Eminent Domain Mortgage Seizures Would Hurt Fannie, Freddie

By Kate Berry JUL 19, 2012 4:03pm ET

A proposal by San Bernardino County to use eminent domain to seize, and then restructure, underwater private-label mortgages would result in more than just losses to private investors. Fannie Mae, Freddie Mac and the Federal Home Loan Banks are also major investors in private-label securities and they too would suffer if the county took over what is estimated to be 150,000 underwater mortgages.

The losses to the government-sponsored enterprises would likely be minimal – particularly in comparison to the more than $160 billion in losses so far to taxpayers. But the concern is that the use of eminent domain powers by municipalities would set a precedent, throwing a wrench in the Obama administration’s long-term plans to reduce the government’s role in housing by turning as much as possible over to the private sector.

“There are huge unforeseen problems that would occur from eminent domain that could blow up private mortgage lending,” says Scott Simon, a managing director at bond giant Pimco and the head of its mortgage-backed securities team.

If the proposal to use eminent domain to restructure underwater mortgages moves forward, the Federal Housing Finance Agency likely would sue San Bernardino County for encroaching on its role as Fannie and Freddie’s sole regulator, mortgage experts and bondholders say.

Corinne Russell, a spokeswoman for FHFA, says the agency “has concerns with this use of eminent domain and is communicating with county officials to better understand their intentions for such a program.”

The agency has been quick to cite the Housing and Economic Recovery Act of 2008, which stipulates that while acting as conservator, FHFA “is not subject to the supervision or direction of any other agency.”

In December, FHFA sued the city of Chicago to prevent it from enforcing a vacant buildings ordinance that sought fines and penalties of up to $1,000 per day.

It’s unclear how much of the GSEs’ holdings are invested private-label securities in San Bernardino. Fannie held $71 billion in private-label mortgage-backed securities at the end of May, while Freddie held $135.5 billion, according to the GSEs’ monthly summary reports.

The 12 Federal Home Loan Banks held $17 billion in such securities, according to their first quarter combined financial report. The figures represent the unpaid principal balances of non-agency holdings.

San Bernardino County caused a ruckus with bond investors when it created a Joint Exercise Powers Authority last month in agreement with the cities of Fontana and Ontario to devise a Homeownership Protection Plan. Eminent domain is one of the proposals being considered to aid underwater borrowers.

Tom Deutsch, executive director of the American Securitization Forum, a trade group for bond investors, says the same thing that happened with Chicago could happen with San Bernardino because FHFA is required to preserve the assets of the government-sponsored enterprises for the benefit of taxpayers.

“States and localities can’t interfere with that,” Deutsch says.

No lawsuits have been filed yet because the San Bernardino proposal is still in the early stages, but the private investors are rooting for the FHA to take action because it would have the best shot of prevailing in court, experts say.

Still, Deutsch’s group has retained the law firm Sidley Austin LLP and the securitization industry is clearly girding for what could be a protracted legal fight. Carter G. Phillips, a managing partner at Sidley Austin, has argued more cases before the Supreme Court than any lawyer currently in private practice.

Investors are particularly miffed that the San Francisco venture capital firm Mortgage Resolution Partners, which had pitched the eminent domain proposal to several California cities, singled out performing but underwater loans in private-label securities, in which the borrower is still paying their mortgage but owes more than the home is worth. Pimco’s Simon says the venture capital firm targeted private-label securities, which make up just 9% of the total market for first lien mortgages, because trustees of the securities typically take a passive role and would be less likely to take legal action.

“What they did that was smart in going private label because if they went after the GSEs or bank loans, lawyers would go after them instantaneously,” says Simon. “The structural disadvantage is it’s harder to sue, and the trustees don’t care and they aren’t paid enough to do anything.”

Graham Williams, the chief executive of Mortgage Resolution Partners, says he recognizes that some of the loans that could potentially be seized would include securities owned by Fannie, Freddie and Federal Home Loan Banks. Williams says his firm singled out private-label securitizations “because the owners of those other loans have the ability to execute this program on their own, while securitized trusts are prohibited from executing this program on current loans.”

