Case 1:12-cv-01150 Document 2 Filed 07/12/12 Page 1 of 3

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,

)

)

Plaintiff,

)

)

v.

)

)

WELLS FARGO BANK, NA,

)

)

Defendant.

)

____________________________________)

CIVIL ACTION NO.

JOINT MOTION FOR ENTRY OF CONSENT ORDER AND STATEMENT OF POINTS AND AUTHORITIES

Plaintiff, United States of America, and Defendant, Wells Fargo Bank, NA (“Wells

Fargo”), pursuant to Rule 7 of the Federal Rules of Civil Procedure and Local Civil Rule 7,

hereby move the Court for entry of the proposed Consent Order lodged contemporaneously with

this motion to resolve the United States’ civil action brought to enforce the Equal Credit

Opportunity Act (ECOA), 15 U.S.C. §§ 1691-1691f, and the Fair Housing Act (FHA), 42 U.S.C.

§§ 3601-3619. The United States and Wells Fargo ask that the Consent Order be entered

immediately.

In support of this motion, the parties state that the United States has filed a complaint

with the Court alleging violations of ECOA and FHA. Wells Fargo, by agreeing to the Consent

Order, is not admitting any of the allegations. Rather, the Consent Order is entered into by the

parties for the purpose of resolving disputed claims under ECOA and FHA and avoiding the

expenses and risks of further litigation. The parties submit that the proposed Consent Order is

fair, adequate, reasonable, and in the public interest. See Stewart v. Rubin, 948 F. Supp. 1077,

1986 (D.D.C. 1996) (setting forth the standard for approval of settlements).

Case 1:12-cv-01150 Document 2 Filed 07/12/12 Page 2 of 3

Wherefore, for the foregoing reasons, the Court should enter the proposed Consent Order, which is attached hereto per Local Civil Rule 7(c).

Dated: July 12, 2012
For Plaintiff United States of America:
RONALD C. MACHEN JR. D.C. Bar # 447889 United States Attorney District of Columbia
DANIEL F. VAN HORN D.C. Bar # 924092 Acting Chief, Civil Division

Respectfully submitted,
THOMAS E. PEREZ Assistant Attorney General Civil Rights Division
STEVEN H. ROSENBAUM D.C. Bar # 417585 Chief Housing and Civil Enforcement Section Civil Rights Division JON M. SEWARD Deputy Chief ELIZABETH PARR HECKER HOLLY C. LINCOLN Trial Attorneys

____/s/________________________ JAVIER M. GUZMAN D.C. Bar # 462679 Assistant United States Attorney 555 Fourth Street, NW Washington, DC 20530 Phone: (202) 616-1761 Fax: (202) 514-8780 Javier.Guzman2@usdoj.gov

_____/s/_____________________ COTY R. MONTAG D.C. Bar # 498357 Trial Attorney Housing and Civil Enforcement Section Civil Rights Division United States Department of Justice 950 Pennsylvania Avenue, NW Northwestern Building, 7th Floor Washington, DC 20530 Phone: (202) 305-0122 Fax: (202) 514-1116 Coty.Montag@usdoj.gov

2

Case 1:12-cv-01150 Document 2 Filed 07/12/12 Page 3 of 3

For Defendant Wells Fargo Bank, NA:

____/s/________________________ BART H. WILLIAMS Munger, Tolles & Olson LLP 355 So. Grand Avenue, 35th Floor Los Angeles, CA 90071 Phone (213) 683-9295 Fax: (213) 687-3702 Bart.Williams@mto.com Counsel for Wells Fargo Bank, NA

3

 
 Case 1:12-cv-01150 Document 1 Filed 07/12/1,2 Page 3 of 39

IN THE UNITED STATES DISTRlCT COURT 
 FOR THE DISTRICT OF COLUMBIA 


UNITED STATES OF AMERICA, Plaintiff,
v, ~
WELLS FARGO BANK, NA,
Defendant.

) ) ) CNIL ACTION NO, )
)­ ) )
) )
)
)

COMPLAINT ~ The United States of America alleges:
INTRODUCTION 1. The United States brings this action against Wells Fargo Brulk, NA ("Wells Fargo" or "the Bank") for discrilninating against more than 34,000 African-American and Hispanic bOl'l'owers in the operation ofits residential mortgage lending. The action is brought under the Fail' Housing Act (FHA), 42 U;S,C, §§ 3601-3619, and the Equal Credit Opportonity Act (ECOA), 15 U.S.C. §§ 1691-1691f, to redress the disc~'imination based on race and national origin that Wells Fargo engaged in from at least 2004 to 2009, during the mortgage boom. 2. Ail a result of Wells Fargo's policies and practices, between 2004 and 2008, approximately 4,000 qualified African-American aud Hispanic wholesale bOl1'owers, who received Wells Fargo loans through mortgage brokers, received subprime loans rather than prime loans from Wells Fargo because of their race or national origin, not based on their

Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 4 of 39

creditworthiness or other objective cliteria related to borrower risk. These Afiican-American

.and Hispanic bOll'owors were placed into subprime loans, with adverse terms and conditions such

as high interest rates, excessive fees, pre-payment penalties, and unavoidable future payment

hikes, when similarly.qllalified nOll-Hispanic white ("white") borrowers received prime loans,

For example, between 2004 and 2008, highly qualified prime retail and wholesale applicants for Wells Fargo resid~ntial mortgage loans! were more than foul' times as likely to receive a

subprime loan if they were Africall-American and more than three times as likely If they were

Hispanic than if they were white, Conversely, during the San1e time period, borrowers with less

favorable credit qualifications were more likely to reoeive prime loans if they were white than

bOlTowers who were Africal1-American or Hispanic?

3. Additionally, between at least 2004 and 2009, approximately 30,000 African-American

and Hispaniowholesale borrowers paid Wells Fargo higher fees and costs for·thoir home

mortgages than white bOlTowers beoause oftheir race or national origin, not based on their

Cl'editworthlness or other objeotive criteria related to borrower risk.

4. Wells Fargo was one ofthe largest single-family mortgage lenders in ille United States

between 2004 and 2009, Since 2008, Wells Fargo has been the largest residential home

mortgage originator in the United States, and according to the Ban1c, now Oligiuates one out of

every four mortgages in the country.

I

I!

1 For purposes of this paragraph, highly qualified prime applicants for Wells Fargo residential

r-------J.mortgage.loans-had-the·fol1owing-charactel~stics;-I1rCO-scores-equal-to-or.greaterthan-6g0.--,- - - - - ­

debt-to-income ("DTI") Tfltios less than 01' equal to 45% of the loan amount, loan-to-value

("LTV") ratios less than or eqllal to 80% of the loan amount, and no history ofbankruptcy,

2 For purposes of this pamgraph, Wells Fargo borrowers with less fav~rable credit qualifications had the following characteristics: FICO scores between 620 and 680, DTI between 45% and 55% of the loan amount, and LTV between 80 and 90% of the loan amount.

2

Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 5 of 39

5. Between 2004 and 2009, Wells Fargo's policies allowed its loan originators both to set

the loan prices charged to borrowers and to place borrowel's into loan products in ways that Wel'e

not c01mected to a bOl'rower's <;;l'editworthiness or other objective criteria related to borrower

:

risk. Wells Fargo made money based on the interest rates and fees it charged to bOl'rowers and

1----.-. the premiums it earned from investqrs to whom it sold the bulle of its loans. Wells Fargo adopted

I i

loan pricing and origination policies that allowed the pel'so11l1el who originated its loans both to

set the loan prices charged to borrowers and to place borrowers into loan products in ways

unconnected with credit risk. Wells Fargo created 'financial incentives for its employees and

mortgage brokers by sharing increased revenues with them.

6. Fol' elCmuple, from at least 2004 tll1'0ugh mid-2008, Wells Fm'go frequently originated

short-term hybrid adjustable-rate mortgages (ARMs). These sUbprime loan products typically

.. featu1'ed a relatively low nom:inallnterest rate, sometimes culled a ''teaser'.' rate, for the first two

or t1JIee years ofthe loan, after which the rate adjusted to a higher tate every six or twelve

months. The most common types ofshort-term hybrid ARMs Wel'6 "2/28" loans, witll interest

rates resetting after two yem-s. BOl'rowers with 2/28 ARM loans often faced payment shock

.

when the rate adjusted sharply upward. Wells Fargo was aware that many ofthese borrowers

I

or with 2/28 ARM loans qualified for more standard loans, such as 30~yea1' fixed rate loans less

dsley ARMs with more favorable rates that did not canypre-payment penalties.
I
7. Wells Fargo had information about each bOlTower's race and national origin. Wells
1i ----Fargo also mew 01' haa reason to-Imow basOO on its own iiilerniil monitOring and reporting f~-

f

its policies of giving unguided discretion to its loan originators was resulting in discrimination.

For example, Wells Fargo knew that its lending policies and practices encouraged the improper

placement of qualified applioants into subprime rather than prime loan products and that its A­

! .

3.

Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 6 of 39
Paper Filter, an internal system designed to ensure that all prime-eligible borrowers were referred to the Bank's prime division, was ineffective and subject to easy manipulation. Wells Fargo's internal documents reveal that senior officials were aware ofthe numerous tactics that subprime originators employed to keep loans in the subprime division, and that a significant percentage of borrowers were receiving subprime loans when they could have qualified for prime loans. Wells Flirgo did not act to adequately compensate borrowers who were victims of discrimination 1101' did it talee effective action to change its policies or practices to eliminate tile discrimination. 8. African-American and Hispanic customers ofWells Fargo in at least 82 geographio lnarlcets across at least 36 states and the District ofColumbia were victims of Wells Fargo's discriminatory practices. Approximately 3,500 of these victims resided in the Washington­ Arlington-Alexandria, DC-VA-MD-WV Metropolitan Statistical Area ("Washington MSA,,).3 Additionally, the statistical analyses disoussed below found approximately 4,500.victims in the Los Angeles MSA; approximately 4,1 00 victims in the Miami MSA; approxhnately 4,000 victhns located in the New York MSA; approxinmtely 3,200 in lile Chicago MSA; approxinlately 2,100 in the San Francisco MSA; approximately 1,400 in the Atlanta MSA; approximately 1,300 in theRiverside MSA; approximately 1,170 in the Houston MSA; approxinla!ely 1,030 in the Philadelphia MSA; and approximately -1,000 in the Baltimore MSA. 9. The higherbo1'1'owing costs that Wells Fargo imposed on thousands of African-American and Hispanio families - whetlter paid as higher up-front fees, unfavorable loan products, pre­ paymenfpeniilffes, 01· otherwise':" put increased econorriicmJniens on (liose families. For the African-American and Hispanio families WeUs Fargo placed in subprime loans when those saf!le
3 All references to metropolitan statistical areas ("MSAs") are based on data released from the U.S. Census Bureau in 2005.
4 


Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 7 of 39
families could have reoeived prime loans, the economic burdens and risks, including the increased risk of delinquency or foreclosure, were particularly high. A survey oflal'ge national lenders by the Office of the Comptroller of the Currency (OCC) reported that as of Jun~ 30, 2011, 28.1 % ofsubpl'ime loans nationwide are seriously delinquent or in foreclosure, compared to only 5.5% ofprlme loans. As of Jtm6 30, 2011, Wells Parga's overall foreclosure rate on residential mortgage loans was 7.44%. According to Wells Fargo, the highest risk segment of this portfolio is the subprime loans originated in 2006 al1d 2007. 10. The United States brings this lawsuit to hold Wells Fargo accountable for its violations of law and to remedy the substantial and widespread harmful consequences of Wells Fargo's discriminatory lending policies and practices.
JURISDICTION 11. . This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1345,42 U.S.C. § 3614, and 15 U.S.C. § 1691e(h). Venue is appropriate pursuantto 28 U.S.C. § 1391.
PARTIES 12. Wells Fargo is a wholly owned subsidiary ofWells Fargo & Company, one ofthe nation's largest bank holding companies. Wells Fargo, its principal subsidiary, is a national banking association headquartered in Sioux Falls, Sot1th Dakota, with its principal place of business in California. Wells Fargo previously was subject to the regUlatory authority of the
OCC. As ofJuly 21, 2011, Wells Fargo is subject to the regulatory authority of the ace and the
COfisUfilerFinancilltprotection Bureau (CFPB). 13. Wells Fargo engages in business typical of a financial depository and lending institution, including extending credit and malcing loans for the purchase of dwellings, and maldng loans secured by residential real estate. Wells Pargo offers residential home mortgages to borrowers
5 


I

Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 8 of 39

.,!

through its Wells Fargo HOUle Mortgage division. Wells Fargo Home Mortgage was a

separately owned subsidiary of Wells Fargo & Company until May 5, 2004, wlien it was Ulerged

into Wdis Fargo Bank, NA. FroUl 2004 to 2006, Wells Fargo Home Mortgage reported total net

eamings of $13.5 billion.

14. By the fourth quarter of2004, Wells Fargo was one of the nation's top ten originators of

subpl'ime home mortgage 108ns. In 2006, Wells Fargo originated approximately $74.2 billion in

subprime loans, more than any other lender in the nation. Wells Fargo sometimes referred to its

higher-cost lending as "nonprime," rather than "subprime."

15. Wells Fargo is and lias been a "creditor" within the meaning of section 702(e) of ECOA,

15 U.S.C. § 1691a(e), and has engaged in "residential real estate-related transactions" within the

meaning of section 805 ofilie FHA, 42 U.S.C. § 3605. Aooordingly, Wells Fargo is subject to

fedemllaws governing fair lending, inoluding the FHA and BCOA and their respeotive

implementing regulations, the fair housing regulations ofthe Department ofHousing and Urban

Development, 24 C.F.R. § 100.1, et seq., and Regulation B of the Consumer Financial Protection

Bureau, 12 e.F.R. § 1002.1, et seq. The FHA and ECOA prohibit fil1aocial institutions from

..i

discriminating on the basis of, inter alia, race and national origill in their lending praotioes.

REFERRAL FROM THE OFFICE OF THE COMPTROLLER OF THE CURRENCY

16. In 2009, the oce conducted an examination ofthe lending practices of Wells Fargo. As

a result of that examination, the acc determined that it had reason to believe that Wells Fargo

- - - engageuin a pattern-or praotice of discriminatiorionth:eoasis afmco or color,-iij.Violiilion ofUW - -­

FHA and ECOA. Specifically, the OCC found that there was reason to believe that Wells Fargo

placed African-American applicants in the subprime IDOitgage lending channel in the

Washington-Baltimore-Northern Virginia, DC-MD-VA-WV Combined Statistical Area 6

Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 9 of 39

("Washington eSA") more frequently than similarly-situated white applicants during the period

from 2004 to 2008. Additionally, the OCC fOUlld reason to believe that, after con!:rolling for

credit factors, applicants from minority census tracts (census !:racts with greater than or equal to

80% non-Hispanic AfHcan-American population) in the Washington eSA were more likely to be

Ullderwriiten in the subprime channel than applicants from non-minority census !:racts (census

!:racts with greater than OJ' equal to 80% white population).

17, Following its determination in Paragraph 16, and pursuant to 15 u.s.e. § 1691e(g), the

oce referred the matter to the United States Department ofJustice on December 14, 2010.

18. Along with the parallel aec investigation referenced above in Paragraph 16, the

Department of Justice has engaged since 2009 in an extensive investigation ofWells Fargo's

lending policies, practices, and procedures, including reviewing inte111al Banlc documents and

non-public IOlln-level data on more than 2.7 million Wells Fargo loans Oliginated between 2004

and 2009.

FACTUAL ALLEGATIONS

19. Between 2004 and 2009, Wells Fargo originated retail and wholesale residential home

mortgage loans innumerous geographic markets in the United States, including several hundred

metropolitan areas ("MSAs") as well as the less-populated areas of each state outside of MSAs.

20. . From at least 2004 to 2009, Wells Fargo originated residential mortgage loans nationwide

through both. a retail channel and a wholesale channel. During this time period, Wells Fargo
I..---~;--~~;-. Home Mortgage was divided into two major divisions - Retail (National Consumer Lending)

I

and Institutional Lending ("11"), of which Wells Fargo Wholesale Lending was a business line.

Within the retail channel, Wells Fargo had "Distributed Retail" and "Centralized Retail" Jines.

The Distributed Retail line operated as a traditiona1retail chaUllel that had face-to-face contact

7 


Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 10 of 39
with customers in branch offices and originated both prime and subprime loans. The subprime division of the Distributed Retail line was lenoW11 as the Mortgage Resources (MoRe) division; in early 2005, its name was changed to Home Credit Solutions (RCS). Loan officers within the Distributed Retaillille were assigned to either the prime or MoRelHCS divisions, Until the two divisions were merged ill 2008, no retaillo!ln officer originated both pllme and subprime loans, The Centralized Retaillin6 primarily handled prime loan products and operated through telephone calls and internet applications. Wells Fargo referred to both prime and subprime loan officers in its Distributed Retail and Centralized Retail lines as "Home Mortgage Consultants" or "HMCs." The same prime pricing policies applied to both tlui Centralized and Distributed Retail lines. 21. Through its retail and wholesale channels, Wells Fargo originated virtually every type of loan product that was available in the residcntiallending market. These products included: (a) traditional jlrime loans; (b) subprlme loans, typically designed for borrowers with credit scores 01' other credit characteristics deemed too weak to qualifY for prime loaus; and (c) "Alt-A" loans, those with application requirements or payment torins less restrictive than traditional prime loan telms or requirements, such as interest-only terms, reduced documentation'l'equirements, or ballooll payments. Subsequent to origination, Wells Fargo sold or secUl1tized for sale the bulle of the loans it originated in the secondary marlcet, either to government-sponsored entities Frull1ie Mae and Freddie Mac or to private investors. On July 24, 2007, Wells Fargo announced that it would no longer originate 2/28 ARMs. On July 31,2007, Wells Fargo ceased making subprime loans through its wholesale channel. III January 2008, the subprlme sales force was integrated into the prime sales force and ceased to be a separate division within Wells Fargo Home
8
"
I
, [

Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 11 of 39

Mortgage. all May 16, 2008, We1ls Fargo Home Mortgage closed its retail subprirne loan

division and originated its last subprime 101m all July 9, 2008.

22. From at least 2004 through 2009, We1ls Fargo applied its pricingpoJicies on a nationwide

basis, alfuough it issued state..specific rate sheets to comply wifu VariotlS state requirements.

Pl'oduct Placement

23. Between 2004 and 2008, Wells Fargo placed approximately 2,350 African-American and

1,650 Hispanic wholesale borrowers, as well as additional retail borrowers, into Bubpl'irne loans

evenfuough white borrowers who had similar credit qualifications were placed into prime loans.

As a result ofbeing placed in a subprime loan, an African-American 01' Hispanic borrower paid,

on average, tens ofthousands of dollars more for a Wells Fargo loan, and was subject to possible

pre-payment penalties, increased risk of credit problems, default, and foreclosure, and the

emotioilal distress lhat aCGOmpanies such economic str~s. It was Wells Fargo's business

practice to allow its HMCs and mortgage brokers tD place an applicant in a subprime loan even

when the applicant qualified for a prime loan according to Wells Fargo's underwriting

I

guidelines. Wells Fargo also gave its HMC's and mOltgage brokers originating Wells Fargo

I

loans discretion to request and grant exceptiollS to underwriting guidelines. These policies and

practices resulted in fue placement of African-American and Hispanic borrowers into subprime

loans, when similarly-sit1Jated white borrowers were placed into prime loans, both on a

I

nationwide basis and in dozens of geographic markets across lhe country where Wells Fargo

I

. -1- - - - - oliginate1l-a large voIUllI<'n>floans.---­

- - - - - ._------­

24. Wells Fargo's product placement monitoring efforts, while inadequate to remedy

discriminatory praotices against African-American alld Hispanic borrowers lhrough 2008, were

sufficient

to.put

it

on

notice

of

widespread

product .

placement

disparities

based

on

face

and

9

Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 12 of 39
national origin. Even when Wells Fro'go had reason to lmow there were disparities based on race and national origin, however, Wells Fro'go did not act to determine the full scope ofthese product placement disparities, nor did it take prompt and effective action to eliminate those disproities. As described in further detail below, at all times relevant to this action, Wells Fargo had in place a system, called the "A.Paper Filter" or the "Enhanoed Care Filter," whose stated purpose was ensuring that all prime-eligible borrowers were referred to the Bailie's prime division. The A· Paper Filter was highly susceptihle to manipulation because individual subprime loan originators were responsible for entering a borrower's information into the Filter. Further, intemal Wells Fargo doouments indicate that senior Wells Fargo offioers were aware that the Broik's compensation structure incentivized loan originators to manipulate the data they entered into the A·Paper Filter in order to keep prime-eligible borrowers within the subprime division. Since at least 2005, senior Wells Fargo officers were aware that this manipulation was in fact oocurring on a systematic basis, but failed to take appropriate corrective action. 25. From at least 2004 to 2008, Wens Fargo published underwriting guidelines that purported to establish the objeotive criteria rol applicant had to meet in order to qnalify for a particulro' type of loan produot. These underwriting guidelines were available to Wells Fa:l"go's unde1"writers, as well as its loan originators who had entered into contracts with Wells Fargo to enable them to select loan.products for uldividual bon'owers with differing credit-related characteristics. These underwriting guidelines were intended to be used, for exronple, to determine whether a loan
- - - - c - - - ----- ..
applicant qualified for a primQloan produot, a referral from th~ prime division to the subprime 
 division, a subprime loan product, or for no Wells Fargo loan product at all. 
 26, Loan terms and conditions, including prices, generally are most favorable for a bon-ower 
 with a prime loan product, and least favorable for a bon-ower with a snbprime loan product, 

10
. I

Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 13 of 39
which often included terms such as initial short-term teaser interest rates that suddenly rise to produce substantially increased and potentially unaffordable paymants after iwo to tlnee yeal's, as well as substantial pre-payment penalties. 27. 111 mortgage lending commission structUl'es, loan officers typically receive commissions in terms of"basis points," with one basis point being equivalent to 0.01 % ofthe loan amount. From 2004 to 2005, Wells Fargo's subprime HMCs earned between 95 and 180 basis points, depending on loan amount and monthly origination volume, for originating a subprime loa.n. From 2006 to 2007, subprime HMCs eamed between 75 and 175 basis points, depending on loan amo'tmt and monthly origination volume, for originating a subprin1e loan. From 2004 to 2007, a
to subprime HMC earned only 50 basis points for referring a prime-eligible borrower the prime
division. Accordingly, a subprime HMC lost beiween25 and 130 basis points for referring a prime-eligible borrower to the prime division rather than originating the loan as subprime. This policy andpraotioe oreated a fmancial incentive for HMCs to originate loans as subprime rather thun prune, even when the applicant conld have qualified for a prime loan. 28. Wells Fargo's oap on the amoUllt of total compensation that a mortgage broker could receive on an individual loan also varied, in part, based on whether the loan was a slIbprime produot 01' a prime produot. From 2004 through 2007, total broker oompensation for prime loans . was capped at 4.5% of the loan amount. However, total broker compensation for subprime loans was capped at 5% of the total loan amount, giving brokers a financial incentive to originate a
$300,000 loan could make $1,500 more by originating the loan as subprime rather than prime. 29. Wells Fargo's compensation struclUl'e provided a strong incentive for HMCs and wholesale mortgage brokers to originate a loan as subprime, even if the borrower could qualify
11. 


Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 14 of 39
for a more favorable prime loan. TIlls compensation structure, comb'ined with the substantial discretion that subprilUe loan originators had to qualify prime-eligible borrowers for subprime loans, resulted in disorimination on the.basis of race and national origin against AfricanAmerican and Hispanic borrowers. 30, For each residential loan that Wells Fargo's RMCs and mOltgage brokers originated from. at least 2004 to 2008, information about each borrower's race and national origin w8slmown by 01' available to Wells Fargo. 31. Wells Fargo's A·Paper Filter was intended to ensure that all prime-eligible borrowers were referred to the Bank's prime division, but the Filter was highly susceptible to manipulation, Until late 2004, the A"Paper Filter was a manual, handwritten checldist that underwriters were required t.o apply to every loan originally underwritten in the subprime division, Wells Fargo switched to an automated computerized filter for approximately 15 months, and then returned to the manual checklist furmat in January 2006, 32, SubprilUe loan originators had the ability to enter incorrect information into the A-Paper Filter to prevent a 'borrower from being identified as prime-eligible, thereby ensuring that the loan would remain in the subprime division, The incorrect information il1cluded, but was not limited·to: (I) stating a reduced income in order to malee a borrower's debt-to-iilcorne l'atio (''DTI'') appeal' higher than it actually was;' (2) omitting assets to create the appearance that a borrower had no reserves; and (3) misstating the borrower's length ofemployment. The A-Paper Filter was not capable of identifying situations wherein infol1l1ation was entered into the Filter incorrectly for purposes of ensm'ing that a loan could remain 'in the subprime channel. 33. Subplime loan originators could also simply state that a borrower was llmible to provide income documentation when a borrower had pl"Ovided, or would have been able to provide, slIch
12 


Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 15 of 39

documentation; reduced dooumentationloans were not reqtlired to go through the A-Paper Filter

process at all.

34. Subprime loan originators were not pl'Ohibited ft'om encouraging prime-eligible

,i

borrowers to Wee steps that would disqualify them fl:om receiving prime loans, including, but not

I

. ,i

limited to: (1) encoul'aging b011'0wers to forego pmviding income and/or asset documentation;

and (2) encouraging bon'owers to take out additional cash or forego making a down payment,

thereby il1creasing the bOl1'ower's loan-lo-vahle ratio ("LTV"). hltel'11al Wells Fargo documents

indicate that Wells Fargo senior managers were aware that loan origil1atol's were encouraging

borrowers to take these and other steps adverse to bon'owers' interests on a systematic basis, As

a result, the A-Paper Filter was not able to identify situations wherein prime-eligible borrowers

were encouraged by loan originators to talee steps iliat would disqualify them from receivi11g

prime 108l1S.

35. Even with these limitations, the interl1al Wells Fargo audits ofthe A·Paper Filter

identified multiple problems. These audits indicated that data inputted into the Filter was often

inoonsistent with the infol1'11ation contained in the loan files, and that many loans were originated

as subprime although no subprime qualifiers existed in the loan files, The documents also

indicated that Wells Fargo had marginal contmls in place to meet the requirements of the A-

Paper Filter policy.

36, In late 2004, when the A-Paper Filter was chang~ from a manual checldist to an
automated system, audiheports SlIow a signfficantclecline Ul fUe errorrate-:-ltfter me automatea­ system was implemented, the new audit system simply checked to ensure that there was a

s1.lbprime qualifier present in the file, without regard to whether that subprime qualifier was

accurate. Many times, the "subprime qualifier" was "stated. income" or "borrower choice."

13

Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 16 of 39

37. For each st)bprime loan that had a pre-payment penalty, an interest-only featnre, or

reduced docUmentation, Wells Fargo required borrowers to sign a disclofnlre form, called the

"Product/Featnre Selection Disolosure." This form purported to explain how these featnres

impacted the bOliower's fll1ancing and to explain that the borrower was reoeiving a Bubprime

loan, and required the borrower to confirm 1hat a Wells Fargo loan odginator had discussed all

available Wells Fargo home mortgage options Witll the bOliowar.

38. This disclosure form W!\8llot effective in preventing loan originators from steering

bOliowers to the subpdme division. Wells Fargo subpl'hne loan originators often failed to

discuss all available loan options with borrowers before having them sign the disclosure form.

Further, Wells Fargo subprhue loan originators were not relJ.uh·ed to inform prime-eligible

customers who received a subprin1e loan tllat they did in fact qualify for a more favorable loan.

Rather, Wells Fargo required all subprlme borrowers to sign the ProductIFeatnre Selection

Disclosure, without specifio knowledge as to whether they were in fact ptime:eligible.

39. Statistical analyses of loan data for prime and subpl'ime wholesale loans originated by

Wells Fargo for the time pedod of 2004 to 2008 demonstrate that, measured 011 a natiollwide

basis, the odds that an African-American borrower who obtained a wholesale loan from Wells

Fargo would receive a subprime loan rather than a prime loan were approxin1ately 8.3 tin1es as

high as the odds for a white bon·ower. For the same time period, the odds that an African­

American borrower who obtained a retail loan from Wells Fargo would receive a subprhue loan

-

-

rather than a prime loan were approxin1ately 5.6 tin100 as high as the odds for a white borrower.

14 


Case 1:12-cv-01150 Document 1 Filed 07112112 Page 17 of 39
This demonstrates a pattern of statistically significant4 differences between African-American and white borrowers with respect to their product placement by Wells Fargo. These statistically significant disparities existed innumerous geographic markets across the nation as well. 40. Statistical analyses ofloan data foJ' prime and subprime wholesale loans originated by ________ Wells Fargo for the time periodof2004 to 2008 demonstrate tha~_rneasured on~ll~tioIlwide basis, the odds that a Hispruric borrower who obtained a wholesale loan from Wells Fargo would receive a subprhne IOrul !'ather thrul a prime loan were approximately 1.7 times as high as the odds fo1' a white bOlTower. For the srune tinle period, the odds that a Hispruric borrower who . obtained a retailloall from Wells Fargo would receive a subprime 10all1'ather than a prime loan were appl'Oximately 2.4 times as high as the odds for a white b01TOWel'. This demonstrates a pattern of statistically signifioallt differenoes between Hisprurlc and white borrowers with respect to their produot placement by Wells Fargo. These statistically significant dispalities existed in numerous geograplrio merkets across the nation as well. 41. After controlling for major risk-based factors relevant to determining IOrul product placement, including credit history, LTV, and DTI, Africrnl-American and Hisprurlc borrowers remained more likely to receive subpl'ime loans u'om 2004 to 2008 than similarly-situated whites. These disparities are statistically siglrifica:ht. 42. For the combined time period'of 2004 to 2008, nationwide, the odds that all AfricanAmerican borrower who obtained a wholesale loan from Wells Fargo would receive a subprime
----------
loan rather than a prime loan were approximately 2.9 tinles as high as the odds for a similarly­
4 Statistical significrulce is a measure ofprobability that all observed outcome would not have occurred by ohance. As used in this Complaint, rul outcome is statistically sigoificallt if the probability that it C01Jld have oCCl)1'red by chanoe is less than 5%.
15

Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 18 of 39
situated white bort()wer, after accounting for the slime factors. For the same time period, the. odds that an A:Il:ican-American borrower who obtained a retail loan from Wells Fargo would receive a subprime loan mther than a prime loan were approximately 2.0 times as high as the odds for a similarly-situated white borrower, after accoU11ting for the same factors. These odds ratios demonstrate a pattern of statistically significant differences between African-American and white borrowers with respect to their product placement by Wells Fargo, even after accounting for objective credit qualificatiol1B. 43. For the combined time period of 2004 to 2008, nationwide, 111e odds that a Hispa:l1ic borl'o'!'ler who obtained a wholesale loan from Wells Fargo would receive a subprime loan instead of a prime loan were approximately 1.8 times as high as the odds for a sin1ilarly-situated white borrower, after accounting for the same factors. For the same time period, the odds that a Hispanic borrower would receive a subpritue retail loan rather than a~prime rotailloan were approximately 1.3 times as high as the odds for a similarly-situated white borrower, after accounting for the same factors. These odds ratios delflonstrate II pattern of statistically significant differences between Hispanic and white bOlTowers with respect to their product placement by Wells Fargo, even after aCcoU11ting for objective credit qualifications. 44. These statistically significant disparities also existed. in numerous geographic markets across the nation. 5 In 2004, Afric!Ul-American wholesale borrowers had statistically signifioant odds ratio disparities in approximately 68% (17 of25) of high loan-volume markets, defined. for
pllrposes oHhis paragraph as fuose MSAi and non-MBA areas in each state where Wells Fargo
5 The inclusion furoughout this Complaint of statistical analyses fo(' high-volume markets is intended only to provide examples ofWells Fargo's violation of lending discrimination laws. The United States' allegations fuat Wells Fargo violated lending discrimination laws are not limited to these high-volume markets.
16 


Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 19 of 39

made at least 300 total wholesale 10811S during the year, including at least 30 subprime loans to

both white and African-American wholesale borrowers, Statistically significant odds ratio

disparities disfa,,"oring African-American borrowers ~ccurred in approximately 60% (18 000)

of these markets in 2005; appl'oximately 77% (23 of30) oftllese markets in 2006; and

approximately 88% (7 of 8) ofthese markets in 2007, Fot the combined time period of2004 to

-- - --------

-

---~-

-- ---------- ------

2007, in the high-volume markets with statistically significant odds ratio disparities, the odds of

an African-American borrower receiving a subprime wholesale loan in a given year were up to

8,3 times as high as tl1e odds for a similrn:ly-sitllated white borrower, There were no markets

with statistically significant dispal'ities favoring African-Americm wholesale borrowers over

shnilarly-situated white bon'owers, These results, when aggregated, indioate that nearly 2,350

Africm-American borrowers in th~ high 10m-volume markets from 2004 to 2007 received

subpl'ime, rather than ptime, wholesale loans from WeJls Fargo because of their race, 110t

because of their objective oredit characteristics,

45, In 2004, Hispanic wholesale borrowers had statistically significant odds ratio disparities

ill approximately 38% (6 of 16) ofhigh 10m-volume markets, defined for pm-poses of this

paragraph as those MSAs and non-MSA areas in each state where Wells Fargo made at least 300

total wholesale loans during the year, inch,ldffig at least 30 subprime loms to both white mil.

Hispanic whol(lqale borrowers. Statistically significant odds ratio disparities disfavol'ing

HispaniC bOlTowers occurred in approximately 67% (12 of 18) of these markets in 2005;

---------

- - ; - - -:-~-::- ---:---c------:-----c--:c-~c--~----

aPPfoximately 71 % (10 of 14) of these markets i112006; and approximately 67% (4 of 6) of these

markets in 2007, For the combined tiI)1c period of 2004 to 2007, in the high-volume markets

with statistically significant odds ratio disparities, the odds of a Hispanic borrower receiving a

subpl'ime wholesale loan ill a given year were up to 6.1 times as high as the odds fOf a similarly­ 17 


Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 20 of 39

situated white bon'ower. From 2004 to 2007, only one market had statistically significant

disparities favoring Hispanio wholesale borroweis over similarly-situated white b011'0wers.

These results, when aggregated, indioate that nearly 1,650 Hispanic borrowers in the high loan-

volume markets from 2004 to 2007 received subpl'ime, rather than prime, wholesale loans from

Wells Fargo because of theh' national ol'igin, not because of their objective oredit characteristics.

---

-

46. 'TIlese odds ratio disparities mean, for example, that for the combined time period of 2004

to 2007, Wells Fargo plaoed (Ipproximately 320 Afi:!can-American and Hispanio wholesale

borrowers ill the Los Angeles MSA into subprhne loans even though white borrowers in Los

Angeles with shnilar credit risk characteristics received prime loans. For the same time period,

Wells Fargo placed approximately 335 African-American and Hispanic wholesale borrowers in

the Washington, DC MSA into subprime loans even though white borrowers in Washington, DC

with similar oredit dsk oharaotedstics received prime loans. Similarly, for the same time period,

Wells Fargo plaoed approximately 435 Mrican-American and Hispanic.wholesale borrowers in

the Chicago MSA: into subprinle loans even though white b011'0wers in Chicago with sitnilar

oredit charaoteristics received prinle loans.

47. In addition to higher direct economic costs, the victims of discrimination suffen'<i 


additional consequential econOinic damages resulting nom having a subprime loan rather than a 


prime loan, including possible pre-payment penalties, increased risk of credit problems, default, 


and foreclos1l1'e, and other damages, including emotional distress. 


'IE. - TheoisparatepJacement ofDotliAfrican-Ainericah andHispanic bon'owers wliom Wells. 


Fargo determined had the credit characteristics to qualify for a home m01tgage loan into 


.subprinle loan products, when compared to similarly-situated white b011'0wers, resulted :6:om the 


itnplementation and interaction ofWeUs Fargo's policies and practices that: (a) permitted Wells 


18 


Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 21 of 39
Fargo subprime loan oliginators to place an applicant in a subp11me loan product even if the applicant c011ld qualifY for a prime loan ptoduct; (b) provided a financial incentive to Wells Fargo subprime loan otiginators to place loan applicants in subprime loan produots; (c) did not require Wells Fargo subprime loan originators to justifY or document the reasons for placiilg an applicant in a subprime loallproduct even Ifthe applicant could qualify for a prime loan product; (d) did llotrequire Wells Fargo subprime loan originators to notifY subpdme loan applicants when they did in fact qualify for a more favorable loan prodtlct; and (e) fl!iled to monitor these discretionary practices to ensure that bon'owers were being placed in loan products on a 11011discrimlnatol'Y basis. Wells Fargo continued to use these prodnct placement, compensation, and discretionary underwriting policies until it exited the subprlme lending business in 2008. 49. Wells Fargo's policies or practices identified in Paragraphs 23-38 were not justified by business necessity or legitimate business interests. There were less discl'lminatory alternatives available to Wells Fargo that would have achieved the same business goals as these policies and practices. 50. As eEIXly as 2005, Wells Fargo's senior officers had knowledge that its lending policies al1d practices identified in Paragraphs 23-38 resulted in the placement of prime-qualified minority applicants in subprime rather than prime loan products and that its A-Paper Filter was ineffective. For example, an internal Wells Fargo document from 2005sont from a Wells Fargo Vice President of Retail Underwriting, National Programs to anumber ofsenior and executive vice presidents revealed concerns about A-Papel' Flltermanipulation and listed various tactics that suhprim6 originators routinely employed to keep loans in the subprime division, rather than send them to the prinle channel. Another internal Wells Fargo document from 2005 concluded that loans were being originated as subprinle, even though the borrowers had prinle
19 


Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 22 of 39
,
characteristics. Nonetheless, Wells Fargo continued to implement those policies and practices and did not take effective action to change the discriminatory policies or practices to eliminate their discriminatory impact, No!' did it act to identify or compensate ll1e individual bOI'rowers who were victims of its discriminatory product placement p~licies or practices,
Wholesale Mortgage Brol,el' Fees 51. Betwecn2004 ElI\d 2008, Wells Fargo charged more than 12,850 African-American wholesale borrowers higher fees and costs than white borrowers, not based on their creditworthiness 01' other objective criteria related to borrower risk, but because oftheir race. Similarly, between 2004 and 2008, Wells Fargo charged more than 17,150 Hispanic wholesale borrowers higher fees and costs than willte borrowers, not based on their creditworthiness or
other objective criteria related to borrower risk, but because of their national origin. It was Wells Fargo's business practice to allow its mortgage brokers who generated loan applications through its wholesale channel to vary a loan's interest rate and other fees from the price set based on a borrower's objective credit-related factors. This uaguided and subjective pricing discretion resulted in African-American and Hispanic borrowers paying more than white borrowers with similar credit characteristics both on a nationwide basis and in dozens of individual geographio markets acmES the couatry where Wells Fargo originated a large volume of loans. As a result of Wells Fargo's discriminatory praotioes, an African-American or Hispanic borrower paid on average hundreds of dollars more for a Wells Fargo wholesale loan.
~ - - - --~~- - - - - - - -.-----c-c-­
52. Wells Fargo's wholesale pricing monitoring efforts, while inadequate to remedy discriminatory practioes against African-Amerioan and Hispanic borrowers through 2008, were sufficient to put it on notioe of widespread pricing disparities based on race and national origin. Even when Wells Fargo had reason to know there were disparities, however, Wells Fargo did not
20 


Case 1:12-cv-01150 Document 1 Filed 07112/12 Page 23 Qf 39

act to detel1nine the fullsccpe ofthese wholesale pricing disparities, nor did'it t~e prompt alld

effective action to elhninate those disparities. Between at least 2004 aod 2008, Wells Fargo had

a policy or practice ofperiodically monitoring in a limited manner the pricing of wholesale home

mortgage loans for discrimination based Oil race or national origin at the geographio market level

aod for some individual brokers. However, Wells Fargo's monitoring for racialalld !la-tional

---

-

-

-

-~---------

origin disparities in its wholesale loaos was inadequate. Although Wells Fargo's wholesale

pricing monitoring efforts were inadequate, they were sufficie!lt to put it on notice ofwidespread

prioing disparities based all raoe aod national origin. Wells Fargo did not act to determine the

full scope of these wholesale pricing disparities, nor did it take prompt aod effective acticn to

eliminate those disparities.

53. From at least 2004 to 2008, Wells Fargo oliginated aod' funded residentialloaos of all

types through its Wholesale Lending Division ("WLD"). Applications for these loans were

brought to Wells Fargo by mortgage brokers thl'Oughout the United States who entered into

contracts with Wells Fal'go for the pm'Pose ofbringing loan applications to it for origination aod

funding;

54. Wells Fargo required prospective brokers to submit a docmnent entitled "Intent to Act as

a Broker" aod to enter into a Broke!' Origination Agreeilleilt ill order to b" approved as a Wells

Fargo broker. According to Wells Fargo, the process ofobtaining and m!1intaining approved

broker status involved its careful analysis of the broker'S financial cOlldition; experience level;

operational scope and operational methodology; and thorough consideration of the broker's,

organization, staff, orgallization pdncipals, licensing, agency standing, and regtllatory approvals

based upon documents and infor1l1atioll provided by the broker.

21 


Case 1:12-cv-01150 Document 1 Filed 07/12112 Page 24 of 39
I
55, Wells Fargo's brokers were required to adhere to the provisions set forth in its Wholesale Lending Broker Oligination Guide, and Wells Fargo's contracts with brokers required representations and warranties that they would oomply with applicable federal, state, and local laws and l'egulations, including fail' lending requirements, Wells Fargo required its brokers to
attest that all mortgage loans submitted conformed to the Bank's applicable requirements and to
all of the guidelines for a particnlar loan program, 56, Wells Fargo, authorized brokers to inform prospective borrowers ofthe terms and conditions under which a Wells Fargo residential loan product was available, Wells Fargo did not requite the mottgage brokers to inform a prospective borrower of all available loan products for which he or she qualified, of the lowest interest rates and fees for a specific loan product, 01' of specific loan products best designed to serve the irlterests expressed by the applicant, Upon receipt of a completed loan application from a broker, Wells Pargo evaluated the proposed loan using its underwriting gLl!delhles and determined whether to originate and fund the loan, 57, Wells Fargo was directly and extensively involved irl setting the complete, final terms and conditions of wholesale loan applications generated by mortgage brokers that Wells Fargo approved and originated, At the lime of oliginating each loan, Wells Fargo was fully informed ofthe loan terms and conditions, irlcluding the fees it passed along to brokers, and it irlcorporated those terms and conditions into the wholesale loans it originated,
I----sc.-:58, From at least 2004 through 2009, Wells Fargo's policies and practices established a twotepprooess-forth", priclllg of wholesafe loans that it originated, The first step was to e,qtablish a base 01' par rate for a particulfU' type ofloan for fUl applicant with specified credit risk charactelistics, In this 'step, Wells Fargo accoul1ted for numerous objective credit-related charactel'istics of applicants by setting a variety ofplices for each of the different loan products 22

Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 25 of 39
that reflected its assesSlnent of individual applicallt creditworthiness, as well as the current market I'ate of interest alld price it could obtain for the sale of such a loan from investors. 59. From at least 2004 to 2009, Wells Fargo set tenns and conditions, including interest !'ates, for its various home nlol'tgage loan products available through its wholesale loan channel. Wells
each of the different loan products it offered that reflected applicallt creditworthiness. It communicated these loan produot prices to its brokers through rate sheets. Wells Fargo made prime rate sheets available to brokers on a daily basis via email or the "Brokers First" website that COlUlUlll1icated the effective date, time, and product pricing that was released with a specific price challge. The rate sheets also established prioe caps that limited the level of broker compellSation. According to Wells Fargo's Wholesale Pricing Policy, price challges were initiated by Wells Fargo's Capital Markets Group as a reS11!t of rate movements 01' bytbe Wholesale Pricing Gl'OUP to adjust profit expectations or alter competitive position. Wells Fargo distributed its Traditional Nonprinle rate sheets Ollce a week. 60. Wells Fargo's second step of pricing wholesale loans permitted mortgage brokers to exercise subjective, unguided discretion in setting the amount ofbroker fees charged to individual borrowers, unrelated to all applicallt's credit risk charactel1stics. Mortgage brokers who supplied Wells Fargo witilloall application~ that Wells Fargo funded were compensated in two.ways. One was through a yield spr.ead premimn ("YSP"), all amoUltt paid by Wells Fargo to the brokers based on the extent to which the interest rate charged on a loan exceeded the base or par tate for that loan to a borl'Ower with particular credit risk characteristics fixed by Wells Fargo . and listed on its rate sheets. The YSP is derived from the present dollar value of tlte difference between the credit risk-determined par interest rate a wholesale lender such as Wells Fargo
23 


Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 26 of 39

would have aooepted on a particular loan and the interest rate a mortgage broker aotually

obtained for Wells Fargo. Wells Fargo benefitted financially from-the (oans it made at interest

rates above the par rates set by its l'ate sheets. For those loans that it sold 01' securitized, higher

interest rates meant sales at prices higher than it ofuerwise would have obtained; for loans it

retained, higher interest rates meant more interest income over time. The secon9 way brokers

---- --

-

,

--

- --------­

were compensated was through direct fees and origination fees oharged to the bOlTower. Wells

Fargo directed its closing agents to pay direct fees to brokers out ofborrowers' funds at the loan

closing. Taken together, these two forms of compensation are referred to in this Complaint as

"total broker fees."

