-American borrowers and 36.7 percent of its Latino borrowers, while only 17.5 percent of Wells Fargo’s white borrowers received high-cost loans, according to the study.
During that period the study found Countrywide Financial Corp., the parent of Countrywide Home Loans, sold high-cost loans to 50.9 percent of its African-American borrowers and 33.8 percent of its Latino borrowers in the Chicago area. It placed 21 percent of its white borrowers in high-cost loans. In 2006, Countrywide sold nearly all of its home loans in Illinois through Countrywide Home Loans.
Countrywide and Wells Fargo showed the largest disparities in the study.
"Countrywide will cooperate fully in any investigation by the attorney general," the company said in response to the state’s action.
Countrywide added it "continually analyzes its data and takes steps to ensure that the borrowers are treated fairly."
Wells Fargo said race is not a factor in its lending.
"Wells Fargo responsibly makes mortgage loans available to consumers across the credit spectrum and to diverse communities across the nation," the company said "We price all our loans based on credit risk."
The data in the study comes from the Home Mortgage Disclosure Act, a federal law that requires lenders to submit data on home purchase, home improvement and home refinancing loans to the government. The study looked at data on high-cost loans, defined as loans with an interest rate at least three percentage points above the U.S. Treasury standard.
Wells Fargo contended that data alone can’t be used to show racial discrimination, noting it doesn’t include certain risk factors, such as the consumer’s equity in the property, debt-to-income ratio and credit score.
The high-cost loans examined in the study have characteristics similar to the high-risk subprime mortgages that have led to the home foreclosure crisis nationally.
Chicago area foreclosures are largely concentrated in high-minority communities. The Woodstock Institute recently found that minority communities contain less than 14 percent of the Chicago area’s mortgageable properties but account for 34.5 percent of the area’s foreclosure filings, Madigan’s office said.
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