Banking and Finance Law Daily Wells Fargo resolves Philadelphia’s allegations of discriminatory mortgage lending practices
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Tuesday, December 17, 2019

Wells Fargo resolves Philadelphia’s allegations of discriminatory mortgage lending practices

By Thomas G. Wolfe, J.D.

In resolving the City of Philadelphia’s allegations while not admitting liability, the bank will contribute $10 million for sustainable housing-related programs for low- and moderate-income residents.

Wells Fargo & Co. and Wells Fargo Bank, N.A. (collectively Wells Fargo) have agreed with the City of Philadelphia to resolve the City’s 2017 lawsuit claiming that Wells Fargo violated the federal Fair Housing Act by its discriminatory lending practices in originating residential mortgage loans to minority borrowers—allegedly causing economic and non-economic damages to the City. Under the Collaboration Agreement with the City of Philadelphia, Wells Fargo will "contribute $10 million for sustainable housing-related programs to promote and preserve home ownership for low- and moderate-income residents." Further, Wells Fargo and the City agreed to the dismissal of the lawsuit "with prejudice," and with each party bearing its own costs, expenses, and attorney fees. While resolving the litigation, "Wells Fargo does not admit liability and vigorously denied the allegations," according to the City’s December 2019 release about the agreement (City of Philadelphia v. Wells Fargo & Co., Case No. 2:17-2203-AB).

Backdrop. In May 2017, the City of Philadelphia sued Wells Fargo, claiming that the bank had engaged in a "continuous and unbroken discriminatory pattern and practice of issuing higher cost or more onerous mortgage loans to minority borrowers" while offering better terms to the city’s white residents. More specifically, the City alleged that Wells Fargo had maintained a long-standing pattern of both redlining and reverse redlining. While "redlining" refers to the practice of refusing to make loans in minority neighborhoods, "reverse redlining" refers to the practice of making loans in such neighborhoods, but only at a higher cost or with less favorable terms. In support of the allegations, the City’s complaint referenced both statistical analyses and information provided by confidential witnesses who were Wells Fargo employees involved in mortgage lending activities in Philadelphia (see Banking and Finance Law Daily, May 16, 2017).

Resolution highlights. Under the agreement resolving the litigation between the City of Philadelphia and Wells Fargo, and earmarking $10 million for sustainable housing-related programs to promote and preserve home ownership for low- and moderate-income residents:

  • most of the funds ($8.5 million) will be used to "provide grants for down payment and closing cost assistance," and the Philadelphia Housing Development Corporation (PHDC) will provide the grants through its existing program;
  • there is no requirement that a buyer receive a home-purchase loan from Wells Fargo in order to qualify for these grants;
  • another $1 million will be divided among "up to three non-profit organizations" that implement the City’s "Residential Mortgage Foreclosure Prevention Program," which helps mitigate the effects of foreclosure proceedings on homeowners, lenders, and the City;
  • an additional $500,000 in grants will be available to the City’s "land care program, aimed at revitalizing vacant land through clean-up and greening efforts";
  • overall, the benefits of the agreement "go entirely to homeowners and the referenced not-for-profit organizations"; and
  • the City and Wells Fargo will collaborate to conduct an "Understanding Philadelphia" program designed for employees who work at Wells Fargo Home Mortgage in the Philadelphia community, and the program "will include City and PHDC officials and external subject matter experts" to analyze the city’s housing market and diverse neighborhoods as well as the current housing needs of Philadelphia residents.

Remarks by city, bank. Noting the resolution, Philadelphia Mayor Jim Kenney stated, "This agreement brings substantial support to the very communities that most need this assistance. Philadelphia is committed to ensuring that no one faces additional hurdles toward home ownership because of their race or ethnicity." Similarly, City Solicitor Marcel Pratt remarked that the resolution "will provide much needed benefits to the City’s low- and moderate-income residents—most significantly by enabling homeownership, which is one of the most effective ways that families accumulate wealth in America."

In addition, Joe Kirk, Wells Fargo’s Regional President for the Greater Philadelphia Area, commented that Wells Fargo was pleased to "resolve this matter in a way that will provide real, tangible sustainable homeownership opportunities for many low- and moderate-income residents of Philadelphia," and that the agreement funding is consistent with "Wells Fargo’s broader philanthropic strategy, which includes a $1 billion commitment over the next six years to address the U.S. housing affordability crisis."

Attorneys: Avery S. Halfon (Lieff Cabraser Heimann & Bernstein, LLP) for City of Philadelphia. Alexander D. Bono (Duane Morris LLP) for Wells Fargo & Co. and Wells Fargo Bank, N.A.

Companies: Wells Fargo & Co.; Wells Fargo Bank, N.A

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