61. Wells Fargo had written policies placing a ceiling on total broker fees. From 2004

. through 2009, the maxinnun total broker fee that a broker could earn from originating a prime

Wells Fargo loan was 4.5% oftile total loan amount. From 2004 through 2007, the maximum

total broker fee that a broker could <Jam from originating a subprime Wells Fargo loan was 5.0%

ofthe total loan amount. Wells Fargo stopped originating subprime loans from its wholesale

chatmel in July 2007. Wells Fargo also permitted pricing exceptions for reasons wholly'

tun"elated to creditworthiness, such as customer service issues or competitive reasons, and
required approval based on the amount of the exception UM" exceptions over $2,000 required

Vice President approval).

62. According to Wells Fargo's stated policy, screening for broker compensation oaps was
.._ - - - - ­
automated within the origination system to prevent users from generating closing documents if

broker compensation exoeeded the caps. Wells Fargo maintained this pricing policy tbrough at

least April 2009"

24 


Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 27 of 39
63, Other than these caps, Wells Fargo did not establish any objective criteria, or provide guidelines, instructions, or procedures to be followed by brokers (a) in setting the amount of direct fees they should chaJ:ge or (b) in determining to charge all interest rate for a loan above that set by its rate sheet, which in turn determined the amount ofYSP that Wells Fargo would _______ pay the broke!', MOltgage brokers exercised this p1ioinEdisCl·etionthatW()llsFJU~Q_gll."-,,the:m, untethered to any objective credit characteristics, on every loan they brought to Wells Fargo for orighiation and funding. Wells Fargo af£hmed or ratified these discretionary pricing decisions for all the brokered loaM it originated and funded. 64, From 2004 to 2009, Wells Fargo was fully informed of all broker fees to be charged with respect to each individual residentialloml application presented to it. Wells Fargo also required brokers to disclose to the bOlTower all compensation and all other fees expected to be received by the broker in cOIUlectiqn with the mortgage loan, Wells Fargo required brokers to disclose their fees on the Good Faith Estimate, the HUD-l, and other disclosures as applicable, Total broker fees raised the annual percentage rate charged on a loan, and could increase the note interest rate and the total 8ll10tUlt borrowed. 65, For each residential loan application obtained by mortgage brokers and. subsequently funded by Wells Fargo, information about each borrower's race and national origin and the amount and types ofbroker fees paid was available to and was known by Wells Fargo. Wells Fargo was required to collect, maintain, and repolt data with respect to certain loan terms mId
1---- ---­
borrower infonnaiion for residential loans, including the race and natiollal origin of each wholesale residentialloml bOlTower, pursuant to HMDA. 12 U.S,C,§ 2803, 66. Statistical analyses ofdata kept by Wells Fargo on its wholesale loaM between 2004 and 2008 demonstrate statistically signifioant discriminatory pricing disparities in both plime and
25 


Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 28 of 39

I
I

subprime loans based on both race (Afi:icllll-Amedcan) and national origin (Hispanio). These

I

disparities existed both at the national level and innumerous geographic markets across the

country.

67. Measured on a nationwide basis in each year between 2004 and 2008, Wells Fargo
____ charged A:fci~,-American borro",el's wh()m Vielill Fargo determined hadthe <;r~it_

characteristics to qualify for ahome mortgage loan morc in total broker fees for prime wholesale

loans than white borrowers. The alUmal total broker fee cllsparities ranged up to 78 basis points,

and they are statistically significant.

68. Measured on a nationwide basis in each year between 2004 and 2008, Wells Fargo

charged Hispanic borrowers whom Wells Fargo determined bad tile credit characteristics to

qualify for a home mortgage loan more in total broker fees for prime wholesale loans than white

borrowers. The annual total broker fee disparities ranged up to 55 basis points, and-fuey are

statistically significant.

69. Measured on a nationwide basis in each year between 2004 and 2007, Wells Fargo

charged African-American bon'owers whom Wells Fargo determined had the credit

characteristics to qualify for a home mortgage loan more in total broker fees for subprime

wholesale 10a11s than white borrowers. The annual total broker ree cllsparities ranged up to 53 basis points, and they are statistically significant.6

70. In approximately 86% ofits high plime loan-volume markets in 2004 (18 of21), defined

Fargo made more tilan 300 total prime wholesale loans, 30 01' more sl1ch,loans to Afrlcan­
6 Due to major changes in the housing market, Wells Fargo ceased S'llbprime wholesale lending ill July 2007. '
26

Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 29 of 39
American borrowers, and 30 or more such loans to white b011'owers in a given year, Wells Fargo chm'ged Aftican-Americml borrowers more ixi total broker fees not based on borrower risk for wholesale prime loans than white borrowers by a statistically significmlt anlOllllt, In 2005, approximately 79% of such markets (19 of 24); in 2006, approximately 88% of such markets (22 ____ _of 25); in 2007, approximately 84% of such lllark~ls (21 of25); andin2llli8, 1OO'l'ILQ[m,lCh markets (19 of 19) 'showed statistically significant total broker fee disparities disfavoring African-American prime wholesale borrowers, The disparities in total broker fees not based on borrower risk resulted in African-Americml borrowers in these markets paying up to 122 basis points more than white borrowers for prime wholesale loans in a given year, In all five years, there were 110 high 10ml~volume markets in which Wells Fargo charged white borrowers statistically significantly higher total broker fees for prime wholesale loans than AfricanAmerican borrowers in a given yem.. These results, when aggregated, indicate that Wells Fargo charged more thml 7,660 individually identifiable A:fi:icml-Americall borrowers in the high loan­ vohl111e markets from 2004 to 2008 higher prices ofvmying anlounts than white borrowers for their prime wholesale loans, not based on their creditworthiness or ofuer objectiv~ criteria related to borrower risk, but because of their race, 71. In approximately 89% ofits high prime loan-volume markets in 2004 (31 of35), defined for plnJloses of this paragraph as fuose MSAs and non-MSA areas ill each state where Wells Fargo made more thml 300 total prime wholesale loans, 30 01' more such loans to Hispanic borrowers, and 30 or more such loans to white bOl'rowers in a given year, Wells Fargo charged Hispanio borrowers more in total broker fees not based 011 borrower risk for wholesale prime loans thall white borrowers by a statistically significant anloun!. In 2005, approximately 71% of such markets (25 of35); in 2006, approximately 80% of such markets (28 of35); in 2007,
27

Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 30 of 39

approximately 89% of such markets (33 of 37); and in 2008, approximately 92% of such markets

(22 of 24) showed statistioally significant total broker fee dispadties disfavodng Hispanio prime

wholesale borrowers, nle disparities in total broker fees not based on borrower risk resulted in

Hispanic bOlTOwers in these markets paying up to 99 basis points more than white borrowers for

__~_~ _ prim~wl101esale loans ill a given ),ear.jJ1 all five_y~ars, there ",-ere'l1~higllloal1-volu~e'l11arkets

ill which Wells FIll'go charged white borrowers statistically significantly higher total broker fees

fot' prime wholesale loans than Hispanic borrowers in a given year. These results, when

aggregated, indicate that Wells Fargo charged more than 17,150 individually identifiable

Hispanio borrowers in the high loan-volume markets from 2004 to 2008 higher prices of vlll'ying

amounts than white bon'owers for their prime wholesale loans, not based on their

creditworthiness or other objective criteria related to borrower risk, but because of their national

odgin,

72. In approximately 91 % of its hi&h subprime-Ioan-volume markets in 2004 (10 of 11),

defined for purposes ofthis paragraph as those MSAs Illld non-MSA areas in each state whoce

Wells Fargo made more than 300 total subplime wholesale loans, 30 or more such loans to

Afiioan-American borrowers, and 30 or more such loans to white borrowers in a given year,

Wells Fargo charged African-American borrowers more in total broker fees not based on

borrower risk for wholesale subprime loans than white borrowers by a statistically significant

-----l

.amount. In 2005, approximately 88% of such markets (14 of 16); and in 2006, approximately 85% of such markets (11 of 13) showed statistically significant total broker fee disparities

disfavoring African-American sllbprime wholesale borrowers. The dispruities h1 total broker

fees not based on bon'ower risk resulted in African-American borrowers in these markets paying

up to an average of 83 basis points more than white bon'owers f~r subprime wholesale loans in a

28 


Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 31 of 39
given year. In all f0111' years, there were no high subprime-Io!lll-Vohllue markets in which Wells Fargo charged white borrowers statistically significantly higher total broker fees for subprhue wholesale loans than African-American borrowers in a given year. These results, when aggregated, indicate that Wells Fargo charged approximately 5,190 hldividually identifiable _c~_c-=_Afrlcan-Ame~1.can borrowers i~the high s1.1bpril11e-loEll1~~oll1me ni,arkets from 200410 2007 higher prices ofva:rying am0111lts than white borrowers for their subpril11e wholesale loans, not based on their creditworthiness or other objective criteria related to borrower risk, but because of .their race. . 73. These disparities ill total broker fees mean, for example, thaf in 2007, Wells Fargo charged the average prime wholesale customer bOliowing $300,000 about $2,064 more ill broker fees not based on borrowerrisk if she were African-American, and all average of about $1,251 if she were Hispallic, than the average am0111lt charged to a white prime wholesale customer. In specific MSAs, these disparities in total broker fees mean that ill 2007 Wells Fargo charged a prime wholesale customer ill the Chicago MSA borrowlllg $300,000 on average abol1t $2,937 more ill broker fees not based on bon'ower risk if she were Afric!U1-American, and an average of about $2,187 more ifshe were I-lispanic, thm the average amount charged to a white prime wholesale customer. Comparable average disparities in 2007 fOl' Afric!Ul-American !Uld Hispanic prime wholesale customers ill the Miami MSA borrowing $300,000 were approximately $3,657 !Uld $2,538 higher, respectively, than the average amo111lt Wells Fargo charged to a white prime wholesale customer in Miami borrowing the same all10111lt. 74. These disparities ill total broker fees also mean, for example, that in 2005, Wells Fargo cha:rged the average subprhue wholesale customer borrowing $300,000 about $1,212 more in broker fees not based 011 borrower risle if she were African-American than the average amDtmt
29 


Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 32 of39

charged to a white subpl'ime wholesale customer. In specific MSAs, these dispruities mean that in

2005, Wells Fargo charged an Afi'ioan-Amedcan subpl'ime wholesale cUlltomer in the Los

Angeles MSA borrowing $300,000 on average abot1t $1,992 more in total broker fees not based

011 borrower risk than the average amot11tt charged to a white stlbpl'ime wholesale cllstomer in LOs

______~llgeles. In 2005, Wells Fargo charged ~A!i'ican-~erican subpl'lme whol~Bale Cllsto~er in the

Houston MSA borrowing $300,000 on average about $1,020 more in total broker fees not based

on borrower risk than the average amount Wells Fargo charged to a white subprime wholesale

customer in Hotlston borrowing the same amount.

. 75. In setting the terms and conditions for its wholesale loans, including interest rates, Wells

Fargo accounted fur individual borrowers' differ.ences in credit risk characteristics by setting the

prices shown on its rate sheets for each loan product for borrowers with specified credit

qualifications. These adjustments based on credit rlsk charaotel'istics were separate from and did

not control for either component of the total broker fees - the interest rate deviations that Wells

Fargo's policy allowed mortgage brokers to make fl'om the par prices, which already fully

I

;

accounted for borrower risk accordhlg to Weils Fargo's own standards, 1101' the amount of

brokers' direct fees that were driven by a borrower's credit risk factors. Accordingly, the race and

national origin total broker fee disparities described in Paragraphs 66,74 are not adjusted for

borrowers' credit risk oharacteristics. Wells Fargo reviewed these broker fees and then authorized

its brokers to charge thern to borrowers in the loans it orighmted and ftmded.

76. The statistically significant race and national origin"based disparities ill broker fees

described in Paragraphs 66·74 for African-Americans and Hispanics resulted from the

implementation and interaction ofWells Fargo's policies and praotices that: (a) lllcluded pricing

terms based on the subjective and t11tg1.1ided discretion of brokers in setting broker fees not based

30 


Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 33 of 39
on bOltoWer risk in the terms and conditions ofloans that Wells Fargo originated after par rates
had been established by reference to credit risk characteristics; (b) created a financiallncentive for
brokers to charge interest rates above the parrates that Wells Fargo had set; (c) did not require mortgage brokers to justify or document the reasons for the amount ofbroker fees 110t based on
__~)orl'Owerrisk; and (d) failed to ad~uately monitor f<J1' and fully l'e_m.'lclyJhe effects ofrll.Cial and
ethmc disparities in those broker fees. Broker fees specifically memltlre the pricing variation caused by the subjective and unguided pricing adjustments not based on borrower risk. Wells Fargo continued to use these discretionary wholesale broker fee pricing policies, to inadequately dooument and review the implementation of that pricing component, and to incentivize upward broker adjustments to the par interest rate at least through the end of 2008. 77. Wells Fargo's policies and practices identified in Paragraphs 51-65 were notjllstified by business necessity or legitimate business interests. There were less discriminatory altematives available to Wells Fargo that would have achieved the same business goals as these policies and practices. 78. Wells Fargo had lmowledge that the unguided and subjective discretion it granted to
mortgage brokers in its wholesale pricing policies and practices was being exercised in amanner
that discriminated against African"American and Hispanic borrowers, but continued to implement its policies and praotices with that knowledge. Wells Fargo did not take effective action to change the broker fee policies and practices to eliminate fully their discrinrinatory impact. Wells Fargo did not act to identify or compensate any individual borrowers who were victims of its discriminatory wholesale pricing policies and practices.
31 


Case 1:12-cv-01150 Document 1 Filed 07/12112 Page 34 of 39

FAm HOUSING ACT AND EQUAL CREDIT OPPORTUNITY ACT VIOLATIONS

79. Wells Fargo's residentiallending-l'elated policies and practices and the policies and

practices it followed ill residential ct'edit transactions as alleged he1'ein constitute:

a. Discrimination on the basis ofrace and national origin in maldng available, or in

the terms or conditions of, residential real estate-related transactions, in violation of the

FHA, 42 U.S.C. § 3605(a);

b. Discrimination on the basis ofrace and national origin in the terms, conditions, or

privileges of sale of a dwelling, in violation of the FHA, 42 U.S.C. § 3604(b); and

c. Disorimination against applicants with respeot to credit transactions, OJ1 the basis

ofrace and national origin, ill violation ofECOA, 15 U.S.C. § 1691(a)(I).

80. Wells Fargo's l'esidentiallendlng-related policies and practices as alleged herein

constitute:

a. A pattern or practice ofresistance to the full enjoyment ofrights secured by the

FHA, as amended, 42 U.S.C. §§ 3601-3619, and ECOA, 15 U.S.C. §§ 1691-1691f; and

b. A denial of rights granted by the FHA, as amended, to a group of persons that

raises an issue of general public importance.

81. Between 2004 and 2009, tens of thousands of persons throughout the nation have been

victims ofWells Fargo's pattern or practice of discrimination and denial ofrights as alleged

herein. They are aggt1eved persons as defined In the FHA, 42 U.S.C. § 3602(1), and aggrieved

~~~

- - - - - - - - ~--------

applicants as defmed ill ECOA, 16 U.S.C. § 1691e, and have suffered damages as a result of

.Wells Fargo's conduct. Attachment A depicts the states where these aggrieved persons

described in Paragraphs 44-45 and 70-72 were located when the discrimination occurred.

32 


Case 1:12-cv-01150 Document 1 Filed 07/12112 Page 35 of 39

82. Wells Pargo's policies and practices, as described herein, had tile purpose and tile effect of discriminating on tile basis ofraoe 01' national origin. These policies and practices were intentional, willful,' or implemented wifu recldess disregard for tile rights ofA:frican-Amerioan and Hispanic borrowers.
R!l)LmF REOm:STED .WHEREFORE, tile Urrited States prays fuat fue Collrt enter an ORDER that:

(1) Declares fuat Wells Fal'go's challenged lending policies and practices constitute

I,.

violations ofthe Fair Housing Act, 42 U.S.C. §§ 3601·3619, and the Equal Credit Opporttlrrity

,I

Act, 15 U.S.C. §§ 1691-1691f;

(2) Enjoins Wells Fargo, its agents, employees, alld successors, and all other persons

in active concert or participation with the Ba:l11c, from:

(a) Dismiminating on fue basis ofrace and national Ol'ighl against any person

in any aspeot of its lending business practices;

(b) Discriminating on fua basis ofrace and national origin in the terms,

conditions, or,privileges of the provision of services in connection wifu fue sale of

dwellings;

I

(c) Discriminating on fue basis ofrace and national origin against any persall

I'

wifu respect to allY aspect of a credit transactioll;

i _ ___ ._______(at. Failing or refusiJ:!.g to take sllch affirmative steps as may be necessary t_o__

I

I

restore, as nea1'ly as practicable, the victims of Wells Fal'go's unlawful conduct to

the position fuey wO\\ld have been in but for fue discriminatory conduct; and

33 


Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 36 of 39

(e) Failing ol'refllsing to take such actions as may be necessary to prevent lhe

recul'renee ofany sl.1ch discl'iminatory conduct In the future and to elIminate, to

the extent prnctiooole, the effeots of Wells Fargo's unlawful practices.

(3) Awards monetary damllges, inoluding ptmitiw damages, to all viotinls ofWells

Fal'go'sdisoriminatol'Y polioies andpraotioesfol'theinjl11iesofltwed-by lhe Bank,lll.1rsuant to 42- .

U.S.C. § 3614(d)(I)(B) aild 15 U.S.C. § 1691e(h);

(4) Requi'l'es payment ofpnrjudgment interest on monetat'Y dlUUages to all of the

victims of Wells Flttgo's disoriminatory policies and practioes starting from the date that the

disc1'lmlnation O(l(lU;tl'ed; and

(5) Assesses a clvil penalty against Wells Fargo in an alllount authorized by 42

U.S.C, § 3614(d)(I)(C). in ordel'to vindicate the [11.1blio interest.

DEMAND FOll.lURYTRIAL

Plaintiff, United States of America, dematlds 11 tdal by Jury 0)1 all issues so triable in tlns

I,

matter.

I

i'

The United States further prays for suoh additional r~lief as lhe interests ofjustice may

requh'c.
11 \ Dated: ::JiA ;;2, ,2012

Respectfully submitted,

ERIC H. HOLDER, JR. Attorney Genlttal
~~~;~.:~~~ .---- ~~-~C?~ THOMAS E. PEREZ Assistant Atto1'lley General Civil Rights Division

34 


Case 1:12-cv-01150 Document 1 Filed 07/12/12 Page 37 of 39

~I:B:#H9249~2 F

Acting Chief, Civil Division

~
STEVEN H. ROSENBAUM D.C. Bar # 417585 Chier Housing and Civil EnforceUJ.ent Section Civil Rights Division

RM.GU . Bar # 46267 Assistant United States Attorney 555 Foul'ili Street, NW Washington, DC 20530 Phone: (202) 616-1761 Fax: (202) 514·8780 Javier.GumnRn2@usdoj.gov

