It may be coincidence, or perhaps mortgage cases habitually get the short end of the news-coverage stick.
Wells Fargo’s September agreement to pay $94 million to settle a class-action lawsuit — alleging the bank automatically placed mortgage borrowers into forbearance if they said they were experiencing financial distress — surfaced during the same news cycle as a slightly larger settlement to end a Labor Department probe into the bank’s alleged 401(k) misdeeds.
The Wells 401(k) story received far wider coverage.
So it is again.
A federal judge in Illinois on Monday granted Wells Fargo summary judgment in a case in which Cook County alleged the bank discriminated against nonwhite mortgage borrowers during the 2007-08 financial crisis.
The ruling means the bank avoids being further dragged in to a lawsuit seeking a payout of at least $300 million. It’s undeniably a win for Wells Fargo. It just happened to come less than 24 hours before the Consumer Financial Protection Bureau (CFPB) broke news of a record $3.7 billion settlement with the bank over a litany of unsavory practices.
In the Illinois case, U.S. District Judge Gary Feinerman excluded testimony from two witnesses Cook County leaned on to support its claims that Wells Fargo and Wachovia, a bank it acquired, engaged in “equity stripping” during the 2007-08 financial crisis. By that process, banks offer bad loans and then siphon value until borrowers are pushed into foreclosure.
The judge agreed with Wells Fargo that the opinions of Gary Lacefield, a financial compliance consultant, were inadmissible because he doesn’t meet the qualifications of an expert witness.
Lacefield — enlisted to support the theory that Wells’ mortgage origination and servicing practices caused nonwhite borrowers to receive riskier and higher-priced loan products and then face higher rates of default and foreclosure — is not a statistician. But he gave outside statisticians “parameters” within which to prove that hypothesis.
The problem is, the statisticians gathered data and performed tasks beyond Lacefield’s expertise, “exercis[ing] their own professional judgment in choosing which statistical technique to employ,” Feinerman wrote in his opinion, seen by Law360.
Further, no evidence from Lacefield can establish the technique’s reliability, so Lacefield’s opinions must be excluded, Feinerman said.
Lacefield’s analysis attempted to show that certain “delimiters” increased the risk of foreclosure in loans made to nonwhite borrowers but failed to control for factors such as income, wealth or credit score “that might explain differential rates of experiencing certain treatment in servicing or in going into foreclosure,” Feinerman wrote.
Lacefield failed to compare similarly situated borrowers, so his analysis can’t prove intentional discrimination, Feinerman concluded.
Unlike Lacefield, Charles Cowan, another witness for Cook County, is a statistician. And Wells Fargo argued his opinions are unreliable because he analyzed loan products from different lenders to investigate the behavior of a single lender.
Because Cowan’s analysis considered loans for which Wells Fargo could not be liable, including ones it had no role in servicing or foreclosing, “any disproportionate effects identified by the analysis cannot properly be attributed to any Wells Fargo policy,” Feinerman wrote.
Cook County asserts Wells Fargo and Wachovia pushed Black and Latinx borrowers into mortgages without ensuring they could pay them. The banks then charged heavy fees when the borrowers couldn’t pay — and more fees when they tried to repay early or refinance, according to the suit. The foreclosures drove significant government expenditures — which is why the county sued.
“The county is correct that statistical disparities may be used to establish disparate treatment, especially where no other explanation for an observed disparity is present,” Feinerman wrote. “The county’s problem, however, is that its evidence for these disparities — the expert testimony of Drs. Lacefield and Cowan — has been excluded.”
Attorneys for Cook County did not immediately respond to requests for comment from Law360.
Wells, however, did.
“Wells Fargo is pleased with this decision, which found that the county’s claims regarding our lending practices were unfounded,” a bank spokesperson said Monday in a statement. “This supports our strong track record of fair and responsible lending, and we will continue to focus on helping customers succeed financially and expanding homeownership opportunities.”
Contrary to that statement, a Bloomberg analysis in March showed Wells Fargo accepted 58% of mortgage refinancing applications from Black homeowners in 2021, compared with 79% of applications for White borrowers. The disparity was enough for Sens. Elizabeth Warren, D-MA, and Ron Wyden, D-OR, to ask the bank to show them how they evaluated the applications.
To Wells’ credit, it accepted Black homeowners’ refinancing applications at a much higher rate in 2021 than in the previous year.
And avoiding a $300 million suit on a Monday may not compare to having to shell out $3.7 billion on a Tuesday.
It’s up for debate whether Bloomberg’s analysis shows disparate treatment. But Monday’s ruling shows Cook County didn’t have data on its side.
