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Illinois Subpoenas Countrywide, Wells Fargo

Were Africa-American, Latino homeowners steered to high-cost loans?

March 7, 2008

Madigan’s probe follows a Chicago Reporter study finding that the Chicago area led the country in high-cost home loans for the second year in a row.

The study also found marked disparities in loan pricing between white and non-white borrowers, with African American borrowers three times as likely as white borrowers to receive a high-cost home loan and Latino borrowers twice as likely.

“The difference in cost between the home loans sold to white borrowers and those sold to African American and Latino borrowers is alarming,” said Madigan, noting that income level does not appear to account for the differences in pricing. According to the Chicago Reporter study, the wealthiest African American homeowners are still more likely than the poorest white borrowers to get placed in high-cost loans.

“The aim of these investigations is to find out the reasons for these pricing disparities and, if those reasons are not based on valid underwriting criteria and creditworthiness, to hold the lenders responsible for their actions,” said Madigan.

The data in the study come from the Home Mortgage Disclosure Act, a federal law that requires lenders to submit data on home purchase, home improvement and home refinancing loans to the government.

The study looked at data on “high-cost” loans — loans with an interest rate at least three percentage points above the U.S. Treasury standard. The high-cost loans examined in the study have characteristics similar to the high-risk subprime mortgages whose skyrocketing failure rates are driving the current home foreclosure crisis in Illinois and the nation.

Countrywide Financial, Corp. and Wells Fargo & Company showed the highest disparities in the Chicago Reporter study.

From 2004 to 2006, Wells Fargo & Co., the parent company of Wells Fargo Financial Illinois, sold high-cost loans to 64 percent of its African American borrowers and 36.7 percent of its Latino borrowers, while only 17.5 percent of Wells’ white borrowers received high-cost loans.

Wells Fargo Financial Illinois, Inc., sells home loans in Illinois under the state’s Consumer Installment Loan Act. In 2006, Wells Fargo & Co. did approximately half of its subprime mortgage lending in Illinois through this state-licensed entity and the other half through its national bank.

In the same study period, Countrywide Financial Corp., the parent company of Countrywide Home Loans, Inc., sold high-cost loans to 50.9 percent of its African American borrowers and 33.8 percent of its Latino borrowers in the Chicago area, while placing only 20.6 percent of its white borrowers in high-cost loans.

In 2006, Countrywide Financial Corp. sold nearly all of its home loans in Illinois through Madigan’s target, Countrywide Home Loans, Inc. Countrywide Home Loans operates in Illinois under a license from the Illinois Department of Financial and Professional Regulation.

Chicago area foreclosures remain largely concentrated in highly minority communities. The Woodstock Institute recently found that minority communities contain less than 14 percent of the Chicago area’s mortgageable properties but account for 34.5 percent of the area’s foreclosure filings.

State Senator Jacqueline Collins, who has worked extensively on legislation to protect homeowners from predatory lending practices and whose district on Chicago’s South Side has been hit hard by the foreclosure crisis, applauded Madigan’s announcement.

“While predatory mortgage lending affects us all, it is especially devastating to neighborhoods with large minority populations,” said Collins. “When the disparities between African American and white borrowers are this extreme, it’s imperative that lenders explain why.”

The Rev. Jesse Jackson said that Madigan’s investigations send a strong signal to mortgage lenders. “In an era when the federal government has all but stopped conducting fair lending investigations, it’s vital that lenders know that state officials like Attorney General Madigan are keeping a close eye on how they treat minority borrowers. She brings to this case integrity, strength and vision,” said Jackson.

Madigan issued subpoenas to the two companies pursuant to her authority under the Illinois Human Rights Act and the Illinois Consumer Fraud and Deceptive Business Practices Act.

Madigan’s subpoenas ask Countrywide and Wells Fargo for a range of information related to home loans the companies have sold in Illinois, including the borrower’s race or ethnicity, the cost and features of the loan, and the location of the residential property. The subpoenas additionally ask for information related to each borrower’s creditworthiness, including the borrower’s FICO score and debt-to-income ratio.

The fair lending subpoenas continue Madigan’s probe of Countrywide’s lending practices. In September 2007, she issued a subpoena to Countrywide to determine whether the company had fraudulently or deceptively placed Illinois homeowners into loans they could not afford. The investigation into Countrywide’s loan origination practices is ongoing.

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