driVU
BETH PARR HECKER Tria: Attorney
HOLLY 
 Trial Att ey 

~~~
D.C: Bar # 498357 Trial Attorney Honsing and Civil Enforcl'lUJent Section Civil Rights Division United States Department of Jllstice 950 Pennsylvania Avenue NW Norfuwestem Building, 7th Floor Washington, DC 20530 Phone: (202) 305·0122 Fax: (202) 514-1116 Coty.Montag@Usdo.l.gov

- ---- - - - - - - - - - - - - - - - - - - - - - - - -

35 


CaSe 1:12-cv-01150 Document 1 Filed 07112/12 Page 38 of 39 
 ATTACHMENT A
'I' 


~I

Jurisdictions With Wholesale Aggrieved Persons (36 States and the!Oistrict of Columbia)

">
···ND
:i~~i

W <0
~~

 
 Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 1 of 29

IN THE UNITED STATES DISTRICT COURT 
 FOR THE DISTRICT OF COLUMBIA 


UNITED STATES OF AMERICA,

)

)

l, 


Plaintiff,

) CML ACTION NO. )

i 


v.

) 


) 


WELLS FARGO BANK, NA,

)

)

) 


Defendant.

) 


) 


CONSENT ORDER I. INTRODUCTION This Consent Order ("Order") resolves the claims in the United States' Complaint that, during and between 2004 and 2Q09, Wells Fargo Bank, NA ("Wells Fargo") engaged in a pattern
or practice of discrimulation on tIle basis ofrace and national origin in residential mortgage lending in violation of the Equal Credit Opportllnity Act ("ECOA"), 15 U.S.C. §§ 1691-1691f, and the Fair Housing Act ("FHA"), 42 U.S.C. §§ 3601-3619.
There has been no factllal findulg or adjudication with respect to any matter alleged by the United States. The parties have ent.ered into the Order to avoid the risks, expense, and _ _ _ . burdens of litigation and to resolve voluntarily the claims in the United States' Complaint agains! Wells Fargo.
II. BACiWROUND
Wells Fm'go was one ofthe largest single-family mOltgage lenders in the United States between 2004 and 2009. Since 2008, Wells Fargo has been the largest residential home

Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 2 of 29
mortgage originator In the United States, and now originates more than one out of every four mortgages in the country.
In 2009, Office of the Comptroller of the Currency ("OCC") examiners initiated a fair lending review ofWellil Fargo's home mOltgage product placement practioes. As a result ofthat· examination, the OCC determined that it had reason to bdleve that Wells Fargo engaged in a patteI'll or practice ofdiscrimination on the basis ofrace or color, in violation of the FHA and ECOA. Specifically, the OCC found that, after cont1"01ling for credit factors, there was reason to believe that Wells Fargo placed African-American applicants In the subprime mortgage lending chaooel in the Wasbington-Baltlmore-Northern Virginia, DC-MD-VA-WV Combined Statistical Area ("Washington CSA") more frequently tlmn similarly-situated white applicants during the period from 2004 to 2008. Following that detemllnation, and pursuant to 15 U.S.C. § 1691e(g), the OCC referred the matter to the Department of Justice on December 14, 2010.
In May 2009, the United States Department of Justice initiated its own FHA and ECOA investigation into Wells. Fargo's home mortgage lending business practices regarding home mortgage pricing and product placement, initially in tile Washington CSA and subsequently nationwide. III 2010, the United States informed Wells Fargo tlmt a lawsuifhad been authorized regarding its residential lending practices in the Washington CSA, and in 2011, the Uillted States
-
informed Wells Fargo ti1at a lawsnit had been authorized regarding its national residential lending practices. The parties have engaged in good faith, arms-length negotiations that
III its Complaint, the United States alleges that between 2004 and 2009, Wells Fargo engaged in a pattern 01' practice of discrimination on the basis of race and national origin in violation ofboth the FHA and the ECOA. Specifically, the United States clainls that between
-2­

Case 1:12-cv-01150 Document 2-1 Filed 07/12112 Page 3 of 29
2004 and 2007, Wells Fargo's business policies allowed the discretion to place borrowers in nonpl'ime loan products, even where the borrower could have qualified for a prime loan product. In addition, the United States claims that Wells Fargo permitted persons oligillating Wells Fargo loans to earn higher overall compensation from placing a prime-qualified borrower into a nonplime 108n rather than aprime loan. The United States claims that this combination of discretion and financial incentive resulted in African-American and Hispanic borl'Owers being placed into nonprime products at higher rates than similarly-situated white borrowers. In July 2007, Wells Fargo closed its wholesale nonprime lending division, and in May 2008, stopped originating nonprime loans from its retail division.
In addition, the United States claims that between 2004 and 2009, Wells Fargo's policies gave third party mortgage brokers that snbmitted loans to Wells Fargo's wholesale channel for -oligination the discretion to vary the interestrates; fees; and coslspaidbyborrowers. The United States alleges that these discretionary charges were not related to the boo'ower's credit risk 01' objective qualifications, and 1hat the discretion resulted in Afiican-American and Hispanic borrowers who received loans through Wells Fargo's wholesale lending channel paying higher interest rates, fees and costs than simil,arly-sitnated white borrowers. In April 2011,. amendments to Regulation Z, which implements the Truth In Lending Aot, became effective, and that regulation altered the manner in which brokers may receive compensation from their cU19tomers and through the lenders that might originate the loans.
m. POSITION OF WELLS FARGO
Wells Fargo asserts that throughout the period of time at issue in this proceeding and to the present, it has treated all ofits customers fairly and without regard to impemilssibJe factors such as race alld national origin. Wells Fargo enters this settlement solely for the purpose of
-3­

Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 4 of 29
avoiding contested litigation with the Depa:rfm6nt of Justice, and to instead devote its resources to providing fair oredit services to eligible persons, and to providing important and meaningful assistance 10 borrowers in certain disb·essedU.S. real estate markets.
Wells Fargo notes that it has not been advised by the Department of Justice that the Depar1menl alleges that any employee of Wells Fargo discriminated intentionally on the basis of race or national origin. Dming the period in which Wells Fargo originated subp:l'ime loans, it implemented industry-leading procedures to identify subprime loan applicants who might be eligible for a prime-rate produ.ct. These procedures were applied to all subpIime applicants, without regard to race, national origin. or any other impermissible factor. Wells Fargo's borrower data proves that its subpJime bOl'!'Owers had significantly weaker credit characteristics than its prune borrowers. Further, Wells Fargo believes that an appropriate analysis of its loan data and loan-file i1lformation show ilO disparate impact in pl'Oduct placement against AfriclUlAmerican or Hispanic horrowers.
The United States' loan"p:ricing claim focuses on wholesale loans and mses from the feeS that independent mortgage brokers charged their customers, These fees were neither set by nor payable to Wells Fargo.
No lender in the United States ol:iginatesa larger number of residential mortgage loans to African-Amerioan and Hispanic borrowers than Wells Fargo. Wells Fargo not only denies that it discriminated unlawfully, bnt affinnatively asserts that it has treated all of its customers without
fairness across all borrower groups. IV. REMEDIAL ORDER
1. Unless otherwise stated herein, the remedial provisions ofthe Order will be implemented within 60 days ofthe Effective Date ofthe Order and will continue throughout its
-4­

Case 1:12-cv-Ol150 Document 2-1 Filed 07f12f12 Page 5 of 29
term. TIle Effective Date ofthe Order will be the date on which it is approved and entered by the Court.
A, General Nondiscrimination Injunction 2. Wells Fargo, including all orits ofiicers, employees, agents, assignees, successors in interest, and all those in active concert or participation with any of them, is hereby enjoined from violating the antidiscrlnllnation provisions ofthe FHA and the ECOA in connection with the origtnation ofresidential mortgage loans. 3. Nothing in this Order willl'equil'B Wells Fat'go to make unsafe or unsound loans or to require loans to be originated 01' priced based upon the race or national origin ofthe borrower or prospective borrower. B. Lending Policies and Procedures 4. Consistent with Regulation Z, 12 C.F.R. § 1026.36(d), Wells Fargo will prohibit, for all loans secured by residential real estate originated in its name, employees and mortgage brokersl from receiving, directly or indirectly, overages, yield spread premiums 01' other compensation in an antount that Is based on any of the terms or conditions of 11 loao secured by residential real estate, including the annua) percentage rate charged to the borrower or the amount by which the interest rate valies from the par rate. This prohibition will not lln1it compensation that is based on the principal amount of a loan, provided the compensation is based on a fixed percentage of the principal; however, such compensation may be subject to a mlnimum-ofmaximum-dollar-antount. This prohibition also· will-not-llnrit-Wel1s-Fargo-from­ allowing a borrower to finance, at the option of the borrower, including through principal or rate, any origination fees or oosts, so long as stlch fees' or costs do not vary based on the terms of the 1 The tenn "mOltgage broker" in the Order follows the definition contained in 12 C.F.R. § 1026.36(a), and includes both natural persons and organizations.
-5­

Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 6 of 29

loan (other than the amount of the principal) or the borrower's decision about whether to finance suoh fees or costs?
5, Wells Fargo will maintain specific standards, substantially gimnEll' to those detailed in its the May 2012 "Wells Fm'go Home Mortgage Retail Pricing Policy," for the assessment of all origination fees mId costs it oharges and retains for itself or pays to its employees on loans secured by residentiaireal estate, Specifically, Wells Fargo will continue to maintain its policy originally implemented in Apri12011 of limiting pricing disCI'etion above fue pEll' rate to 25 basis points, and prohibiting loan officers in its retail chmmel from shEll'ing in any
will funds resulting fi'Oln chEll'ging mly amolUlt above the pEll' interest rate, Wells FEIl'go also
maintain its policy ofprohibiting subsidies exceeding 50 basis points (subject to fue exceptions provided in fue May 2012 Retail Pricing Policy), and will inlplement a new policy requiring employces to dooumcnt the reason for any subsidy. Before funding any loan, Wells Fargo wilJ ensure it maintains documentation of compliance with the standEll'ds established to satisfy this PEIl'agraph,
6. Wells FEIl'go will maintain specific stmldards, substantially shnilEll' to those detailed in its June 2012 ''Wholesale Lending Pricing Policy" which are designed to avoid substantial variance in the total broker compensation paid to mortgage brokers on loans secured
by residentia11'eal estate that EIl'e originated in Wells Fargo's name anq timt Wells Fargo
underwrites, originates, or fl1Uds, For the duration offue Order, Wells FEIl'go will continue to mahltaiii itii-policyoflinrirulg totarorOKer compensation to 3.25 %oftlie loan amolmt (inclUSive of the 25 basis points bonus based on Wells Fm'go's Pelformance WOl'ks Tier Adjuster). Wells

~ No term of this Consent Order will be interpreted to prevent Wells FEIl'go from complying with.

any federal statutory or regulatory requil'ement concerning employee or mOltgage broker

j.

compensation or loan pricing,

-6­

Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 7 of 29

Fargo will also maintaln its policy that lender-paid compensation to brokers (including payments by Wells Fargo to a broker made out ofloan proceeds) is an agreed-upon an10unt per loan that does not vary by loan and can ollly be changed on II quarterly basis, and will also malntain its policy that total borrower-paid broker compensation may not exceed the amOlmt that the broker could have received in total lender-paid compensation for the loan. Wells Fargo will ensure that
- -------- ---
compliance with these standards is a part of any agreement 111at provides for a mortgage broker to submit loan applications to Wells Fargo. To the 'extent the standards established to satisfy this Paragraph allow mortgage brokers to exercise oiscretion ill the amolmt ofthe total broker compensation, mortgage brokers will provide a written explanation for boo'ower-paid total broker compellSation that exceeds 2.5% of the loan amount. Before funding 1111y loan, Wells Fargo will ensure it malntains dOQumeutation of compliance with the standards established to satisfy this Paragraph.
7. Wells Fargo will reqtlire, for all loans secured by residential real estate originated in its name, all employees and mOltgage 'brokers to comply with the requiren1ents established in Paragraphs 4-6. Wells Fargo Will also require an appropriate manager or managers, under the supervision of a designated senior official of Wells Fargo, to review compliance with these requirements. Such review will occur no later than 30 days after closing. In the event that Wells Fargo receives or pays compensation in excess of what is permitted by the policies referenced ill Paragraphs 4-6, an appropriate refund will be provided to the borrower in the fOlm

. , '

documentation will be retained for the term of the Order.

8. During the dU1'ation of the Order, Wells Fargo will continue to maintaln a

complaint resolution program to address consumer complaints alleging discrimination regarding

-7­

Case 1:12-cv-OllS0 Document 2-1 Filed 07/12/12 Page 8 of 29

pricing of, 01' :Improper product placement with respect to, loans secured by residential real estate

!

originated in Wells Fargo's name, Documentation regarding such complaint resolution program,

I
I

including documentation ofindividual complaints and resolutions, if any, will be made available

to the United States through the semi-annual reports referenced in Paragraph 11. A person will

not be deemed ineligible for the complaint resolution program on the basis ofhaving executed a

Release, but there is no requirement under the Order Ulat any complaint necessa1'ily be resolved

for or against Wells Fargo 01' that any particular form 01' amount ofrelief be provided to any

complainant.

Co Monitoring Progloam

9, Wells Fargo currently employs a comprehensive fair lending monitoring program,

Wells Fro:go for the duration oHlle Order will maintain no less Ulan its currently existing level of

fill; lending auditing and monitoring detailed in Wells Fargo's "Fair and Responsible Lending

(FRL) Policy", dated February 28, 2011.

10, Within 30 days ofthe Effeotive Date of the Order, Wells Fargo will have in place

.amonitoring program designed to ellBure oomplianoe with the Order, which may be satisfied in

whole or in part by its existing fair lending monitoring program. The program will be designed

to monjtor, for all loans seoured by residential real estate originated in its name, for potential

unexplained disparities 'by a borrower's race or national origin in the price charged for its

residential loan products, At a minimum, Wells Fargo will monitor disparities in APRs,

;-----"ov"'e""rruag"'eiiis-,s=uosiUies an1notarorolcer oompensation, Tlie monitoring wilrilloluae, out nofO"e----­

limited to, an analysis designed to detect significant unexplained disparities in Ule price charged

. I

for l'esidentialloan products by race alld national origin with respect to all loans secured by

residential real estate originated in Wells Fargo's name, Such analysis will be conducted at the

national level and at a metropolitan statistical area (MSA) level for MSAs where Wells Fargo

,-8­

Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 9 of 29

annually originates at least 100 ltlans, including at least 30 loans to non-Hispanic whites and 30

loans to eifuel' African-Americans or Hispanics. This Consent Order does not require any

product placement monitoring or review with regard to Wells Fargo conventional conforming3, ~ol1velltional non confonning (jumbo)4, home equity loans or lines of credit, affordable housingS

01' governmental loans, To the extent Wells Fargo begins originating residential mortgage loans

------

----

------

that are not classified as conventional conforming, conventionalnonconfonning (jumbo), home

equity loans or lines of credit, afforda1;>le housing loans or govermnent loans during the term'of

this Order, wl1hin 30 days of offering any different type ofl'esidential mortgage loan

originations, Wells Fargo will submit a proposed pl'Oduct placement monitoring program to the

United States for its review and approval. If within 30 days of its receipt offue proposed product

placement monitoring program the United States does not notify Wells Fargo in writing that it

objects 10 the sUlne,the proposed product placement monitoringprogram~will be deemed

apllroved. If the United States ~oes not believe that fue proposed product placement monitoring

program is adequate, Wells Fm'go and the United States will meet and confer to resolve 111e

dispute. If the parties are unable to come to a resolution, the United States may ask the Court to

resolve the parties' differences. Wells Fargo represents fuat it does not originate any residential

3 These loans are mortgages that are not obtained under a government program (such as FHA or 


i

VA), and that also satisfy the standard underwriting guidelines and loan amount limits set by the 


,

quasi-government agencies, FannIe Mae and Freddie Mac; these loans, therefore, can be sold to 


-i-------c,ij I

either offuese two agencies infue secondary market.


~. ----~--- These loans are not 6btained under a gover1l111el1t pi:owmn and exceed the maxutlum

I

confol'l11ing limits set by Fannie Mae and Freddie Mac. Such loans rely on the fully documented and velified financial capacity ofthe bOrJ'ower as the primary means ofrepayment as well as a

full analysis of11le creditwolthiness of theborrowers.

5 These loans are state, county and municipal bond and dOWllpayment assistance progi.'ams and prime portfolio produots designed to serve low to moderate income communities (which currently consists solely ofWelJs Fargo's Community Development Mortgage Program).

-9­

Case 1:12-cv-01150 ,Document 2-1 Filed 07/12/12 Page 10 of 29

mortgage loans that would require product plaoement monitoring as of.the date of filing of this

Consent Order.

11. Wells Fargo's senior managers will oonduct a semi-annual review ofthe

monitoring programs described III this Order. A report on the review will be presented to ·the

appropriate committee of Wells Fargo's Board of Directors forreview end oversight not later

-

-

---

than 90 days a:J:1:er the end of each semi-annual period.

a. hi the event that any such review dlscloses statistically significant

disparities at the 95% level either nationally or in any MSA, Wells Fargo will attempt to

determine the reason(s) for those disparities and will promptlytalce corrective action to

address significaot disparities that wel'e caused by a policy or practice ofWells Fm'go,

mId not justified by legitimate busmess need. Con'ective action will inolude, as

warranted, finanoial remediation. for borrowers, modifioations to Wells Fargo's pricing

policies andlor monitol'mg pl'Ograms as appropriate, and education, discipline or

tel1nmation of employee(s) or mortgage broker relationship(s). Wells Fargo will

dO'cument all such disparities, determmatiollS, BJ.ld actiollS taken and will provide a

sUlmnary of the quarterly reviews aod aoy documentation BJ.ld analysis l'elatmg theretO' to the United States on a semi-annum basis.6 .

6 All material required by the Order to be sent to the United States will be sent by commercial overhight delivery service addressed as follows: Chief, Housing aod Civil Enforcement'Section, Civil Rights Division, U.S. Department of Justice, 1800 CI Street NW, Stllte 7002, Washingtoll, ----DC2UUU5;-Attri;DJ188=l59~27, or Hy facsiillile10202;51'1:'J1T6:- WenS-Fargo may renact - ----'---­
portions based on an assertion of attorney-cUent privilege from any materials reqlrired by the Order to be sent to the United States or to be subject to review by the United States, or, upon notice to the United States, it may withhold materlms based on an assertion of attorney-.client privilege applying to ao entire document. Ifthe United States raises aoy objections to Wells Fargo's claIm of privilege, Wells Fargo and the United States will meet BJ.ld confer to' resolve the dispute. Ifthe parties are unable to' come to a resolution, the United States may' ask this Court to dete1111ffie whether the claim ofprivilege is legally correct.

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Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 11 of 29
b, In the event that any suoh review discloses statistically significant disparities with respect to any p.atticular employee, branch ofiice, 01' mortgage broker, WelIs Fat'go willl'equil'e the employee, btmlch manager, 01' mortgage broker to explain the non-discriminatory reason(s) for those dispat'ities. lfthere is no reasonable, nonracial explanation for the noted disparities, Wells Fargo will regllire the elllP!oyeeor branch manager to take prompt corrective action to address the disparities, and Wells Fargo will take prompt appropriate action with respect to mortgage brokers, up to and including termination of the bl'Oker relationship. In the event that Wells Fargo receives or pays compensation in excess of what is permitted by the policies refel'enced in Paragraphs 4-6, an appropriate refund will be pl'Ovided to the b0l1'OWeJ' in tlle form of a cash payment or credit to the borrower's accoUllt. If the United States raises any objections to Wells Fargo's detelminatiOllS 01' remedial actions, Wells Fargo atld the United States will meet and confer to consider appropliate steps to
address the concerns raised by the United States' review. If the, parties al'e unable to come to an
agreement regarding such objections, any party may bring the dispute to this Court for resolution.
D. BOl'rower Disclosures 12. Wells Fargo will post and prominently display in each location where it receives loan applications a notice of nondiscrimination that satisfies the requirements of24 C.P.R. Part 110. E. Equal Credit Opportunity Training Program 13. Wells Fargo currently provides comprehensive fair lending training to mallagement officials and employees. Within 90 days oftha Effective Date ofthe Order, Wells
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Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 12 of 29
I
'j

Fal'go will provide access to a copy oftha Ot'der lind the policies referenced therein to its

I

management officials and employees who participate in taking applications for, originating, or

i

pricing loans seoured by residential real estate, including employees who have significant contact

with or oversight ofmortgage brokers, and employees responsible for conducting compliance

I

monitoring as provided in Section N,C ofthis Order, Wells Fargo will provide access to a copy

of the Order and the policies referenced thereiil to each new management official or employee

!

whose responsibilities include those set forth in the preceding sentence within 30 days of

beginning his or her employment in that position,

14, Within 150 days of the Effective Date of the Ol'det', and a1111ua11y thereafter for the

duration of the Order, Wells Fargo will provide equal credit opportunity h'aining to its

management officials and employees who participate in talcing applications for, originating, or

pricing loans sectU'ed by residential real estate, including employees who have significant contact

with or oversight ofmortgage brokers, and to employees responsible for conducting compliance

mOl1itoring as provided in Section IV,C oHlns Order, Wells Fargo will provide equal credit

opportunity training to each new management official or employee whose responsibilities

include those set forth in the preceding sentence within 90 days ofbegil1l1ing his or her

=ployment in that position,

15, During the equal credit opportunity training, Wells Fatgo will provide to each

participant training on the terms of the Order, the policies referenced therein, 'the requirements of

UfeFHA,l:ne EeaK, andliis or lier fesponsillillties Ulloer each~TfieContenfOftlie trailililg

program required by this Paragraph will be approved in advance by the United States, Any

expetlses associated with this training program will be borne by Wells Fargo, At the conclusion

of the training program, Wells Fargo will require 'each employee to successfully complete an

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Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 13 of 29

assessment whioh demonstrates that the employee was provided access·to a copy of the Order

and the policies referenced therein, understands his'or her legal responsibility not to discritn:Ulate,

and has completed the equal credit opportunity training.

16. Wells Fargo will offer all mortgage brokers who submit applications to Wells

Fargo for loans secured by residential real estate the opp6rtuni1yto tln<\ergoJail' lending training

-

-

--------

-

shnilar to the training described in Paragraphs 14-15. Wells Fargo will retain for the duration of

ilie Order documentation of any training conducted or requests for training made pursuant to this

Paragraph, and make such documentation available to the United States upon request.

F. Satisfaction of United States' Claims for Monetary Relief

17. Wells Fargo will deposit in an interest-bearing escrow account the total sum of

$125 million to compensate for alleged monetary damages aggrieved persons nationwide who

obtailled a 101m through Wells Fargo's wholesale channel may have suffered as a result of the

alleged violations of the FHA and the ECOA (the "Settlemellt Fund"). Title to this account will

specify that it is "for the benefit of allegedly aggrieved persons pursuant to Order of the Court in

United States v. Wells Fargo Bank, NA." Wells Fargo will provide written verification of the

deposit to the United States within 5 days of the Effective Date ofthe Order. Any interest that

accrues will become part ofthe Settlement Fund and be utilized and disposed of as set forth

herein.

I

18. The United States has obtained fi'om Wells Fargo information and data it

__1_ _ _ _­

reasonably believes will assist in identifying allegedly aggrieved persons and determining any

damages. Such information and data will be used by the United States ordy for the'law

enforcement purposes of implementing this Order. The United States will, upon reasonable

notice, be allowed access to mortgage loan files and bOlTOWer contact information contained in

servicing records ofWells Fargo, Wells Fargo's parent, or any entity owned by Wells Fargo's

Case 1:12-cv-Ol150 Document 2-1 Filed 07/12/12 Page 14 of 29
parent for loans Wells Fargo originated between 2004 and 2009 to verifY the accuracy of the data provided and to otherwise identifY persons entitled to the payments from the Settlement Fund.
