Recent investigations into the mortgage banking industry have revealed concerning patterns of discrimination in loan pricing, with Wells Fargo emerging as a notable example. This probe, conducted by regulators, centers on using loan discounts known as pricing exceptions. These exceptions, intended to make deals more competitive, have inadvertently led to discriminatory practices against Black and female borrowers, as found by the Consumer Financial Protection Bureau (CFPB).
Wells Fargo, a dominant force in the U.S. mortgage sector, was caught in an industrywide investigation for its use of pricing exceptions. These exceptions typically reduce a customer’s APR by 25 to 75 basis points. However, the CFPB discovered that Black and female borrowers received fewer pricing exceptions than other customers, raising concerns about unfair lending practices. Ken Perry, a compliance expert in the mortgage industry, warned, “As long as pricing exceptions exist, pricing disparities exist. They’re the easiest way to discriminate against a client.”
The bank received a notice from the CFPB highlighting problems with its discount policies. This came after Wells Fargo’s history of regulatory challenges, including a $184 million settlement in 2012 for charging minorities higher fees and a $250 million fine in 2021 for issues in its mortgage business. More recently, it paid $3.7 billion for various consumer abuses, including those related to home loans.
The CFPB’s crackdown on fair lending violations has intensified, with 32 probes launched last year. The agency found significant disparities in the rates at which Black and female borrowers received pricing exceptions. This led to violations of the Equal Credit Opportunity Act and Regulation B. The agency’s findings showed that lenders needed to monitor interactions between loan officers and consumers more effectively, leading to discriminatory practices.
Wells Fargo’s response to the investigation was to adjust its policies, requiring hard documentation of competitive bids. The bank also focused on existing customers and borrowers in minority communities. Meanwhile, other major banks like JPMorgan Chase, Bank of America, and Citigroup declined to comment on whether they received similar notices or altered their policies.
The probe into Wells Fargo and other banks highlights a critical issue in the mortgage industry: the need for fair and equitable lending practices. While pricing exceptions have been a long-standing tool in competitive markets, their misuse has led to discriminatory outcomes against marginalized groups. The industry’s response to this regulatory scrutiny, including policy changes and increased documentation, is a step towards ensuring fair lending practices. However, the journey to completely eradicate discriminatory practices in mortgage lending is ongoing and requires constant vigilance.
