The Consumer Financial Protection Bureau issued an official notice to Wells Fargo regarding issues with its utilization of mortgage rate discounts, according to sources. Consequently, Wells Fargo hired an attorney to investigate its mortgage bankers that had a higher number of these discounts. The CFPB noted that numerous banks were presented with MRAs related to their lending practices last year, although it didn't disclose the names of any of the organizations. When regulators conducted an industry review, they encountered statistically significant variations in the rates at which Black and female borrowers received pricing exceptions compared to other customers.
Last year, Wells Fargo was caught up in an investigation across the mortgage banking industry into loan discounts known as pricing exceptions. These discounts, which can reduce a customer's APR by up to 75 basis points, are regularly used by mortgage personnel to secure deals in competitive markets. The Consumer Financial Protection Bureau (CFPB) has determined that Black and female borrowers were receiving fewer pricing exceptions than other customers, leading compliance expert Ken Perry to point out that "as long as pricing exceptions exist, pricing disparities exist." The CFPB provided Wells Fargo with a Matter Requiring Attention (MRA) regarding issues with their discounts and an internal investigation into the matter lasted until the end of the year. Prior to the announcement that the bank was reducing their mortgage presence, they had been fined numerous times for improper conduct in the mortgage business. To further analyze the situation, Wells Fargo hired law firm Winston & Strawn to examine mortgage bankers whose sales included a high number of discounts.
In response to this article, a company spokeswoman issued the following statement: "When we collaborate with customers on mortgages, we take into account competitor pricing offers in the same manner as many other businesses in the industry. Last year, our Special Purpose Credit Program directed more than $100 million towards helping minority families achieve and retain homeownership, with deep discounted mortgage rate incentives included. Wells Fargo is proud to be the biggest bank lender to ethnic minorities." Additionally, the bank released an extra statement on Monday saying: "We don't discriminate against any group of people based on race, gender, age or any other protected basis, and we cannot comment on any regulatory matters."
Regulators have intensified their scrutiny on fair lending violations, with Wells Fargo not being the only lender involved. According to the CFPB, 32 fair lending probes were initiated last year, significantly more than on 2020. Furthermore, numerous financial institutions were notified with MRAs related to lending practices, yet the CFPB chose not to name them. When asked for a comment, the agency chose not to provide one for this article.
The CFPB reported that lenders have violated the Equal Credit Opportunity Act (ECOA) and Regulation B due to a lack of oversight in tracking and managing pricing exceptions. The agency observed that African American and female borrowers were discriminated against with higher interest rates when being granted a pricing exception. Further investigations by the CFPB found that loan officers were not performing the competitive match process fairly for all customers. As a result, the CFPB highlighted the need for improved monitoring of customer interactions and implementation of policies to ensure that loan officers were not showing favoritism.
The CFPB reported that, in some circumstances, mortgage personnel were unable to verify who initiated the price exception, or if any documentation existed confirming competitive quotations were provided. This corroborates what multiple current and ex-Wells Fargo personnel had to say - that the process was akin to an "honor system" with the bank rarely confirming the veracity of any pricing bids. A former loan officer from the Midwest described that to get a half percentage discount, it would not be challenged and for an additional quarter point reduction, they would need to go to market managers to make their case. An ex-market manager, who worked for Wells Fargo for many years, stated that price exceptions were seen most often in regions such as California and New York which tended to be more expensive housing markets. During the years that the bank wanted to secure the maximum market share, loan officers would chase growth opportunities with the assistance of price exceptions, the source added.
In response to increased regulatory action, Wells Fargo implemented stricter requirements for hard documentation of competitive bids early in the year, according to individuals familiar with the matter. This move was met simultaneously by a refocusing of the bank's home loan services to its present customers and minorities. As said by Perry, various lenders are enforcing greater restrictions on loan officers when it comes to making pricing exceptions and monitoring the procedure, although discounts are still in place. JP Morgan, Bank of America and Citigroup had no comment when asked if they had accepted MRAs or altered any internal procedures concerning rate discounts, as reported by CNBC's Christina Wilkie.
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