19. Within 60 days of Effective Date of the Order, Wells Fargo will enter into a contract retaining a Settlement Administrator ("Administrator"), subject to approval by the United States, to conduct the activities set forth in the following Paragraphs. Wells Fargo will bear all costs and expenses of the Administrator, and Wens Fargo's contract with the Adminish'atol' win require that the Administrator comply with the provisions of the Order as applicable to the Adtnitristrator.7 The Administrator's conh'act will require the Administrator to worle cooperatively with the United States in the conduct oflts activities, including reporting regularly to and providing all reasonably ~equested information to the United States. Wells Fat'go will allow the Administrator access to mortgage loan files and borrower contact information contained in servicing records ofWells Fargo, Wells Fargo's parent, 01' any entity owned by Wells Fargo's parent for loans Wells Fargo originated between 2004 and 2009 for the purposes of accomplishing its duties under the Order. The Adminish'ator's con(Tac( will require the Administrator to comply with all confidentiality and privacy restrictions applicable to the party who supplied the information and data to the Adminish·ator.
20. The United States will identifY allegedly aggrieved persons in the wholesale channel with respect to its race and national origin discrimination claims within 45 days of the Effective Date ofthls Consent Order. 111e United States will provide a list ofsuch allegedly
7 In the event the United States has reason to beli~ve that the Administrator is not materially complying with the terms of its contract with Wells Fargo, the United States and Wells Fargo will meet and confer for the pl1Ipose ofmutually agreeing upon a course of action to effect the Administrator's material compliance with its contract with Wells Fargo. In the event that the United States and Wells Fargo are unable to agree upon a course of action to effect the Administrator's material compliance with its contract with Wells Fargo, the parties may present the matter to the Court.
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Case 1:12-cv-01150 Document 2-1 Filed 07/12112 Page 15 of 29

aggrieved persons to Wells Fargo ,md the Administmtor, along with information on each

individual last lmown address.

21. The Administrator's contract will require the Administrator to make its best

efforts, using all reasonable methods, to locate each identified allegedly aggl'ieyed person and

obtain such information as the United States reasonably considers necessary from each. TIle
---- - - -- -- ----
Administrator's contract will require the Adlninistrator to complete this responsibility within a

period of 6 months from the date the United States provides the list described in Paragraph 20,

subject to an extension of time as provided by Paragraphs 25 and 42. The Administrator's

contract will require the Administrator, as part of its operation, to establish cost-free mea:ns for

allegedly aggrieved persons to contact it, such as email and a toll-freetelephono number.

22. TIle United States will specifY the amount each allegedly aggrieved person

identified in the list described in PfU.'agraph 20 and located by the Administrator will reoeive

from the Settlement Fund no late!' than 60 days after the Administrator's deadline for locating

aggrieved persons, in Paragraph 21 has passed. The United States will provide the compensation

list to the Administrator. This list will direct no less than $8 million to allegedly aggrieved

persons who lived in lllinois at the time of origination to resolve Wells Pargo's pending litigation

with the State of minois, and the Administrator's communications with such borrowers will refer

to both the settlement of litigation by the United States and the State oflllinois. The list will also

,

direct no less than $2 million to allegedly aggrieved persons who lived in the City of

i

- -!---------phl1aaelpliiaaftl:i~ time OnOall Ol'fgination to resolve the issues present!,,(nn tl:ie inVestigation C

that the Pennsylvania Human Relations Commission ("PHRC") sought to conduct against Wells

Fargo, and the Administrator's communications with such bOlTowers will refer to both the

settlement of the United States litigation and the settlement of the issues that the PHRC raised.

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Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 16 of 29

23. The Administrator's contract will require the Administrator to send releases, with

language approved by ll1e United States' and Wells Fargo as set forth in Appendix A, to allegedly

aggrieved persons (hereafter, "Releases"). After receipt of executed releases, the

Adl:nilristrator's contract will require the Administrator promptly to deliver payments to those

persons in amounts determined by the United 8tatesasJlelicribed in ParagJ:auh2_2. 1111'

-- ------- ---------------

--- --------------------------

Administrator's identification and payment responsibility may talee place on II rolling basis'willI

approval from the United States.

24. The Administrato~'s contract will req1)ire the Administrator to set forth reasonable

deadlines, subject to approval of the United States, so that the compensation is distributed and

checks are presented for payment or become void prior to the date that is 24 months from the

date the Administrator begins to locate allegedly aggrieved persons pursuant to Paragraph 21.

25. Payments Ji:om the Settlement Fund to aJlegedJy aggrieved persons will be subject

to the following conditions, provided that the details in administration ofthe Settlement Fund set.

forth in Paragraphs 18-24, can be modified by agreement of the parties and without further CoUrt

approval:
!
'!
(a) No allegedly aggrieved person will be paid any amount from the Settlement Fund

until he or she has executed and delivered to Wells Fargo a Release; and

(b) The total amount paid by Wells Fargo collectively to the allegedly aggrieved

persons will not exceed the amount of the Settlement Fund, including accrued interest.

26. Allmoney set aside in the Settlement Fund for allegedly aggrieved persons who

received llonprime loans from Wells Fargo's wholesale channel but not distributed to such

persons, including accrued interest, WithUl 24 monll1B £i'om the date the Admhrlstrator begins to

locate allegedly aggrieved persons pursuant to Paragraph 21 will be allocated to the borrower

·16· 


Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 17 of 29
i

I

assistance ptogram described in Section lV.G of this Order provided that there continues to be

demand for direct borrower assistance ill multiple geographic areas. If the bon'ower assistanoe

pl'ogram l'emains operational and there continues to be demand for direct borrower assistance in

multiple geographic. BJ'eas, then the United States will designate which geographic BJ'ea should

-I

receive the remaining funds. Such decision will be made ill consultation with Wells Fargo.

27. If the borrower assistance program is no longer operational or there is not

sufficient demand for additional direct borrower assistance ill any geographic area as of24

months from the date the Administrator begins to locate allegedly aggrieved persons, then any

remaining funds will be distributed to qualified organization(s) that provide services including

credit and housing coUl1seling (including assistance in obtainillg 10BJI modification and

preventing foreclosure), legal representation ofborrowers seeldng to obtain a loan modification

or to prevent foreclosure, fina:ncialliteracy, and other related programs targeted at African­

Amerioan and Hispanic potential and former homeowners in cormnunities where the Complaint

alleges significant discrlmillation occurred againstAfrioan-AmerioBll and Hispanic bOlTOwers,

Recipient(s) ofslmh funds must not be related to Wens Fargo, Wells Fargo's parent, or any

entity owned by Wells Fargo's parent. Wells Fargo will consult with and obtain the 110n­

objection of the United States ill selectillg reCipient(s) of these funds Blld fue amount to be

distributed to each, Blld the parties will obtain the Court's approval prior to distribution of Blly

remainder of the Settlement Fnnd's assets. Wells FEU'go will require each recipient to submit to

after the funds are distributed,
28. Wells Fargo will not be entitled to a set-off, or any other reduction, offue amount
ofpayments to aggrieved persons because of any debts owed by the identified persons. Wells

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Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 18 of 29
Fargo also will not refuse to make a payment based on a release oflega! olaims or loan modification previously signed by any suoh aggrieved persons, includiog but 110t limited to, any release of claims signed in oOimection witil fue settlement reaohed between the United States and Wells Fargo & Company in Febl'uru:y 2012 regarding mortgage loan sel'vicing and fOl'ecloSUl'e abllSes,
G. Borrower Assistance 29, Within 60 days after tile entry oftMs Consent Order, Wells Fargo will institute a now homebuyer assistance progrrun to be implemented in jurisdictions wifuin the following Metropolitan Statistioal Areas ("MSAs") (as defined by 2005 U,S, Census Bureau data); Wasbington-Al'lington-Alexandrla, DC-VA-MD-WV; Chioago-Naperville-Joliet, lL-IN-WJ; PhiJadelphia-Camden-Wilminglon, PA-NJ-DE-MD; $an Francisco-Oakland-Fremont, CA; New York-Nol'thern New Jersey-Long Island, NY-NJ-PA; Cleveland-Eljria-Mento!',OH; and Riverside-San Bernardino-Ontario, CA. Wells Fargo will also inlplernent fuis new homebuyer assist~nce program io fue City ofBaltimore, MarYland. For ptlIpo$es of this Consent Order, tlus progl'run'is referred to hereinafter as the "Wells Fargo Borrower Assistance Progrrun."
30. Of all funds expended on tile Wells Fargo Borrower Assistance Program, at least
$50 million will be direotly funded by Wells Fargo Bank, NA This anwunt, which is separate from and in addition to fue $125 million that will be set aside pursuant to Paragraph 17 for compensation of allegedly aggrieved persons who !'eceived nonprime loans from Wells Fargo's wholesale ohannel and from any rebates described in Paragraph 37 will be placed direotly into an escrow aocount 01' accounts (which may be created for each geographic area) within 30 days of fue entry of fuis Consent Order, Within 60 days of the entry of this C~Jl1sent Order, the Parties will agree to fue allooation of fuis $50 million amOllg fue seven MSAs and the City ofBaltinlore
-18­

Case 1:12-cv-01150 Document 2-1 Filed 07/12112 Page 19 of 29
listed in Paragraph Z9 above, and on the selected geogl'aphic areas within ll1e MSAs where the Borrower Assistance Progranl will operate. For purposes ofthis Consent Order, these grants are referred to herein as the "Borrower Assistance Graats", and may be in any anlouot up to btlt not exceeding $15,000. Each BOll'OWel' Assistanoe Grant will be in the form of a 0% interest loan, 20% ofwhic~_will be forgivable ~<loCh year fOI' five years. ~jJrorated balance m)e isrepayable if the property is sold, refinanced, or if there is a transfer of title or foreclosure within the first five years, subjeot to an limited exception for refinancing (with no cash out to the bon-ower) of the first mortgage to a lower interest rate due to death or divoroe where one of the original bOlTowers remains an owner ofthe property. Any recaptured funds will be returned to the BOll'OWer Assistance Grant pool of funds and made available for assistance to other qualified borrowers. Each Bon-ower Assistance Grant must be used for downpayment assistance, closing cost assistance, and/or, subject to 111e conditions oftl11s paragraph, for home renovation financirlg. Bon-ower Assistance Grants may be used for home renovation'financing only in connection with the Federal Housing Administration (FHA)'s Z031c program and conventional renovation loans, and must be in connection with the purchase of a home. Wens Fargo may modify or define additional terms and requirements for the downpayment assistance as necessary to implement the Wells Fargo BOlTower Assistance Program that are consistent with the terms of this Consent Order, subjeet to approval by the Uluted States.
31. Wells Fargo may choose to expend additional funds in connection with the Wens Fargo Borrower Assistance Program, 81)ch as proyiding homebuyer education and counseling; however, at least $50 million must be spent directly on downpayment assistance, closing cost assistance, and/or home renovation financing in connection with the purchase of a home. Any homebuyer eduoation or couosellng must be conducted by a HUD-approved couosellng agency.
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Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 20 of 29

Wells Fargo may define additional procedures and requirements for homebuyer education and

counseling, subject to approval by the United States,

32. The Borrower Assistance Grants may be administered by an independent third-

party nonprofit agency selected by Wells Fargo, subject to approval by tlle United States. TIlis

~ __ independentlhird:party nonprofit agency may work with 10callliLuprofit agen<i1lS in eacll Qf the

MSAs or cities. Borrower Assistance Grants wlll be made to applicants earning less than 120%

of Area Median Income (as defmed by 2012 Department of Housing and Urban Development

guidelines), It is not necessary that individuals receiving Borrower Assistance Grants be first­

tin1e homeowners, althOllgil the grants must be used for a plimal'Y owner-occupied residence of

1-4 Wlits in tlle areas designated by the parties, and may not include manufactured housing. If

the borrower currently owns a home, it must be sold prior to closing on !lle property purchased

using a Borrower Assistance Grant.

33. Wells Fargo may not require that properties purchased with the help of Borrower

Assistance Grants be finanoed by Wells Fargo Ballic, NA or any affiliated lender; however, Wells

Fargo Bank, N.A., is not prohibited from financing properties purchased with the help of

Borrower Assistance Grants. With respect to the first mortgage, Fannie Mae, Freddie Mac,

FHA, VA, conventional renovation, conventional portfolio produots, and other CRA affordable'

lending program guidelines will apply, For Conventional Portfolio products 01' other CRA

affordable lending programs, a reasonable combined loan-to-value ratio will be set by Wells

----

----~-~~

~

;Fargo. The total of all financing carmot result in cash back to the borrower.

34. Ifthe borrower has liquid reserves (cash or fhnds in aCcoWlts readily able to be

converted to cash funds without penalty) greater than 6 months ofprincipal, interest, taxes and

Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 21 of 29

insurance, 01' $7,500, whichever is lower, such excess funds will be required to go toward a down

payment 01' closing costs before any Borrower Assistance Grallts are applied.

35. Wells Fargo will provide targeted marketing regarding Borrower Assistance

Grants in communities including census tracts that are greater than 40% African-American (as

identified using data from the 2010 Census) or Hispanic, and in comlUlu'lities including census

tracts with average income levels of at or below 120% of Area Mediall Income. Borrower

Assistance Grants may be made to individuals of any race or nationality provided the bon'ower

meets the inoome rl"quirements set forth above. Wells Fargo will eogage in targeted marketing

which will include all event ill each designated MSA, information to individuals interested in

reoeiving BOlTower Assistance Grants, and media armouncements in outlets serving the

communities in the designated census tracts. At least one such event must talce plaoe in each

I

designated MSA within one yeal' ofthe Effective Date ofthis Consent Order.

36. All Borrower Assistance Grants must be distributed within two years of the date

of entry ofthis Consent Order. Any funds recapttlXed ptlXSuant to Pal'agraph 30 must be re­

distributed within one year ofrecapture. Any funds allocated to the borrower assistance

progralll from the Settlement Fund pursuant to Paragraph 26 will be redistributed within one year

from the time such funds are allocated to the bon'ower assistance program. In tile event there is

not sufficient demand for the Wells Fargo Borrower Assistance Program and there are remaining

funds, the provisions of Paragraph 27 setting out procedures for distribution to qualified

- - - -----ol'ganizations-will-apply-to-snch-remaining-ftmds.

H. Intemal Review Proce55 Regarding Nonprime Loans from Wells Fargo's Retail Divisioll

37. In addition to compensating allegedly aggrieved persons who reoeived Wells

Fargo loans from independent mortgage brokers, Well5 Fargo agrees to undertake an internal

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Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 22 of 29
review, using an agreed UpOll statistical model and process, to determine whether there exist. A:frlcan-AmerlCall alld/or Hispanic bon-owers who received nonprime Wells Fargo loans from Wells Fargo's retail channel who, based on the results of the statistioal model, arguably might have qualified for prime loans from Wells Fargo's retail channel. Wells Fal'go will provide a list of any such borrowers identified by the nl0del to ihe United States 110Jater th~] 45 days after the Effective Date ofthis Consent Order. Wells Fargo will provide cash rebates to such bon-owers in an arnOtlllt commensurate with the amO<lllts paid to borrowers who j'cceived nOnpl1:me Wells Fargo loans from Wells Fal'go's wholesale division. Wells Fargo may not use fUllds from the Settlement Fund or the Borrower Assistance Program to pay for the rebates. To be eligible for the rebate, the bon-ower must execute and deliver to Wells Fargo a Release similar in form to
be that contained in Exhibit A. The rules and procedures governing the rebates will the same as
set forth ill Paragraphs 18-24, 26-28, and 36, above, V. EVALUATING AND MONITORING COMPLIANCE
38. For the duration oftha Order, Wells Fal'go will retain all records relating to its . obligations hereunder as well as its compliance activities as set forth herein, The United States . will have the right to review and copy such records upon request, including loan files and electronic data for loans secured by residential real estate made during the duration ofthe Order.
39. Wells Fargo will provide to the United States the data'on its lending that is 
 submitted to the Federal Financial InstiMions Exanlinalion COUllcil (FPIEC) pursuant to the 

--;-;---;--=- - - - - - - - - ­
Home Mortgage Disclosure Act and the Community Reinvestment Act. The data will be provided in the same format in which it is presented to the FFITlC, within 30 days of its snbmission to the FFIEC each year, for the duration ofthe Order, including the record layout,
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Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 23 of 29

40, In addition to the submission of any other plans or reports specified in the Order,

Wells Fargo will submit semi-annual reports to the )Jnited States on its progress in oompleting

the requirements oflhe Order,. EaCh such report will provide '1\ complete account ofWells

Fargo's aotions to comply with each l'equiremenl of the Order during the pl'eViOtlS 6 months, an

objective assessment ofthe extent to which each quantifiable obligation waslTIot, anexplanation

of why any particular oomponent fell ShOlt of meeting its goal for the previous 6 months, and any

recommendations for additional actions to achieve the goals of the Order, Each such TepOl! will

detail any changes made to the May 2012 Wells Fargo Home Mortgage Retail Pricing Policy and

the J11l1e 2012 Wholesale Lending Pricing Policy during the previous 6 months, Wells Fargo will

submit its first report no later than 180 days after the Effective Date ofthe Order, and 'overy 180

days thereafter for so long as the Order is in effect. In addition, if applicable; Wells Fargo will

attach to the semi-annual reports representative copies oftrairring materials disseminated

pursuant to the Order,

VI. ADMlNISTRATION

41, The Order will terminate 3 months afiel'the submission of Wells Fal'go's sixth

seml.-amlUal report due 11l1der Paragraph 11 to the United States, except that if all the actions

required by Paragraphs 17,29-30, and 37 have not been completed, Paragraphs 17,29-30, and 37

and this section will oOlltinue in effect for an additional 6 months, Notwithstanding the above,

the Order may be extended further upon motion ofthe United States to the Conrt, for good cause

,

1-----· - - - -
shown,

- ------------------- - - ­

42, AllY time limits for perfol1uance fixed by the Order may be extended by mutual

written agreement ofthe parties, Except as provided by Paragraph 25, other modifications to the

Order may be made only upon approval of the Court, upon motion by either party, The parties

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Case 1:12-cv-01150. Document 2-1 Filed 07/12/12 Page 24 of 29
recognize that there may be changes in relevant and material factual circumstanoes during the duration ofthe Order which may impact the accomplishment of its goals, The parties agree to work cooperatively to discuss and attempt to agree upon any proposed modifications to the Order resulting therefrom,
43, The Order will be binding on Wells Fargo, inoluding all its officers, employees, agents, assignees, and successors in interest, and all those in active concert or participation with any of them. The Order will cOllSider loans originated by a mOltgage joint venture operated by Wells Fal'go, which are also Ullderwritten and table-funded by Wells Fargo, to be 10allS originated by employees ofWells Fargo. In the event Wells Fargo seeks to transfer or assign all or part of its operations, and tl18 S11ccessor or assign intends on carrying on the same or similar use, as a condition of sale, Wells Fargo will obtain the written accession of the successor or assign to any obligations remaining under the Order for its remaining term; howevCl', if Wells Fargo terminates its ownership interest in the joint venture a:nd is no longer involved in the ownership or operation of the joint venture, Wells Fargo's joint venture partners are not subject to the terms of this Order for loans originated after tile termination of Wells Fargo's ownership interest,
44, Nothing in the Order will excuse Wells Fargo's compliance with allY cun-ently or subsequently effective provision oflaw or order of a regulator with authority over Wells Fargo
J_______ that imposes additional obligations on Wells.Fargo,
·-43:- Tne pmtfeifiigree tliaf,- as oftlie ilate ofefltryoHlie Order, litigation is not - - . ­ "reasonably foreseeable" concerning the matters described in the Order, To the extent that either party previously implemented a litigation hold to preserve documents, electronically stored information, 01' things related to the matters described in the Order, the party is no longer
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Case 1:12-cv-01150 Document 2-1 Filed 07112/12 Page 25 of 29

required to maintain such a litigation hold, with the exception of docu~nents, electronically­

stored information, or other things relating to 10al1s originated by Wells Fargo between January

1,2004, and December 31,2009.

46. In the event that any disputes arise about the interpretation of or oompliance with

the terms ofthe Order, the parties wlll endeavor in good faith to resolve any such dispute

between themselves before bringing it to this Court for resolution. If the United States believes

that Wells Fargo has violated ftnyprovision of the Order, it will provide Wells Fargo written

notice thereof and allow 30 days to resolve the alleged violation before presenting the matter to

this Court. In the event of either a failure by Wells Fargo to perform in a timely manner allY act
I

I, '
!

requited by the Order or an act by Wells Fargo in violation of any provision hereof, the United States maymovll this Court to impose any remedy authorized by law 01' equity.

47. Wells Fargo's compliance with Paragraphs 17,29-30, and 37 of this Order shall

f\:illy and finally resolve all claims by the United States of discrimination, including under the

FHA and ECOA, that are raised in the Complaint's allegations ofa patte1'l1 or practice, in loans

originated between January 1, 2004 and December 31, 2009 by the Wells Fargo, of

discrimination against African-American and Hispanic borrowers based on raoial and national

origin disparities in loan pricing and/or product placement, including without limitation all

claims for equitable relief and monetary damages and penalties arising from those claims, as well

as any claims elUder any other legal theory based on the same allegations of discriminatory

- - - - . conClnct ao:ClI'esseam-the COfi1I?Ia:iTIt.TheDrder aoes not release claims for practices not - - ­

addressed in the Complaint's allegations, including claims that may be held or are. cUlTently

under investigation by any federal agency, or any claims that may be p1l1'sued for aotions that

may be tal(en by any executive agency established by 12 U.s.C. § 5491 or the appropriate

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Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 26 of 29
Federal Banking Agency (FBA), as defined in12 U.S.C. § 1813(q), against Wells Fargo, any of its affiliated entities, and/or allY institution-affiliated Patty of Wells Fargo, as defined in12 U.S.C. § 1813(u), pursuant to 12 U.S.C. § 1818 or any other statute or regulation. The Order . does !lot resolve and release clahus other than clahus for discrimination.
48. Each party to the Order will bear its own costs and attorneys' fees associated Wit11
---- -----------
this litigation. 49. The Court will retain jurisdiction for the duration offhe Order to enforce t116
te11us of the Order, after which time the case will be dismissed with prejudice,
SO ORDERED, this_dayof _ _ _-', 2012.
UNITED STATES DISTRICT JUDGE

I:,
----!I---

- --------------------------------- - - ­

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Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 27 of 29

The tl1\dersigned hereby apply fOl' and oonsent to' the enu'Y of !be Order:

))'o~'l'lHintiffUnited State:! of Americal Dated: July 12, 2012

,
I 

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I
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J
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RONALD C. MACHEN JR. D.C. Bal'#44'/889 Utrlled States Attor!ley Distdet of Columbia

Respectfully submitted,
ERIC H. HOLDER, JR. Attorney General

THOMAS E. PEREZ Assistant Attomey GaMul Civil Rights Division
A~·

S1:EVF-N H. ROSENBAUM

D.C, Bar '/1417585

Chief ,

Heusing and Civil Enforcement SeCiiQn

Civil ~ghts Plvlajon

'

. . Bar 11462679

Assistant Ullited States Attomey

- --- ----­ .

555 Fourth Stroot, NW

---:--r------~:!~f;~2~~6~~;:10

: :

Fax; (202) 514-8780 


. 


Javier.Guzruan2@usdoj.gov

I

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1

U-M@Qr~C(~---
HOLLY C. mCOLN Trial Attemey

• I

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II

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Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 28 of 29

For Well. Fargo Bnnk, NA:
Dated: ~,-,II,----_" 2012

Housing and Civil Enforcement Section Civil Rights Division United St~tes Department of Justice 950 Pennsylvania Avenue NW Northwestern Building, 7th FloO!' Washington, DC 2()530 Phone: (202) 305-0122 Fax: (202) 514-11J 6
-CoWMolltag@usdoj;g5v~
