ST. LOUIS – The Chicago area's Cook County has filed a lawsuit against Wells Fargo & Co., accusing the nation's biggest mortgage lender of subjecting Hispanic and African American borrowers to discriminatory and predatory lending practices.
Hundreds of millions of dollars in damages are allegedly involved.
According to the suit, Wells Fargo purposely issued out these high-risk loans to minority borrowers because most of them did not qualify for traditional loans.
The lawsuit, which was filed Thursday in Chicago, contends that Wells Fargo engaged in the practice known as "equity stripping," which involves imposing inflated or unneeded rates and fees, plus penalties to refinance. That practice, alleged to have taken place for much of the past decade, may involve up to 26,000 loans and compensatory damages that could top $300 million, according to the lawsuit.
"Equity stripping is an abusive form of 'asset-based lending' that maximizes lender profits based on the value of the underlying asset and onerous loan terms, while in disregard for a borrower's ability to repay," the lawsuit alleges.
"The predatory and discriminatory nature of (the) defendants' mortgagelending and servicing practices at issue are grounded in (the) defendants' placement of their own financial interests above the best interests of their borrowers," it reads.
Calling the allegations without merit, San Francisco-based Wells Fargo pledged in an emailed statement to The Associated Press to "vigorously defend ourselves and continue to focus on helping customers succeed financially and expanding home ownership in Illinois and across the United States."
"The county's accusations are baseless, and it's disappointing they chose to pursue a lawsuit against Wells Fargo rather than collaborate together to help borrowers and home owners in the county," the company said. "Wells Fargo's team members live and work in the Chicago area, and we stand behind our record as a fair and responsible lender." It cited an $8.2 million down-payment assistance grant program that helped create 547 new homeowners in Chicago and the Cook County suburbs over the past two years.
In October, the federal government announced it had reached a $5 million settlement with Wells Fargoto resolve allegations it discriminated against pregnant women, new mothers and women on maternity leave.
The U.S. Department of Housing and Urban Development said Wells Fargo will change its underwriting guidelines as part of the settlement and will show its staff how to follow the new guidelines. Wells Fargosaid it settled to avoid a long legal battle, and that HUD found no violations of any laws.
Wells Fargo in October reported a third-quarter profit of $5.73 billion.
The Associated Press contributed to this report