Madigan Files More Subpoenas

By: Kelly VirellaIllinois Attorney General Lisa Madigan launched an investigation on March 6 to determine whether two U.S. mortgage lending giants violated fair lending and civil rights laws by steering large numbers of African Americans and Latinos to high cost home loans.

The investigation comes on the heels of a Web exclusive story of The Chicago Reporter, which first reported the trend after analyzing three years of data the banks reported last spring to the federal government.

In 2006, Countrywide Financial Corporation and Wells Fargo and Co. sold a disproportionate number of high-cost loans to African Americans and Latinos in the Chicago area. High-cost loans offer an interest rate at least 3 percent higher than the U.S. Treasury standard.

Wells Fargo sold high-cost loans to 64 percent of its black borrowers and 36.7 percent of its Latino borrowers, while only 17.5 percent of its white borrowers received them.

Countrywide Financial sold high-cost loans to 50.9 percent of its African American borrowers and 33.8 percent of its Latino borrowers.

The wealthiest black borrowers were more likely than the poorest white, Latino and Asian borrowers to get placed in high-cost loans.

“The difference in cost between the home loans sold to white borrowers and those sold to African-American and Latino borrowers is alarming,” Madigan said in a press release. “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.”

Madigan launched her investigation into high-cost loans by issuing subpoenas to affiliates of Countrywide and Wells Fargo—Countrywide Home Loans Inc. and Wells Fargo Financial Illinois Inc.—requiring them to submit information about each borrower’s creditworthiness, including the borrower’s FICO score and debt-to-income ratio.

According to Fannie Mae, the nation’s largest source of financing for home mortgages, about half of the people who get high-cost loans could have qualified for less expensive ones.

Countrywide Financial issued the following statement by email: “Countrywide will cooperate fully in any investigation by the attorney general. The company continually analyzes its data and takes steps to ensure that the borrowers are treated fairly. Countrywide is proud of its record of expanding the opportunities for home ownership among low-income and minority communities, and welcomes the opportunity to review its practices with the attorney general.”

Wells Fargo did not respond to a request for comment.

Madigan’s probe comes at a time of turmoil for the mortgage banking industry, which is facing increasing rates of foreclosure, especially in Chicago. In 2006, the Chicago area led the country in high-cost home loans for the third year in a row.

Foreclosures in the city jumped 36.9 percent between 2005 and 2006, with especially large increases in communities with high concentrations of minorities.

Minority communities contain less than 14 percent of the kind of properties that might have mortgages but account for 34.5 percent of the area’s foreclosure filings, according to a report published on March 3 by the Woodstock Institute.

“When the disparity between African-American and white borrowers are this extreme, it’s imperative that lenders explain why,” said state Sen. Jacqueline Collins, whose district is on Chicago’s South Side.

Click here to download the attorney general's press release.



MEDIA COVERAGE:
Below is a list of other media outlets that covered this news.

ABC-Channel 7

Chicago Tribune

Chicago Sun-Times

Crain’s Chicago Business

Daily Herald

Des Moines Register

Home Owners for Better Building.com

Lake County News-Sun

NBC-Channel 5

Northwestern University School of Journalism news service

Reuters USA

Reuters UK

Silobreaker.com

statenewsshot.com

tradingmarkets.com

Wall Street Journal