Respectfully submitted,
ExecutlveVioe President Wells Fargo Bank, NA and President, Wells Fargo Hnme Mortgage

-I--~--
i 

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- - ---- ­

tjJ II. tJ:t1.. : 

BARTH. WILLIAMS
Munger, Tolles & Olson LLP 355 So. Gmnd Avenue, 35th Floor Los Angeles, CA 90071 Phone (213) 683-9295
Fax: (213) 687-3702 Bart,WiIliams@mto,com - ---Counsel-foY'WeJlsFargo-Brul1[,'N)\--­

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Case 1:12-cv-01150 Document 2-1 Filed 07/12/12 Page 29 of 29.
APPENDIX 4, Release
In consideration for the parties' agreement to the terms ofthe Consent Order entered in United States v. Wells Fargo Bank. NA, (D.D.C.), and Wells Fargo's payment to me of $____-', pUl'suant to the Consent Oruer, I hereby release and forever discharge all claims,
- - - ­ ---
----------"
accming prior to the entry of the Consent Order, related to the allegations ofhousillg and credit
discrimination in the originatioll of loans secured by residential real estate at issue in the litigatiollreferenced above, that I may have against Wells Fargo, all related entities, parents, predecessors, successors, subsidiaries, and affiliates, and all oftheir past and present directors, officers, agents, managers, supervisors, shareholders, and employees and their heirs, executors, administrators, successors, or assigos.
Executed this _ day of_ _--' __ Sigoature PrilltName Address
-29­

 
 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA, Plaintiff, v.
WELLS FARGO BANK, NA,
Defendant.

Civil No. 12-1150 (JDB)

MEMORANDUM OPINION & ORDER Plaintiff United States of America and Defendant Wells Fargo Bank, NA (“Wells Fargo”) request that the Court enter a consent order to resolve the United States’ civil action brought to enforce the Equal Credit Opportunity Act (ECOA), 15 U.S.C. §§ 1691-1691f, and the Fair Housing Act (FHA), 42 U.S.C. §§ 3601-3619 [Docket Entry 2]. For the reasons set forth below, the Court will grant the joint motion.
BACKGROUND
On July 12, 2012, the United States filed a complaint against Wells Fargo, alleging that it discriminated against more than 34,000 African American and Hispanic borrowers in its residential mortgage lending operation. Compl. ¶ 1 [Docket Entry 1]. The complaint alleges that some African American and Hispanic borrowers received subprime, rather than prime, loans and that some paid higher fees and costs because of their race or national origin. Compl. ¶¶ 2, 3, 23, 51. It further alleges that Wells Fargo’s policies in effect between 2004 and 2009 allowed employees to make decisions about the type of loan product offered and the loan price in a
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manner disconnected from objective criteria like credit risk, that these policies set up financial incentives for employees and mortgage brokers to impose unfavorable terms, and that the policies lacked safeguards to prevent and remedy racial and ethnic disparities. Compl. ¶¶ 5, 2729, 76.
Also on July 12, 2012, the parties filed with the Court a proposed consent order. In agreeing to the consent order, Wells Fargo does not admit any of the allegations in the complaint. Rather, in recognition of the risks inherent to litigation, both sides agree to a set of terms while maintaining that each would have prevailed in litigation. Briefly, Wells Fargo will pay at least $125 million to compensate borrowers who were allegedly aggrieved. Consent Order ¶ 17. Wells Fargo also agrees to expend $50 million to provide down-payment assistance to low-income borrowers in metro areas hardest hit by the subprime loan foreclosure crisis. Consent Order ¶ 30. Under the consent order, Wells Fargo will maintain its policies (implemented after the events alleged in the complaint) that disconnect compensation from a loan’s terms and conditions. Consent Order ¶¶ 4-11. The consent order also has various provisions to assure compliance, including regular reporting requirements. Consent Order ¶¶ 10-11, 38-40. 1
STANDARD OF REVIEW
“[P]rior to approving a consent decree a court must satisfy itself of the settlement’s overall fairness to beneficiaries and consistency with the public interest.” Citizens for a Better Env’t v. Gorsuch, 718 F.2d 1117, 1126 (D.C. Cir. 1983) (internal quotation marks omitted). The Court’s function is not to “inquire into the precise legal rights of the parties nor reach and resolve
1 In a telephone conference with the parties on July 27, 2012, the Court requested further justification for entering the consent order, which the parties provided on August 10, 2012. On August 23, 2012, the parties asked for a brief delay in the Court’s ruling while they resolved a technical issue with the proposed agreement. On September 4, 2012, they advised the Court that the issue was resolved and consideration of the consent order could proceed.
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the merits of the claims or controversy,” but “only [to] determine that the settlement is fair, adequate, reasonable and appropriate under the particular facts and that there has been valid consent by the concerned parties.” Id. (internal quotation marks omitted); see also United States v. District of Columbia, 933 F. Supp. 42, 46-47 (D.D.C. 1996).
Approving a consent decree “is a judicial act,” and the Court undertakes it with care. See United States v. Microsoft Corp., 56 F.3d 1448, 1462 (D.C. Cir. 1995). But, short of a decree that “make[s] a mockery of judicial power,” the Court should accept an agreement between the parties. Id. As this circuit has recognized, “voluntary settlement of civil controversies is in high judicial favor.” Citizens for a Better Env’t, 718 F.2d at 1126 (alteration and internal quotation marks omitted); see also id. at 1127 n.11 (“It would be especially unfortunate if a lack of judicial restraint stifled the evolution of less adversarial approaches to developing regulations.”).
ANALYSIS
Against this backdrop, the Court reviews whether the agreement was validly consented to and is fair, reasonable, and consistent with the public interest.
Consent: Both parties represent that the settlement is a product of good-faith, armslength negotiation. Supplemental Br. in Supp. of Joint Mot. (Aug. 10, 2012) [Docket Entry 7] at 2 (“Supp. Br.”). The content of the consent order supports this representation, for it provides benefits to both sides and carefully limits and defines the agreement’s requirements, reflecting extensive negotiation. Finally, the parties’ status—Wells Fargo is a private, sophisticated, counseled litigant, and the plaintiff is the United States government itself—strongly supports a finding of valid consent.
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Fairness: Valid consent that resulted from good faith bargaining itself indicates that the agreement is procedurally fair. Moreover, the possibility of a conflict of interest is particularly low in this suit: unlike a class action settlement where the possibility of collusion between the defendant and class counsel demands significant judicial scrutiny, a suit brought by the United States under the ECOA and FHA does not pose such potential conflicts of interest. See United States v. City of Miami, 614 F.2d 1322, 1332 n.18 (5th Cir. 1980).
Next, the Court finds the agreement substantively fair. Both parties “believe that they would have prevailed at trial,” but “both acknowledge the significant risk inherent in engaging in further litigation.” Supp. Br. at 2. The agreement reflects a compromise that addresses many of the United States’ concerns and does so through terms Wells Fargo finds acceptable. The Court notes that Wells Fargo’s denial of the allegations in the complaint poses no barrier to approving the consent order. See Microsoft Corp., 56 F.3d at 1461 (“criticism of Microsoft for declining to admit that the practices charged in the complaint actually violated the antitrust laws was . . . unjustified”); see also SEC v. Citigroup Global Mkts. Inc., 673 F.3d 158, 165 (2d Cir. 2012) (per curiam) (“Finally, we question the district court’s apparent view that the public interest is disserved by an agency settlement that does not require the defendant's admission of liability. Requiring such an admission would in most cases undermine any chance for compromise.”).
Reasonableness: In examining the remedies the parties consent to, it is inappropriate for the judge to measure the remedies in the decree as if they were fashioned after trial. Remedies which appear less than vigorous may well reflect an underlying weakness in the government’s case, and for the district judge to assume that the allegations in the complaint have been formally made out is quite unwarranted. Microsoft Corp., 56 F.3d at 1461. This agreement is eminently reasonable, and easily survives the limited scrutiny appropriate for the Court to undertake.
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The consent order is carefully tailored to ending the policies and practices that allegedly led to discrimination, and to assuring that no discrimination occurs in the future. It details specific policies that address the allegations the United States made in its complaint and provides for extensive review and reporting to assure any future problems are promptly discovered and averted.
In addition to its prospective reach, the consent order has a significant compensatory component, with Wells Fargo agreeing to pay at least $125 million to compensate allegedly aggrieved borrowers. The United States has identified thousands of individuals who will be eligible to receive up to $140,000 of compensation, and, if they choose to participate, will receive these payments much sooner than they would have had the case gone to trial. Wells Fargo will also expend an additional $50 million to provide down-payment assistance to lowincome borrowers, a program the parties expect to benefit at least 3,000 families. The agreement thus offers a significant benefit to the United States. At the same time, it is fair to Wells Fargo: despite denying that any compensation is warranted, Wells Fargo finds the requirement that it make these payments fair because it “adequately reflects its litigation risk,” Supp. Br. at 8. The Court trusts this well-counseled assessment of the agreement’s fairness towards Wells Fargo.
Public Interest: Finally, the Court must ensure that the agreement is “consisten[t] with the public interest,” Citizens for a Better Env’t, 718 F.2d at 1126 (internal quotation marks omitted); in other words, that the agreement is “not unlawful, unreasonable, or against public policy,” District of Columbia, 933 F. Supp. at 47.
Entry of this consent order will not automatically affect the rights of third parties. Rather, those borrowers the United States identifies as allegedly aggrieved persons have the option of
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signing a release in exchange for receiving payments from the settlement fund. Those who decline to do so will be in precisely the same position as they are at present. Nor does the agreement harm public interest more generally, say by permitting certain discriminatory practices in violation of the ECOA or the FHA. On the contrary, the consent order focuses heavily on eradicating the possibility of discrimination in the future. The agreement hence does not harm the public interest in any way. The Court must give the government “rather broad discretion to settle with the defendant within the reaches of the public interest,” Microsoft Corp., 56 F.3d at 1461, and this agreement falls squarely within the range of permissible discretion.

CONCLUSION

The Court finds that both parties validly consented to the agreement, and it is fair, reasonable, and consistent with the public interest.

For the reasons stated above, it is hereby

ORDERED that [2] the joint motion for entry of consent order is GRANTED; and it is further

ORDERED that [2-1] the consent order is ENTERED.

SO ORDERED. Dated: September 20, 2012

/s/ JOHN D. BATES United States District Judge

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 Case 1:12-cv-01150-JDB Document 10 Filed 09/21/12 Page 1 of 29

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,

)

)

Plaintiff,

) CML ACTION NO.

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}

..

)

v.

)

)

WELLS FARGO BANK, NA,

)

)

)

Defendant.

)

)

CONSENT ORDER I. INTRODUCTION This Consent Order ("Order") resolves the claims in the United States' Complaint that, during and between 2004 and 2009, Wells Fargo Bank, NA ("Wells Fargo") engaged in a pattern or practice of discrimination on the basis of race and national origin in residential mortgage lending in violation of the Equal Credit Opportnnity Act ("ECOA"), 15 U.S.C. §§ 1691-1691f, and the Fail' Housing Act ("FHA"), 42 U.S.C. §§ 3601-3619. There has been no factual finding or adjudication with respect to any matter alleged by the United States. The parties have entered into the Order to avoid the risks, expense, and burdens of litigation and to resolve voluntarily the claims in the United States' Complaint against Wells Fargo.
II. BACKGROUND
Wells Fargo was one ofthe largest singJe-fami1ymOltgage lenders in the United States between 2004 aJld 2009. Since 2008, Wells Fargo has been the largest residential home

Case 1:12-cv-01150-JDB Document 10 Filed 09/21/12 Page 2 of 29
mortgage originator in the United States, and now originates more than one out of every four mortgages in the country.
In 2009, Office of the Comptroller of the Currency ("OCC") examiners initiated a fair lending review of WeUs Fargo's home mortgage product placement practices. As a result of that examination, the OCC detennined that it had reason to believe that Wells Fargo engaged in a pattern or practice of disctimination on the basis of race or color, in violation of the FHA and ECOA. Specifically, the OCC found that, after controlling for credit factors, there was reason to believe that Wells Fargo placed African-American applicants in the rubprhne mortgage lending channel in the Wushinglon-Baltimore-Northem Virgima, DC·MD-VA-WV Combined Statistical Area ("Washinglon CSA") more frequently than similarly-situated white applicants duting the period from 2004 to 2008. Following that determination, and pursuant to 15 U.S.C. § 1691e(g), the OCC referred the matter to the Department of Justice on December 14, 2010.
In May 2009, the United States Department of Justice initiated its own FHA and ECOA investigation into Wells Fargo's home mortgage lending business practices regarding home mortgage pricing and product placement, initially in the Washington CSA and subsequently nationwide. In 2010, the United States informed Wells Fargo that a lawruit had been authorized regarding its residential lending practices in the Washington CSA, and in 201 l, the United States informed Wells Fargo that a lawsuit had been authorized regarding its national residential lending practices. The parties have engaged in good faith, arms-length negotiations that produced this Order.
In its Complaint, the United States alleges that between 2004 and 2009, Wells Fargo engaged in a pattern or practice of discrimination on the basis of race and national origin in violation of both the FHA and the ECOA. Specifically, the United States claims that between
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2004 and 2007, Wells Fargo's business policies allowed the discretion to place borrowers in nonprime loan products, even where the borrower could have qualified for a prime loan product. In addition, the United States claims that Wells Fargo permitted persons originating Wells Fargo loans to earn higher overall compensation fi-om placing a prime-qualified borrower into a nonprime loan rather than a prime loan. The United States clalms that this combination of discretion and financial incentive resulted in Afiican-American and Hispanic borrowers being placed into nonprime products at higher rates than similarly-situated white borrowers. In July 2007, Wells Fargo closed its wholesale nonprime lending division, and in May 2008, stopped originating nonprime loans from its retail division.
In addition, the United States claims that between 2004 and 2009, Wells Fargo's policies gave third pmtymOitgage brol,ers that submitted loans to Wells Fargo's wholesale channel for origination the discretion to vary the interest rates, fees, and costs paid by bOlTowers. The United States alleges that these discretionary chm'ges were not related to the bon'ower's credit risk or objective qualifications, and that the discretion resulted in African-American and Hispanic borrowers who received loans through Wells Fargo's wholesale lending challllel paying higher interest rates, fees and costs than similm'ly-situated white borrowers. Tn April 2011, amendments to Regulation Z, which implements the Tmth Tn Lending Act, becmne effective, and that regulation altered the manner in which brokers may receive compensation from their customers and tl1rough the lenders that might originate the loans.
III. POSITION OF WELLS FARGO Wells Fargo asserts that throughout the period of time at issue in this proceeding and to the present, it has treated all of its customers fairly and without regard to impennissible factors such as race alld national origin. Wells Fargo enters this settlement solely for the purpose of
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avoiding contested litigation with the Department of Justice, and to iustead devote its resources to providing fair credit services to eligible persons, and to providing important and meaningful
assistance to borrowers in certain distressed .o. S. real estate markets.
Wells Fargo notes that it has not been advised by the Department of Justice that the Department alleges that any employee of Wells Fargo discriminated intentionally on the basis of race or national origin. During the period in which Wells Fargo originated subprime loans, it implemented indush'y-leading procedures to identify subprime loan applicants who might be eligible for a prime-rate product. These procedures were applied to all subpl'ime applicants, without regard to race, national origin or any other impermissible factor. Wells Fargo's borrower data proves that its sUbprime borrowers had significantly weaker credit characteristics than its prime borrowers. Further, Wells Fargo believes that an appropriate analysis of its loan data and loan-file information show ilO disparate impact in product placement against AfricanAmerican .or Hispanic borrowers.
The United States' loan pricing claim focuses on wholesale loans and arises fTOm the feeS that independent mortgage brokers charged their customers. These fees were neither set by nor payable to Wells Fargo.
No lender in the United States originates a larger number of residential mortgage loans to African-American and Hispanic borrowers than Wells Fargo. Wells Fargo not only denies that it discriminated unlawfully, but affirmatively asserts that it has treated all of its customers without regard to race or national origin, and that its business practices have promoted and achieved faimess across all borrower groups.
IV. REMEDIAL ORDER
1. Unless otherwise stated herein, the remedial provisions of the Order will be implemented within 60 days of the Effective Date of the Order and will continue throughout its
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term. The Effective Date of the Order will be the date on which it is approved and entered by the Court.
A. General Nondiscrimination Injunctiou 2. Wells Fargo, including all of its officers, employees, agents, assignees, successors in interest, and all those in active concert orpaliicipation with any of them, is hereby enjoined from violating the antidiscrimination provisions of the FHA and the ECOA in connection with the OIigination of residential mOligage loans. 3. Nothing in this Order will require Wells Fargo to make unsafe or unsound loans or to requil'e loans to be originated or priced based upon the race or national origin of the borrower or prospective borrower. B. Lending Policies aud Procedures 4. Consistent with Regulation Z, 12 C.F.R. § 1026.36(d), Wells Fargo will prohibit, for all loans secured by residential real estate originated in its name, employees and mortgage brokers! from receiving, directly or indirectly, overages, yield spread premhnns or other compensation in an amount that is based on any of the terms or conditions of II loan secured by residential real estate, including the annual percentage rate charged to the borrower or the amount by which the interest rate Valles from the par rate. This prohibition will not limit compensation that is based on the principal amount of a loan, provided the oompensation is based on a fixed percentage of the principal; however, such compensation may be subject to a minimum 01' maximum dollar amount. This prohibition also will not limit Wells Fargo from allowing a borrower to finance, at the option of the borrower, including through principal oJ'rate, any origination fees or costs, so long as such fees 01' costs do not vary based on the terms of the I The tenn "rnOligage broker" in the Order follows the definition contained in 12 C.F.R. § 1026.36(a), and includes both natural persons and organizations.
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loan (other than the am01mt of the principal) or the borrower's decision about whether to finance such fees or costs?
5. Wells Fargo will maintain specific standards, substantially similar to those detailed in its the May 2012 ''Wells Fargo Home MOltgage Retail Pricing Policy," fur the assessment of all origination fees and costs it charges and retains for itself or pays to its employees on loans secured by residential real estate. Specifically, Wells Fargo will continue to maintain its policy originally implemented in April 2011 of limiting pricing discretion above the pal' rate to 25 basis points, aild prohibiting loan officers in its retail charulel from sharing in any funds resulting j:\'om charging any amount above the pal' interest rate. Wells Fargo will also maintain its policy of prohibiting subsidies exceeding 50 basis points (subject to the exceptions provided in the May 2012 Retail Pricing Policy), and will implement a new policy requiring employees to document the reason for any subsidy. Before funding any loan, Wells Fargo will ensure it maintains documentation of compliance with the standards established to satisfy this Paragraph.
6. Wells Fargo will maintain specific standards, snbstantially similar to those detailed in its June 2012 "Wholesale Lending Pricing Policy" which are designed to avoid substantial variance in the total broker compensation paid to mortgage brokers on loans secured by residential real estate that are originated in Wens Fargo's name and 11mt Wells Fargo ll11derwrites, originates, 01' funds. For the duration of the Order, Wells Fargo will continue to maintain its policy of limiting total broker compensation to 3.25 % of the loan amount (inclusive of the 25 basis points bonus based on Wells Fargo's Performance Works Tier Adjuster). Wens
Z No term of this Consent Order will be interpreted to prevent Wells Fargo from complying with any federal statutory or regulatory requirement concerning employee or mOitgage broker compensation or loan pricing.
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Fargo will also maintain its policy that lender-paid compensation to brokers (including payments by Wells Fargo to a broker made out ofloan proceeds) is an agreed-upon amount per loan that does not vary by loan and can only be changed on a quarterly basis, and will also maintain its policy that total borrower-paid broker compensation may not exceed the amount that the broker could have received in total lender-paid compensation for the loan. Wells Fargo will ensure that compliance with these standards is a part of any agreement that provides for a mortgage broker to submit loan applications to Wells Fargo. To the'extent the standards established to satisfy this Paragraph allow mortgage brokers to exercise aiscretion in the amount of the total broker compensation, mortgage brokers will provide a written explanation for borrower-paid total broker compensation that exceeds 2.5% of the loan amount. Before funding any loan, Wells Fargo will ensnre it maintains documentation of compliance with the standards established to satisfy this Paragraph.
7. Wells Fargo will require, for alll08ns secured by residential real estate originated in its name, all employees and mortgage brokers to comply with the requirements established in Paragraphs 4-6. Wells Fargo will also require an appropriate manager or managers, under the supervision of a designated senior official ofWells Fargo, to review compJiance with these requirements. Such review will occur no later than 30 days after closing. In the event that Wells Fargo receives or pays compensation in excess of what is permitted by the policies referenced in Paragraphs 4-6, an appropriate refund will be provided to the borrower in the form of a cash payment or credit to the borrower's account. All reviews will be documented, and such documentation will be retained for the term of the Order.
8. During the dumtion of the Order, Wells Fargo will continue to maintain a complaint resolution program to address consumer complaints alleging discrimination regarding
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pricing of; 01' improper product placement with respect to, loans secured by residential real estate originated in Wells Fargo's name, Documentation regarding such complaint resolution program, including documentation of individual complaints and resolutions, if any, will be made available to the United States through the semi-annual reports referenced in Paragraph I L A person will not be deemed ineligible for the complaint resolution program on the basis ofhaving executed a Release, but there is no requirement under tile Order that any complaint necessarily be resolved for or against Wens Fargo or that any particular fmID or amount of relief be provided to any complainant.
C, Monitoring Progl'alU 9, Wells Fargo currently employs a comprehensive fair lending monitoring program, Wells Fargo for the duration ofUle Order will maintain no less tl1an its currently existing level of fair lending auditing and monitoring detailed in Wells Fargo's "Fair and Responsible Lending (FRL) Policy", dated February 28, 201 L 10, Within 30 days of the Effective Date of the Order, Wells Fargo will have in place . a monitoring program designed to ensure compliance with ilie Order, which may be satisfied in whole or in part by its existing fair lending monitoring program, The program wilI be designed to monitor, for all loans secured by residential real estate originated in its name, for potential unexplained disparities by a borrower's race or national origin in the price charged for its residential loan products, At a minimum, Wells Fargo wi1lmonitor disparities in APRs, overages, subsidies and total broker compensation, The monitoring will include, but not be lin1ited to, an analysis designed to detect significant unexplained disparities in the price charged for residential loan products by race and national origin with respect to all loans secured by residential real estate originated in Wells Fargo's name, Such analysis will be conducted at the national level and at a metropolitan statistical area (MSA) level for MSAs where Wells Fargo
