Dive Brief:

• Two Senate Democrats are asking Wells Fargo, by March 28, to provide the data and algorithms it used in 2020 and 2021 to evaluate mortgage refinance applications.
• A proposed class-action lawsuit, filed Friday in the U.S. District Court for the Northern District of California, accuses the bank of engaging in "ongoing and discriminatory modern day 'redlining' practices" over a reported disparity in the percentage of mortgage refinancing applications it denied from Black homeowners compared with white ones.
• The developments come less than a week after a Bloomberg analysis of federal mortgage data found that Wells Fargo approved 47% of refinance applications from Black homeowners in 2020 but 72% from white borrowers.

Dive Insight:

Last week’s letter to Wells Fargo CEO Charlie Scharf from Sens. Elizabeth Warren, D-MA, and Ron Wyden, D-OR, comes in addition to a Thursday letter from 11 senators asking the leaders of the Consumer Financial Protection Bureau (CFPB) and the Department of Housing and Urban Development to review the San Francisco-based bank’s mortgage refinance lending to ensure it complies with the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act.

That Thursday letter noted the CFPB found 70% of Black applicants across the mortgage lending industry were approved in 2020, a 17-percentage-point gap under the 87% approval rate for non-Hispanic whites. Hispanic applicants saw 78% approval, according to the bureau.

Wells Fargo's approval rate for Black applicants, by Bloomberg's count, would trail the market average by 23 percentage points, and the gap between Black and white approval rates at the bank would be 8 points wider than in the industry writ large.

Wells Fargo denied any wrongdoing, telling Bloomberg the bank’s internal review of 2020 lending decisions found that factors such as credit scores accounted for the gulf in approval rates.

"We are confident that our underwriting practices are consistently applied regardless of the customer’s race or ethnicity," Paul Turner, a bank spokesperson, told the wire service in an email, adding Bloomberg’s investigation "ignored" that Wells Fargo helped more Black homeowners refinance their mortgages than any other major lender.

Wells Fargo did not immediately comment to Bloomberg on the lawsuit, which claims the bank was more likely to approve refinancing applications from white borrowers earning $63,000 or less per year than for Black applicants earning $120,000 to $168,000.

"Black applicants are further subjected to delays, feigned mistakes, and other obstacles, leading many Black Americans to withdraw their requests for refinancing, and leading others to wait indefinitely while Wells Fargo refuses to act upon their applications," plaintiffs wrote in the complaint, according to the wire service.

Lawmakers’ focus on mortgage refinance came during a week when the Federal Reserve raised interest rates for the first time since 2018 — essentially signaling an end to the opportunity for homeowners to turn the interest-rate lull into lower monthly payments.

Because of the application denials, "Black and brown families are less likely to benefit from the payment stability and long-term wealth accumulation that come from homeownership," the 11 senators wrote Thursday. "When families of color who are able to become homeowners are denied money-saving refinances at a higher rate than white homeowners, it further erodes their income and ultimately their wealth, diluting homeownership’s benefits."

Warren and Wyden, two of the senators who signed last week's letter to the CFPB, went further in their own correspondence with Scharf, saying Black homeowners were "systematically shut out" of what Bloomberg reporters labeled a "remarkable wealth event." Homeowners saw $5.3 billion in refinancing savings in the first 10 months of 2020, according to the Boston Fed. But less than $200 million of that — 3.7% — went to Black households.

To Warren, the mortgage refinancing gap represents another in a long line of scandals tied to Wells, and she used the opportunity to renew calls, in a statement to Bloomberg, to "break up this big bank."

"Wells Fargo appears to be simply unable or unwilling to stop preying upon consumers of color," Warren and Wyden wrote to Scharf last week. In addition to Wells Fargo’s data and algorithms, the senators are asking the bank to provide any analysis it has done regarding the racial disparity in mortgage refinance application approvals, any action plans it has developed to combat the gap, and any internal communications — or communications with regulators — on the subject.

Wells Fargo in 2012 paid the Justice Department $184.3 million to settle allegations that it steered Black and Hispanic borrowers to subprime mortgages because of their race or national origin between 2004 and 2009.

The CFPB, meanwhile, told Bloomberg in an email that it had received the Thursday letter and will "continue to monitor mortgage actors’ compliance with the law and will take public action where appropriate."

Turner said Wells Fargo "will continue to work closely with our regulators and other stakeholders on our shared goal of decreasing the homeownership gap for Black and other diverse communities," according to the wire service.