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annually originates at least 100 loans, including at least 30 loans to non-Hispanic whites and 30 loans to either African-Americans or Hispanics. This Consent Order does not require any product placement monitoring or review with regard to Wells Fargo conventional conforming', c~nventionalnon confonning (jumbo)4, home equity loans or lines of credit, affordable housingS 01' goveromentalloal1s. To the extent Wells Fargo begins originating residential mortgage loans that are not classified us conventional conforming, conventional nonconfonning (jumbo), home equity loans or lines ofcredit, affordable housing loans or gove1'llment loans during the tenn of tlus Order, within 30 days of offering any different type of residential mortgage loan originations, Wells Fargo will submit a proposed product placement monitoring program to the United States for its review and approval. Ifwithin 30 days of its receipt of the proposed product placement monitoring program the United States does not notify Wells Fargo in writing that it objects to the same, the proposed product placement monitoring program will be deemed approved. If the Uluted States does not believe that the proposed product placement monitoring progiam is adequate, Wells Fargo and the United States will meet and confer to resolve the dispute. If the parties are tumble to come to a resolution, the United States may ask the Court to resolve the paliies' differences. Wells Fargo represents that it does not originate any residential
, These loans are mortgages that arc not obtained under a government program (such as FHA or VA), and that also satisfy the standard underwriting guidelines and loan amount limits set by the quasi-govermnent agencies, Fannie Mae and Freddie Mac; these loans, therefore, can be sold to either of these two agencies in the secondary market. 4 These loans are not obtained under a government program and exceed the maximum confonning limits set by Falmie Mae and Freddie Mac. Such loans rely on the fully documented and verified financial capacity of the borrower as the primary means ofrepayment as well as a full analysis of the creditworthiness of the borrowers. 5 These loans are state, county and municipal bond and downpayment assistance programs and prime portfolio products designed to serve low to moderate income commUluties (which currently consists solely of Wells Fargo's Community Development Mortgage Program).
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mortgage loans that would require product placement monitoring as ofthe date of filing ofthis Consent Order.
11. Wells Fargo's senior managers will conduct a semi-annual review ofthe monitoring programs described in this Order. A report on the review will be presented to tile appropriate committee of Wells Fargo's Board of Directors for review and oversight not later than 90 days after the end of each semi-annual period.
a. In the event that any such review discloses statistically significant disparities at the 95% level either nationally or in any MSA, Wells Fargo will attempt to determine tile reason(s) for those disparities and will promptly talce corrective action to address significant disparities that were caused by a policy or practice ofWells Fargo, and not justified by legitimate business need. Corrective action will include, as warranted, financial remediation for borrowers, modifications to Wells Fargo's pricing policies andlor monitoring programs as appropriate, and education, discipline or tennination of employee(s) or mortgage broker relationship(s). Wells Fargo will document all such disparities, determinations, and actions taken and will provide a summmy of the quarterly reviews and any documentation IDld analysis relatulg thereto to the United States on a semi-annual basis.6
6 All material required by the Order to be sent to the United States will be sent by commercial overllight delivery service addressed as follows: Chief, Housing and Civil Enforcement'8ection, Civil Rights Division, U.S. Department of Justice, 1800 G Street NW, Suite 7002, Washington, DC 20006, Attn: DJ 188-69-27, or by facsimile to 202-514-1116. Wells Fargo may redact portions based on an assertion of attorney-client privilege from any materials required by the Order to be sent to tile United States or to be subject to review by the United States, or, upon notice to fue United States, it may withhold materials based on an assertion of attorney-client privilege applying to IDl entire document. If the United States raises IDlY objections to Wells Fargo's clainl of privilege, Wells Fargo IDld the United States will meet IDld confer to resolve the dispute. If the parties m'e 1ll1able to come to a resolution, the United States may ask this Court to determine whether the claim of privilege is legally correct.
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b. In fue event fuat any such review discloses statistically significant disparities with respect to any particular employee, branch office, 01' mortgage broker, Wells Fargo will require the employee, branch manager, or mortgage broker to explain the non-discriminatory reason(s) fo), fuose disparities. If there is no reasonable, nonracial explanation for the noted disparities, Wells Fargo wiJ1reqnire the employee or branch manager to talce prompt corrective action to address the disparities; and Wells Fal'go will take prompt appropriate action with respect to mortgage brokers, up to and includ10g termination of the broker relationship. In the event that Wells Fargo receives or pays compensation 10 excess of what is permitted by the policies referenced in Pw:agraphs 4-6, an appropriate refund will be provided to the bon'ower in the form of a cash payment or credit to the borrower's account. Tfthe United States raises any objections to Wells Fargo's detenninations or remedial actions, Wells Fargo and the United States will meet and confer to cODBider appropliate steps to address the concerns raised by the United States' review. lfthe.parties are unable to come to an agreement regarding such objections, any pm'!ymay bring the dispute to this Court for resolution. D. Borrower DisclosllrcS 12. Wells Fargo will post and prom1oently display 10 each location where it receives loan applications a notice of nondiscrimination that satisfies the requirements of 24 C.F.R. Part
110. E. Equal Credit Opportunity Training PI'ogram
13. Wells Fargo currently provides comprehensive fair lend10g training to mmlagement officials and employees. Within 90 days of the Effective Date of the Order, Wells
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I i
I Fm'go will provide access to a copy of the Order and the policies referenced therein to its
I management ofllcials and employees who participate in taking applications for, OIiginating, or pricing loans secured by residential real estate, including employees who have significant contact with or oversight ofmortgage brokers, and employees responsible for conducting compliance monitoring as provided in Section IV.C of this Order. Wells Fargo will provide access to a copy of the Order und the policies referenced therein to each new management ofllcial or employee whose responsibilities include those set forth in the preceding sentence within 30 days of begimling his or her employment in that position. 14. Within 150 days ofthe Effective Date ofthe Order, mId ammally thereafter for the duration of the Order, Wells Fargo will provide equal credit opportunity training to its l11unagement officials and employees who pmiicipate in taleing applications for, originating, or pricing loans secm'cd by residential real estate, including employees who have significant contact with 01' oversight ofmortgage brokers, and to employees responsible for conducting compliance monitoring as provided in Section IV.C of this Order. Wells Fargo will provide equal credit opportunity training to eaoh new management official or employee whose responsibilities include those set fOl1h in the preceding sentence within 90 days ofbegiIDling his or her employment in that position. 15. During the equal credit opportunity training, Wells Fargo will provide to each participant training on the terms of the Order, the policies referenced therein, 'the requirements of the FHA, the ECOA, and his or her responsibilities under each. The oontent of the training program required by this Paragraph will be approved in advanoe by the United States. Any expenses associated with this training program will be borne by Wells Fargo. At the conclusion oflhe training program, Wells Fargo will require each employee to sucoessfhlly complete an

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assessment which demonstrates that the employee was provided access to a copy of the Order aod the policies referenced therein, understaods his'or her legal responsihility not to discriminate, aod has completed the equal credit opportunity training.
16. Wells Fargo will offur all mortgage brokers who submit applications to Wells Fargo for loans secured by residential real estate the opportunity to undergo fair lending training similar to the training described in Paragraphs 14-15. Wells Fargo will retain for the duration of the Order documentation of aoy training conducted or requests for training made pursuaot to this Paragraph, and make such documentation available to the United States upon request.
F. Satisfaction of United States' Claims for Monetary Relief 17. Wells Fargo will deposit in ao interest-bearing escrow account the total sum of $125 million to compensate for alleged monetary damages aggtieved persons nationwide who obtained a loan through Wells Fargo's wholesale chaonel may have suffered as a result of the alleged violations of the FHA aod the ECOA (the "Settlement Fund"). Title to this account will specify that it is "for the benefit of allegedly aggrieved persons pursuant to Order of the Court in United States v. Wells Fargo Bank, NA." Wells Fargo will provide written velification of the deposit to the United States within 5 days of the Effective Date ofthe Order. Any interest that accrues will become part ofthe Settlement Fund aod be utilized and disposed of as set forth herein. 18. The United States has obtained from Wells Fargo infol1nation aod data it reasonably believes will assist in identifying allegedly aggrieved persons and determining any damages. Such information and data will be used by the United States only for the law enforcement purposes of implementing this Order. The United States will, upon reasonable notice, be allowed access to mortgage loan files and borrower contact information contained in servicing records ofWells Fargo, Wells Fargo's pm'ent, or aoy entity owned by Wells Fargo's
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parent for loans Wells Fargo originated between 2004 and 2009 to velify the accuracy of the data provided and to otilcrwise identify persons entitled to the payments from the Settlement Fund.
19. Within 60 days of Effective Date of tile Order, Wells Fargo will enter into a contract retaining a Settlement Administrator ("Administrator"), subject to approval by the United States, to conduct the activities set forth in the following Paragraphs. Wells Fargo will bear all costs and expenses of the Administrator, and Wells Fargo's contract with the Administrator will require that the Administrator comply with the provisions of the Order as applicable to the Administrator.7 The Administrator's contract will require tile Administrator to wodC cooperatively with the United States in the conduct of its activities, including reporting
"
regularly to and providing all reasonably requested information to the United States. Wells Fargo will allow the Administrator access to mortgage loan files and borrower contact information contained in servicing records of Wells Fargo, Wells Fargo's parent, or any entity owned by Wells Fargo's parent for loans Wells Fargo originated between 2004 and 2009 for the purposes of accomplishing its duties under the Order. The Administrator's contract will require the Administrator to comply with all confidentiality and privacy restrictions applicable to the party who supplied the information and data to the Administrator.
20. The United States will identify allegedly aggrieved persons in ilie wholesale channel with respect to its race and national origin discrimination claims within 45 days of the Effective Date ofthis Consent Order. The United States will provide a list of such allegedly
7 In ilie event the United States has reason to believe that ilie Administrator is not materially complying with the terms of its contract with Wells Fargo, the United States and Wells Fargo will meet and confer for the purpose of mutually agreeing upon a course of action to effect the Administrator's material compliance with its contract with Wells Fargo. In the event that the United States and Wells Fargo are unable to agree upon a course ofaotion to effect the Administrator's material compliance with its contract with Wells Fargo, the parties may present the matter to the Court.
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Case 1:12-cv-01150-JDB Document 10 Filed 09/21/12 Page 15 of 29
aggrieved persons to Wells Fargo and the Administrator, along with information on each individual last ImoWl1 address.
21. The Administrator's contract will require the Administrator to maIce its best efforts, using all reasonable methods, to locate each identified allegedly aggrieved persou and obtain such information as the United States reasonably considers necessary from each. The Administrator's contraot will require the Administrator to complete this responsibility within a period of 6 months from the date the United States provides the list desclibed in Paragraph 20, subjeot to an extension of time as provided by Paragraphs 25 and 42. The Administrator's contraot will require the Administmtor, as part of its operation, to establish cost-fl'ee means for allegedly aggrieved persons to contact it, such as email and a toll-free telephone nUll1ber.
22. The United States will specify the amount each allegedly aggrieved person identified in the list described in Paragraph 20 and located by the Administrator will receive from the Settlement Fund no later than 60 days after the Administrator's deadline for locating aggrieved persons in Paragraph 21 has passed, The United States will provide the compensation list to the Administl'ator. This list will direct no less than $8 million to allegedly aggrieved persons who lived in minois at the time of origination to resolve Wells Fargo's pending litigation with the State of Illinois, and tlle Administrator's communIcations with such borrowers will refer to both the settlement of litigation by the United States and the State of minois. The list will also direct no less than $2 million to allegedly aggrieved persons who lived in the City of Philadelphia at the time of loan origination to resolve the issues presented in the investigation that the Pennsylvania Human Relations Commission ("PHRC") sought to conduct against Wells Fargo, and the Administrator's communicatiollB with such b01l'OWerS will refer to both the settlement ofthe United States litigation and the settlement ofthe issues that the PHRC raised.
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23. The Administrator's contract will require the Administrator to send releases, with langoage approved by the United States and Wells Fargo as set forth in Appendix A, to allegedly aggrieved persons (hereafter, "Releases"). After receipt of executed releases, the Adl'ninistrator's contract will require the Administrator promptly to deliver payments to those persons in amounts determined by the United States as described in Paragraph 22. The Administrator's identification and payment responsibility may talce place on a rolling basis 'witl1 approval from the United States.
24. The Administrator's contract will req1!ire the Administrator to set forth reasonable deadlines, subject to approval of the United States, so that the compensation is distributed and checks are presented for payment or become void prior to the date that is 24 months from the date the Administrator begins to locate allegedly aggrieved persons pursuant to Paragraph 21.
25. Payments from the Settlement Fund to allegedly aggrieved persons will be subject to the fonowing conditions, provided that the details in administration of the Settlement Fund set forth in Paragraphs 18-24, can be modified by agreement of the parties and without further Court approval:
(a) No allegedly aggrieved person will be paid any amount from the Settlement Fund until he or she has executed and delivered to Wells Fargo a Release; and
(b) The total amount paid by Wells Fargo collectively to the allegedly aggrieved persons will not exceed the amount of the Settlement Fund, including accrued interest.
26. All money set aside in the Settlement Fund for allegedly aggrieved persons who received nonprime loans from Wells Fargo's wholesale channel but not distributed to such persons, including accrued interest, within 24 months from the date the Administrator begins to locate allegedly aggrieved persons pursuant to Paragraph 21 will be allocated to the borrower
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Case 1:12-cv-01150-JDB Document 10 Filed 09/21/12 Page 17 of 29
assistance program described in Section IV.O of this Order provided that there continues to be demand for direct borrower assistance in multiple geographic areas. If the borrower assistance program remains operational and there continues to be demand for direct borrower assistance in multiple geographic areas, then the United States will designate which geographic area should receive the remaining funds. Such decision will be made in consultation with WeBs Fargo.
27. If the borrower assistance program is no longer operational 01' there is not sufficient demand for additional direct borrower assistance in any geographic area as of24 months from the date the Administrator begins to locate allegedly aggrieved persons, then any remaining funds will be distributed to qualified orgallization(s) that provide services including credit and housing counseling (including assistance in obtaining loan modification and preventing foreclosure), legal representation ofborrowers seeking to obtain a loan modification or to prevent foreclosure, financial literacy, and other related programs targeted at AfricanAmerican and Hispanic potential and fonner homeowners in communities where the Complaint alleges significant discrimination occurred against African-American and Hispanic borrowers. Rccipicnt(s) of such funds must not be related to Wells Fargo, Wells Fargo's parent, or any entity owned hy Wells Fargo's parent. Wells Fargo will consult with and obtain the nODobjection of the United States in selecting redpient(s) ofthese funds and the amount to be distributed to each, and the parties will obtain the Court's approval prior to distribution of any remainder of the Settlement Fund's assets. Wells Fargo will require each recipient to submit to Wells Fargo and the United States a detailed l'epoli on how funds are utilized within one year after the funds are distributed.
28. Wells Fargo will not be entitled to a set-off, or any other reduclion, of the amount of payments to aggI1eved persons because of any debts owed by the identified persons. Wells
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Case 1:12-cv-01150-JDB Document 10 Filed 09/21/12 Page 18 of 29
Fargo also will not refuse to make a payment based on a release oflegal claims or loan modification previously signed by any such aggrieved persons, inoluding but not limited to, any release of claims signed in cOlllection with the settlement reaohed between the United States and Wells Fargo & Company in February 2012 regarding mortgage loan servioing and foreclosure abuses.
G. EOI'!'ower Assistance 29. Within 60 days after the entry of this Consent Order, Wells Fargo will institute a new homebuyer assistanoe program to be implemented in jurisdictions within the following Metropolitan Statistical Areas ("MSAs") (as defined by 2005 U.S. Census Bureau data); Washington-Arlington-Alexandria, DC-VA-MD-WV; Chi cago-NaperviIIe-Joliet, IL-IN-WJ; Philadelphia-Camden-Wihnington, PA-NJ-DE-MD; San Francisco-Oaldand-Fremont, CA; New York-Northern New Jersey-Long Island, NY-NJ-PA; Cleveland-ElYria-Mentor, OH; and Riverside-San Bernardino-Ontario, CA. Wells Fargo will also implement this new homebuyer assistarlCe program in the City of Baltimore, Maryland. For purposes ofthis Consent Order, tins program is referred to hereinafter as the ''Wells Fargo Borrower Assistanoe Program." 30. Of all funds expended on the WeIls Fargo Borrower Assistanoe Program, at least $50 million will be directly funded by Wells Fargo Banle, N.A. This amount, which is separate fr0111 and in addition to the $125 miIlion that will be set aside pursuant to Par'agraph 17 for compensation of allegedly aggrieved persons who received nonprime loans fi'om Wells Fargo's wholesale channel and limn any rebates described in Paragraph 37 wiII be placed directly into an escrow aooount 01' acoounts (whioh may be created for each geographic area) within 30 days of the enlly of this Consent Order. Within 60 days of the entry ofthis Consent Order, the Parties will agree to the allocation of this $50 million among the seven MSAs and the City of Baltimore
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Case 1:12-cv-01150-JDB Document 10 Filed 09/21/12 Page 19 of 29
listed in Paragraph 29 above, nnd on the selected geographic areas within the MSAs where the Borrower Assistance Program will operate. For purposes of this Consent Order, these grants are referred to herein as the "Borrower Assistance Grants", and may be in allY amount up to but not exceeding $15,000. Each Borrower Assistance Grant will be in 111e form ofa 0% interest loan, 20% of which will be forgivable each year for five years. The prorated balance due is repayable if the property is sold, refinanced, or ifiliere is a transfer of title or foreclosure within the first five years, subject to an limited exception for refinancing (with no cash out to the borrower) of the first mortgage to a lower interest rate due to death or divorce where one of the original borrowers remains an owner of the property. Any recaptured funds will be retumed to the Borrower Assistance Grant pool of funds and made available for assistance to other qualified borrowers. Each Borrower Assistance Grant must be used for downpayment assistance, closing cost assistance, and/or, subject to the conditions ofthis paragraph, for home renovation finallcmg, Borrower Assistance Grants may be used for home renovation'financing only in connection with the Federal Housing Administration (FHA)'s 2031c program and conventional renovation loans, and must be in connection Witll the purchase of a home. Wells Fargo may modify or define additional tenns and requirements for the downpaymel1t assistance as necessary to implement the Wells Fargo Borrower Assistance Program that are consistent with ilie terms of this Consent Order, subject to approval by the United States.
31. WeIls Fargo may choose to expend additional funds in connection with ilie Wells Fargo Borrower Assistance Program, such as providing homebuyer education and counseling; however, at least $50 million must be spent directly on downpayment assistance, closing cost assistance, and/or home renovation financing in conneotion with the purchase of a home. Any homebuyer education or counseling must be conduoted by a BUD-approved counseling agency.
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Case 1:12-cv-01150-JDB Document 10 Filed 09/21/12 Page 20 of 29
Wells Fargo may define additional procedures and requirements for homebuyer education and counseling, subject to approval by the United States,
32, The Borrower Assistance Grants may be administered by an independent thirdparty nonprofit agency selected by Wells Fargo, subject to approval by the United States. TIlis independent third-party nonprofit agency may work with local nonprofit agencies in each of the MSAs or cities, Borrower Assistance Grants will be made to applicants earning less than 120% of Area Median Income (as defined by 2012 Department of Housing and Urban Development guidelines). It is not necessary that individuals receiving Borrower Assistance Grants be firsttime homeowners, although the grants must be used for a primm'y owner-occupied residence of 1-4 lmits in the areas designated by the parties, and may not include manufactured housing. If the borrower currently owns a home, it must be sold prior to closing on the property purchased using a Borrower Assistmlce Grant.
33. Wells Fm'go may not require that properties purchased with the help of Borrower Assistm1ce Grants be finm1ced by Wells Fargo BanIc, NA or m1y affiliated lender; however, Wells Fargo Bank, N.A., is not prohibited from fiuancing properties purchased with the help of Borrower Assistm1ce Grants. With respect to the first mortgage, Fannie Mae, Freddie Mac, FHA, VA, conventional renovation, conventional portfolio products, and other CRA affordable ' lending progrmn guidelines will apply. For Conventional Portfolio products or other CRA affordable lending progrmns, a reasonable combined loan-to-value ratio will be set by Wells Fm·go. The total of all financing cannot result in cash back to the borrower.
34. If the bon'ower has liquid reserves (cash 01' funds in accounts readily able to be converted to cash funds without penalty) greater thml 6 months of principal, interest, taxes and
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Case 1:12-cv-01150-JDB Document 10 Filed 09/21/12 Page 21 of 29

insurance, 01' $7,500, whichever is lower, such excess funds will be required to go toward a down

payment or closing costs before any BOI1'Ower Assistance Grants are applied.

35. Wells Fargo will provide targeted marketing regarding BOiTOwer Assistlll1ce

Grants in communities including census tracts that are greater than 40% African-American (as

identified using data from the 2010 Census) 01' Hispanic, and in communities including consus

tracts with average income levels of at or below 120% of Area Median Income. Borrower

Assistance Grants may be made to individuals of any race or nationality provided the borrower

meets the income requirements set forth above. Wells Fargo will engage in targeted marketing

which will include an event in each designated MSA, information to individuals interested in

receiving Borrower Assistance Grants, and media announcements in outlets serving the

communities in the designated ccnsus tracts. At least one such event must take place in each

I

designated MSA within one year of the Effective Date of this Consent Order.

36. All Borrower Assistance Grants must be distributed within (wo years ofthe date

of entry of this Consent Order. Any ftmds recaptul'ed pursuant to Paragraph 30 must be re-

distributed within one year of recapture. Any funds allocated to the borrower assistance

program from the Settlement Fund pursuant to Paragraph 26 will be redistributed within one year

from the time such funds arc allocated to the bon-ower assistance program. In the event there is

not sufficient demand for the Wells Fargo Borrower Assistance Program and there are remaining

funds, the provisions of Paragraph 27 setting out procedures for distribution to qualified

organizations will apply to such remaining f11l1ds.

B. Internal Review Process Regarding Nonprime Loans from Wells Fargo's Retail Division

37. In addition to compensating allegedly aggrieved persons who received Wells

Fargo loans from independent mortgage brokers, Wells Fargo agrees to undertake an internal

Case 1:12-cv-01150-JDB Document 10 Filed 09/21/12 Page 22 of 29
review, using an agreed upon statistical model and process, to determine whether there exist African-American andlor Hispanic borrowers who received nonprime Wells Fargo loans from Wells Fargo's retail channel who, based on the results or the statistical model, arguably might have qualified for prime loans from Wells Fargo's retail channel. Wells Fargo will provide a list of any such borrowers identified by the model to the United States no later than 45 days after the Effective Date of this Consent Order. Wells Fargo will provide cash rebates to such borrowers in an amount C0111l11ensurate with the amolmts paid to bOlTowers who received nonprime Wells Fargo loans from Wells Fru'go's wholesale division. Wells Fargo may not use funds from the Settlement Fund or the Borrower Assistrulce Program to pay for the rebates. To be eligible for the rebate, the borrower must execute and deliver to Wells Fargo a Release similar in form to that contained in Exhibit A. The rules and procedures governing the rebates will be the same as set forth in Paragraphs 18-24, 26-28, and 36, above.
V. EVALUATING AND MONITORING COMPLIANCE 38. For the duration or the Order, Wells Fargo will retain all records relating to its . obligations hereunder as well as its compliance activities as set forth herein. The United States will have the right to review and copy such records upon request, including loan files and electronic data for loans secured by residential real estate made during the duration of the Order. 39. Wells Fargo will provide to the United States the data on its lending that is submitted to the Federal Financial InstiMions Exrunination COllllCiJ (FFlEC) pursuant to the Home Mortgage Disclosure Act and the C0111l11tmity Reinvestment Act. The data will be provided in the same format in which it is presented to the FFIEC, within 30 days ofits submission to the FFIEC each year, for the duration of the Order, including the record layout.

Case 1:12-cv-01150-JDB Document 10 Filed 09/21/12 Page 23 of 29
40. In addition to the submission of any other plans or reports specified in the Order, Wells Fargo will submit semi-annualrcports to tIle pnited States on its progress in completing the requirements of the Order. Each such report will provide 'a complete account ofWells Fargo's actions to comply with each requirement of the Order during the previous 6 months, an objective assessment of the extent to which each quantifiable obligation was met, an explanation of why any particular component fell short of meeting its goal for the previous 6 months, and any recommendations for additional actions to achieve the goals of the Order. Each such report will detail any changes made to the May 2012 Wells Fargo Home MOIigage Retail Pricing Policy and the June 2012 Wholesale Lending Pricing Policy during the previous 6 months. Wells Fargo will submit its first report no later than 180 days after the Effective Date of the Order, and every 180 days thereafter for so long as the Order is in effect. In addition, if applicable, Wells Fargo will attach to the semi-annual reports representative copies of training materials disseminated pursuant to the Order.
VI. ADMINISTRATION 41. The Order will terminate 3 months after the submission of Wells Fargo's sixth serni-annual report due under Paragraph II to the United States, except that if all the actiollB required by Pumgraphs 17,29-30, and 37 have not been completed, Paragraphs 17,29-30, and 37 and this section will continue in effect for an additional 6 months. Notwithstanding the above, the Ordor may be extended further upon motion ofthe United States to the Court, for good cause shown. 42. Any time limits for perfonnance fixed by the Order may be extended by mutual wtitten agreement of the paliies. Except as provided by Paragraph 25, other modifications to the Order may be made only upon approval of the Court, upon motion by either party. The parties

Case 1:12-cv-01150-JDB Document 10 Filed 09/21/12 Page 24 of 29
recognize that there may be changes in relevant and material factual circumstances during the duration of the Order which may impact the accomplishment of its goals. TIle parties agree to work cooperatively to discuss and attempt to agree upon any proposed modifications to the Order resulting therefrom.
43. TIle Order will be binding on Wells Fal'go, including all its oflicers, employees, agents, assignees, and successors in interest, and all those in active concert or participation with any of them. The Order will consider loans originated by a mOltgage joint ven(ure operated by Wells Fargo, which are also underwritten and table-funded by Wells Fargo, to be loans originated by employees ofWells Fargo. In the event Wells Fargo seeks to transfer or assign all or part of its operations, and the successor or assign intends on canying on the same or similul' use, as a condition of sale, Wells Fargo will obtain the written accession ofthe successor or assign to any obligations remaining under the Order for its remaining tenn; however, if Wells Fargo temunates its ownership interest in the joint venture and is no longer involved in the ownership or operation of the joint venture, Wells Fargo's joint venture partners are not subject to the terms of .this Order for loan8 originated after the tennination of Wells Fargo's ownership. interest.
44. Nothing in the Order will excuse Wells Fargo's compliance with any currently or subsequently effective provision oflaw or order of a regulator with authority over Wells Fargo that imposes additional obligations on Wells.Fargo.
45. The palties agree that, as of the date of entry of the Order, litigation is not "reasonably foreseeable" concerning t11e matters described in the Order. To the extent that either party previously implemented a litigation hold to preselve doouments, electronically stored information, or things related to the matters described in the Order, the party is no longer
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Case 1:12-cv-01150-JDB Document 10 Filed 09/21/12 Page 25 of 29
required to maintain such a litigation hold, with the exception of documents, electronica1lystored information, or other things relating to loans originated by Wells Fargo between January 1,2004, and December 31,2009.
46. In the event that any disputes arise about the interpretation of or compliance with the terms of the Order, the parties will endeavor in good faith to resolve any such dispute between themselves before bringing it to this Court for resolution. If the United States believes that Wells Fargo haa violated any provision of the Order, it will provide Wells Fargo written notice thereof and allow 30 days to resolve the alleged violation hefore presenting tile matter to this Court. In the event of either a failure by Wells Fargo to perform in a timely manner any act required by tile Order or an act by Wells Fargo in violation of any provision hereof, the United States may move this Court to impose any remedy authorized by law or equity.
47. Wells Fargo's compliance with Paragraphs 17,29-30, and 37 of this Order shall fully and finally resolve all claims by the United States of discrimination, Lncluding under the FHA and ECOA, that are raised in the Complaint's allegations of a pattern or practice, in loans originated between January I, 2004 and December 31, 2009 by the Wells Fargo, of discrimination against Ali'ican-American and Hispanic borrowers baaed on racial and national origin disparities inloa11 pricing andlor product placement, including without linlitatioll all claims for equitable relief and monetary damages and penalties arising from those claims, as well as any claims under any other legal theory based on the same allegations of discriminatory conduct addressed in the Complaint. The Order does not release claims for practices not addressed in ilie Complaint's allegations, including clainls that may be held or are. currently under investigation by any federal agency, or any claims that may be pursued for actions that may be talcen by any executive agency established by 12 U.S.C. § 5491 or ilie appropriate
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Case 1:12-cv-01150-JDB Document 10 Filed 09/21/12 Page 26 of 29
Federal Banking Agency (FBA), as defined in 12 U.S.C. § 1813(q), against Wells Fargo, any of its affiliated entities, and/or any institution-affiliated party of Wells FW'go, as defined in 12 u.S.C. § 1813(u), pursuant to 12 U.S.C. § 1818 or any other statute or regulation. The Order does not resolve and release claims other than claims for discrimination.
48. Each party to the Order will bear its own costs and attorneys' fees associated with this litigation.
49. The Court will retain jurisdiction for the duration of the Order to enforce the tenDS of the Order, after which time the case will be dismissed with prejudice.
,f", _I'"
SO ORDERED, this 1-( dayotvVf......,J"'2012. U"NlIPtlD STATES DISTRlCT JUDGE
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Case 1:12-cv-01150-JDB Document 10 Filed 09/21/12 Page 27 of 29

The undersigned hereby apply for and consent to the enu:y of the 01'der:

FOI'l'lllintiff United States of America:

Dated: July 12, 2012

I
I I
RONALD C. MACHEN JR. D.C. Bar #447889 United Statea Attorney District of Cclmubia

I

, I
I
I ,
J

. HORN C. Bat' # 9 092

I

Acting Chief, Civil Division

I :

I
I

Respectfully submitted,
ERIC H. HOLDER, JR. Attorney General
THOMAS E. PEREZ Assistant Attolt\ey General Civil Rights Division
Af/~·
STEVF.-N H. ROSENBAUM D.C. Bar # 417585 Chief Housing and Civil Enforcement Section Civil Rights Division

'~J~~-4~6~2±6U7~79'~N~-----­
Assistant Uluted States Attorney 555 FOUlth Stroot, NW Wl1Shington, DC 20530 Phone: (202) 616"1761 Fax; (202) 514·8780 Javiel'.Guzman2@usdoj.go'l

• I
i i
I !
I I
I

Case 1:12-cv-01150-JDB Document 10 Filed 09/21/12 Page 28 of 29

For Wells Fargo BanI<, NA:
Dated:J~ II ,2012

Housing and Civil Enforcement Section Civil Rights Division United St~tes Depal1ment of hlStice 950 Pennsylvania Avenue NW Northwestern Bullding, 7th FloOJ' Washington, DC 20530 Phone: (202) 305-0122 Fax: (202) 5I4-1116 Coty.Montag@usdoj.gov
Respectfully submilted,
MI6,~llU:l~E
Executive Vice President Wells Fargo Bank, NA and President, Wells Fargo Home Mortgage

BART H. WILLIAMS Munger, Tolles & Olson LLP 355 So. Grand Avenue, 35 th Floor Los Angeles, CA 90071 Phone (213) 683-9295 Fax: (213) 687-3702 Bart.WiIliams@mto.com Counsel for Wells Fargo Bank, NA

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Case 1:12-cv-01150-JDB Document 10 Filed 09/21/12 Page 29 of 29
APPENDIX A Release
In consideration for the parties' agreement to the terms of the Consent Order entered in United States v. Wells Fargo Bank, NA, (D.D.C.), and Wells Fargo's payment to me of $_ _ _ _--', plll'suant to the Consent Order, I hereby release and forever discharge all claims, accruing prior to the entry of the Consent Order, related to the allegations of housing and credit discrimination in the Oligination afloans secured by residential real estate at issue in the litigation referenced above, that I may have against Wells Fargo, all related entities, parents, predecessors, successors, subsidiaries, and affiliates, and all of their past and present directors, officers, agents, managers, supervisors, shareholders, and employees and their heirs, executors, administrators, successors, or assigns.
Executed this _ day of _ _ _"__' Signature Print Name Address
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 Case 1:12-cv-01150-JDB Document 13 Filed 12/19/12 Page 1 of 2

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,

)

)

Plaintiff,

)

)

v.

)

)

WELLS FARGO BANK, NA,

)

)

)

Defendant.

)

____________________________________)

CIVIL ACTION NO. 1:12-cv-01150

NOTICE REGARDING ADDITIONAL MONETARY RELIEF

As required by Paragraph 37 of the Consent Order (Dkt. Entr. 2-1), Wells Fargo conducted its internal review, using the parties’ agreed-upon statistical model and process, to determine whether there exist African-American and/or Hispanic borrowers who received nonprime Wells Fargo loans from Wells Fargo’s retail channel who, based on the results of the statistical model, arguably might have qualified for prime loans from Wells Fargo’s retail channel. As a result of this internal review, Wells Fargo identified 3,990 African American and/or Hispanic retail nonprime borrowers eligible for cash rebates in an amount commensurate with the amounts paid to borrowers who received nonprime Wells Fargo loans from Wells Fargo’s wholesale division. The parties agreed that this amounts to an average of $14,850 per borrower. Accordingly, on December 13, 2012, Wells Fargo deposited a total of $59,251,500 in an escrow-bearing account and provided written verification of the deposit to the United States. The rules and procedures governing the administration of the rebates will be the same as set forth in Paragraphs 18-24, 26-28, and 36 of the Consent Order.

Case 1:12-cv-01150-JDB Document 13 Filed 12/19/12 Page 2 of 2

Dated: December 19, 2012
RONALD C. MACHEN JR. D.C. Bar # 447889 United States Attorney District of Columbia
DANIEL F. VAN HORN D.C. Bar # 924092 Acting Chief, Civil Division
____/s/________________________ JAVIER M. GUZMAN D.C. Bar # 462679 Assistant United States Attorney 555 Fourth Street, NW Washington, DC 20530 Phone: (202) 616-1761 Fax: (202) 514-8780 Javier.Guzman2@usdoj.gov

Respectfully submitted,
THOMAS E. PEREZ Assistant Attorney General Civil Rights Division
STEVEN H. ROSENBAUM D.C. Bar # 417585 Chief Housing and Civil Enforcement Section Civil Rights Division JON M. SEWARD Deputy Chief ELIZABETH PARR HECKER HOLLY C. LINCOLN Trial Attorneys
____/s/______________________ COTY R. MONTAG D.C. Bar # 498357 Trial Attorney Housing and Civil Enforcement Section Civil Rights Division United States Department of Justice 950 Pennsylvania Avenue, NW Northwestern Building, 7th Floor Washington, DC 20530 Phone: (202) 305-0122 Fax: (202) 514-1116 Coty.Montag@usdoj.gov

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 Department of Justice Office of Public Affairs FOR IMMEDIATE RELEASE Thursday, July 12, 2012
Justice Department Reaches Settlement with Wells Fargo Resulting in More Than $175 Million in Relief for Homeowners to Resolve Fair Lending Claims
African-American and Hispanic Borrowers Who Qualified for Loans and Were Charged Higher Fees or Rates or Were Improperly Placed into Subprime Loans Are Eligible for Compensation
The Department of Justice today filed the second largest fair lending settlement in the department’s history to resolve allegations that Wells Fargo Bank, the largest residential home mortgage originator in the United States, engaged in a pattern or practice of discrimination against qualified African-American and Hispanic borrowers in its mortgage lending from 2004 through 2009.
The settlement provides $125 million in compensation for wholesale borrowers who were steered into subprime mortgages or who paid higher fees and rates than white borrowers because of their race or national origin. Wells Fargo will also provide $50 million in direct down payment assistance to borrowers in communities around the country where the department identified large numbers of discrimination victims and which were hard hit by the housing crisis.
Additionally, Wells Fargo has agreed to conduct an internal review of its retail mortgage lending and will compensate African-American and Hispanic retail borrowers who were placed into subprime loans when similarly qualified white retail borrowers received prime loans. Compensation paid to any retail borrowers identified in the review process will be in addition to the $125 million to compensate wholesale borrowers who were victims of discrimination .
“The department’s action makes clear that we will hold financial institutions accountable, including some of the nation’s largest, for lending discrimination,” said Deputy Attorney General James M. Cole. “An applicant’s creditworthiness, and not the color of his or her skin, should determine what loans a borrower qualifies for. With today’s settlement, the federal government will ensure that AfricanAmerican and Hispanic borrowers who were discriminated against will be entitled to compensation and borrowers in communities hit hard by this housing crisis will have an opportunity to access homeownership.”
The settlement, which is subject to court approval, was filed today in the U.S. District Court for the District of Columbia in conjunction with the department’s complaint, which alleges that between 2004 and 2008, Wells Fargo discriminated by steering approximately 4,000 African-American and Hispanic wholesale borrowers, as well as additional retail borrowers, into subprime mortgages when nonHispanic white borrowers with similar credit profiles received prime loans. All the borrowers who were allegedly discriminated against were qualified for Wells Fargo mortgage loans according to Well Fargo’s own underwriting criteria.
The United States also alleges that, between 2004 and 2009, Wells Fargo discriminated by charging approximately 30,000 African-American and Hispanic wholesale borrowers higher fees and rates than non-Hispanic white borrowers because of their race or national origin rather than the borrowers’ credit worthiness or other objective criteria related to borrower risk.

“By reaching a settlement in this case, African-American and Hispanic wholesale borrowers who received subprime loans when they should have received prime loans or who paid more for their loans will get swift and meaningful relief,” said Thomas E. Perez, Assistant Attorney General for the Civil Rights Division. “As one of the largest mortgage lenders in the country, Wells Fargo’s commitment to conduct an internal review of its retail lending and compensate African American and Hispanic retail borrowers who may have been improperly placed in subprime loans is significant. We will continue to work aggressively to ensure that all qualified borrowers have access to credit on an equal basis.”
The United States’ complaint alleges that African-American and Hispanic wholesale borrowers paid more than non-Hispanic white wholesale borrowers, not based on borrower risk, but because of their race or national origin. Wells Fargo’s business practice allowed its loan officers and mortgage brokers to vary a loan’s interest rate and other fees from the price it set based on the borrower’s objective credit-related factors . This subjective and unguided pricing discretion resulted in African-American and Hispanic borrowers paying more. The complaint alleges that Wells Fargo was aware the fees and interest rates it was charging discriminated against African-American and Hispanic borrowers, but the actions it took were insufficient and ineffective in stopping it.
The United States’ complaint also alleges that, as a result of Wells Fargo’s policies and practices, qualified African-American and Hispanic wholesale borrowers were placed in subprime loans rather than prime loans even when similarly-qualified non-Hispanic white borrowers were placed in prime loans. The discriminatory placement of wholesale borrowers in subprime loans, also known as “steering,” occurred because it was the bank’s business practice to allow mortgage brokers and employees to place a loan applicant in a subprime loan even when the applicant qualified for a prime loan . In addition, Wells Fargo gave mortgage brokers discretion to request exceptions to the underwriting guidelines, and Wells Fargo’s employees had discretion to grant these exceptions.
This is the second time that the Justice Department has alleged and obtained relief for borrowers who were steered into loans based on race or national origin, a practice that systematically placed borrowers of color into subprime mortgage loan products while placing non-Hispanic white borrowers with similar creditworthiness in prime loans. By steering borrowers into subprime loans from 2004 to 2008, the complaint alleges, Wells Fargo harmed those qualified African-American and Hispanic borrowers. Subprime loans generally carried higher-cost terms, such as prepayment penalties and adjustable interest rates that started with low initial teaser rates, and then increased significantly after two or three years, often making the payments unaffordable and leaving the borrowers at a much higher risk of default or foreclosure.
The department began its investigation into Wells Fargo’s lending practices in 2009 and received a referral in 2010 from the Office of the Comptroller of the Currency (OCC) which conducted its own parallel investigation of Wells Fargo’s lending practices in the Baltimore and Washington, D.C. metropolitan areas. The OCC found that there was reason to believe that Wells Fargo engaged in a pattern or practice of discrimination in these metro areas on the basis of race or color, in violation of the FHA and ECOA.
This case was prosecuted by the Fair Lending Unit in the Civil Rights Division’s Housing and Civil Enforcement Section in conjunction with the U.S. Attorney’s Office for the District of Columbia. Since the attorney general established the unit in early 2010, it has filed a complaint in or resolved 19 matters. By way of contrast, from 1993 to 2008, the department filed or resolved 37 lending matters, an average of a little more than two cases per year. Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement

Task Force (FFETF). President Obama established the interagency FFETF to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information on the task force, visit www.stopfraud.gov .
A copy of the complaint and proposed settlement order, as well as additional information about fair lending enforcement by the Justice Department, can be obtained from the Justice Department website at www.justice.gov/fairhousing .
The proposed settlement provides for an independent administrator to contact and distribute payments of compensation at no cost to borrowers whom the Justice Department identifies as victims of Wells Fargo’s discrimination. The department will make a public announcement and post contact information on its website once an administrator is chosen. Borrowers who are eligible for compensation from the settlement will then be contacted by the administrator. Individuals who believe that they may have been victims of lending discrimination by Wells Fargo and have questions about the settlement may email the department at wellsfargo.settlement@usdoj.gov .

 
 Case: 1:12-cv-1150 As of: 04/18/2013 10:25 AM EDT 1 of 2
CLOSED,JURY,TYPE−L
U.S. District Court District of Columbia (Washington, DC) CIVIL DOCKET FOR CASE #: 1:12−cv−01150−JDB

UNITED STATES OF AMERICA v. WELLS FARGO BANK, N.A. Assigned to: Judge John D. Bates Cause: 42:405 Fair Housing Act
Plaintiff

Date Filed: 07/12/2012 Date Terminated: 09/21/2012 Jury Demand: None Nature of Suit: 443 Civil Rights: Accommodations Jurisdiction: U.S. Government Plaintiff

UNITED STATES OF AMERICA

represented by Javier M. Guzman U.S. ATTORNEY'S OFFICE 555 Fourth Street, NW Washington, DC 20530 (202) 616−1761 Fax: (202) 514−8780 Email: javier.guzman2@usdoj.gov ATTORNEY TO BE NOTICED

V. Defendant WELLS FARGO BANK, N.A.

represented by Bart H. Williams MUNGER, TOLLES &OLSON, LLP 355 South Grand Avenue Suite 3500 Los Angeles, CA 90071 213−683−9295 Fax: 213−683−5195 LEAD ATTORNEY PRO HAC VICE ATTORNEY TO BE NOTICED
John Longstreth K &L GATES LLP 1601 K Street, NW Washington, DC 20006 (202) 661−6271 Fax: (202) 778−9100 Email: john.longstreth@klgates.com LEAD ATTORNEY ATTORNEY TO BE NOTICED

Date Filed 07/12/2012
07/12/2012 07/12/2012 07/12/2012

# Docket Text
1 COMPLAINT against WELLS FARGO BANK, N.A. (and civil cover sheet) (Fee Status:Filing Fee Waived) filed by UNITED STATES OF AMERICA.(Guzman, Javier) (Additional attachment(s) added on 7/12/2012: # 1 Civil Cover Sheet) (kb). (Entered: 07/12/2012)
2 Joint MOTION to Approve Consent Judgment by UNITED STATES OF AMERICA (Attachments: # 1 Text of Proposed Order (proposed consent decree))(Guzman, Javier) (Entered: 07/12/2012)
3 NOTICE (Summons) by UNITED STATES OF AMERICA re 1 Complaint (Guzman, Javier) (Entered: 07/12/2012)
4 MOTION for Leave to Appear Pro Hac Vice :Attorney Name− Bart H. Williams, :Firm− Munger, Tolles &Olson LLP, :Address− 355 S. Grand Avenue, 35th Floor,

Case: 1:12-cv-1150 As of: 04/18/2013 10:25 AM EDT 2 of 2

07/12/2012 07/12/2012 07/12/2012 07/23/2012
07/27/2012 08/10/2012 08/24/2012
09/20/2012 09/21/2012 10/24/2012 10/25/2012 12/19/2012

Los Angeles, CA 90071. Phone No. − 213−683−9295. Fax No. − 213−683−5195 by WELLS FARGO BANK, N.A. (Attachments: # 1 Affidavit Declaration of Bart H. Williams, # 2 Text of Proposed Order Proposed Order)(Longstreth, John) (Entered: 07/12/2012)
Case Assigned to Judge John D. Bates. (kb) (Entered: 07/12/2012)
5 Electronic Summons (1) Issued as to WELLS FARGO BANK, N.A. (Attachments: # 1 Consent Form, # 2 Notice of Consent)(kb) (Entered: 07/12/2012)
6 NOTICE of Appearance by John Longstreth on behalf of WELLS FARGO BANK, N.A. (Longstreth, John) (Entered: 07/12/2012)
MINUTE ORDER: Upon consideration of 4 the motion for admission pro hac vice of Bart H. Williams and pursuant to Local Civil Rule 83.2(d), it is hereby ORDERED that the motion is GRANTED; and it is further ORDERED that the Clerk of Court shall enter the appearance of Bart H. Williams on behalf of the defendant in this case. SO ORDERED. Signed by Judge John D. Bates on 7/23/2012. (lcjdb2) (Entered: 07/23/2012)
Minute Entry: Telephone Conference held on 7/27/2012 before Judge John D. Bates: Status Report due by 8/10/2012. (Court Reporter Bryan Wayne) (tb, ) (Entered: 07/30/2012)
7 SUPPLEMENTAL MEMORANDUM to re 2 Joint MOTION to Approve Consent Judgment filed by UNITED STATES OF AMERICA. (Guzman, Javier) (Entered: 08/10/2012)
8 TRANSCRIPT of TELEPHONE CONFERENCE before Judge John D. Bates held on 7/27/12. Page Numbers: 1−9. Date of Issuance: 8/24/12. Court Reporter: Bryan A. Wayne, Telephone number 202−354−3186. Court Reporter Email Address: bryanawayne@yahoo.com.<P></P>For the first 90 days after this filing date, the transcript may be viewed at the courthouse at a public terminal or purchased from the court reporter referenced above. After 90 days, the transcript may be accessed via PACER. Other transcript formats, (multi−page, condensed, CD or ASCII) may be purchased from the court reporter.<P>NOTICE RE REDACTION OF TRANSCRIPTS: The parties have twenty−one days to file with the court and the court reporter any request to redact personal identifiers from this transcript. If no such requests are filed, the transcript will be made available to the public via PACER without redaction after 90 days. The policy, which includes the five personal identifiers specifically covered, is located on our website at ww.dcd.uscourts.gov.<P></P> Redaction Request due 9/14/2012. Redacted Transcript Deadline set for 9/24/2012. Release of Transcript Restriction set for 11/22/2012.(Wayne, Bryan) (Entered: 08/24/2012)
9 MEMORANDUM OPINION &ORDER. See text for details. Signed by Judge John D. Bates on 09/20/2012. (lcjdb2) (Entered: 09/20/2012)
10 CONSENT ORDER. See text of Order and accompanying Memorandum Opinion &Order for details. Signed by Judge John D. Bates on 09/21/2012. (lcjdb2) (Entered: 09/21/2012)
11 Joint MOTION to Amend/Correct 10 Order by UNITED STATES OF AMERICA (Attachments: # 1 Text of Proposed Order)(Guzman, Javier) (Entered: 10/24/2012)
12 ORDER entering amendment to Paragraph 30 of the 10 Consent Order. Signed by Judge John D. Bates on 10/25/2012. (lcjdb2) (Entered: 10/25/2012)
13 NOTICE Regarding Additional Monetary Relief by UNITED STATES OF AMERICA (Guzman, Javier) (Entered: 12/19/2012)