A key issue in any legal fight would be how bond investors, including the government-sponsored enterprises and Federal Home Loan Banks, would be compensated for such seizures. Walter Dellinger, a partner at O’Melveny & Myers LLP and a former assistant attorney general, says San Bernardino County would face a slew of lawsuits and increased liability if the amount paid to bondholders is less than fair market value.

“There does appear to be a substantial gap between what the municipalities expect to pay for loans that they seize and the fair market value for performing loans in securitization trusts,” Dellinger says. If San Bernardino manages to seize the loans using eminent domain, local governments would be required to compensate bondholders and the amount would be determined by the courts, he says.

But Williams says loans held by Fannie and Freddie have already been marked down to fair value, so the GSEs may not lose much money in the seizures. He cited estimates from Fannie’s annual report of a 72.4% default rate on subprime loans as an indication of the prices that new investors would be willing to pay to purchase and then refinance the loans. His firm has hired the investment banks Evercore Partners and Westwood Capital to raise funds from private investors that would be used by the San Bernardino County government to purchase the loans, which would then likely be refinanced.

“If we were to take one of those loans, we would price it very similar to where Fannie Mae has it on its books – that’s a key point,” Williams says. “If we buy one of those loans, the cash flow that Fannie Mae expects is probably very similar to what a third-party trying to value the individual loan would expect. They’ve already taken these losses and written them down to what they call fair value.”

Bondholders say the only way the new investors could earn a return would be if bondholders receive less than fair value. “An underwater but paying loan doesn’t trade at 60 cents on the dollar,” says Simon. “They are cherry picking the best loans [with the intent of] buying them well below fair market value.”

Dellinger agrees. “Built into the assumption is that the new investors at [Mortgage Resolution Partners] are going to make money only if something less than fair market value is paid to the original investors,” he says.

Dellinger says it is hard to justify the seizure of properties through eminent domain if the homes are being taken care of by current owners and there is no blight to justify a benefit for the public good.

“When private property is taken not for governmental use but for the transfer to private investors, it raises questions of whether it is a legitimate public purpose,” says Dellinger. “Even if this were a permissible taking of private property, a very serious question would arise as to what is just compensation.”

After Year of Progress, Dodd-Frank Rule Phase Hit Roadblocks

By Donna Borak

JUL 13, 2012 1:20pm ET

WASHINGTON – In the first year after passage of the Dodd-Frank Act, regulators made some progress implementing the law. Now they have essentially ground to a halt.

As they implement some of the most complex pieces of the overhaul, the agencies have had a Goldilocks complex: they’re trying to get the new regulatory system just right. They want rules to be tough, but not in a way that stops business, and are aware that an industry facing an uncertain regulatory future is watching their every move.

“They know they are very much under a microscope and that they have to deliver,” said Amy Friend, a managing director at Promontory Financial who worked for Sen. Chris Dodd while the law was being drafted. “That means they are going to be extra deliberate about what they’re doing.”

On the eve of Dodd-Frank’s second anniversary, scores of rules that the law had mandated to be completed at this point are still uncompleted. They include 121 rulemakings with pending proposals, and 19 rules that have not even been proposed, according to analysis by the law firm Davis Polk & Wardwell.

Observers say a large part of the regulators’ challenge is implementing a broad, general framework that Congress created without including key details.

“The regulators were handed a monumental task” with “deadlines that were impossible and random,” said Margaret Tahyar, a partner at Davis Polk. “This was more than just filling in a few details. There were major components of the architecture that weren’t there.”

In the first 12 months following enactment, the regulators were able to check off implementation projects with earlier deadlines, such as reforms to deposit insurance pricing and the closing of the Office of Thrift Supervision. But more far-reaching provisions are still in limbo. Regulations to ban banks’ proprietary trading, institute requirements for securitizers to retain risk and force lenders to ensure mortgage borrowers’ ability to repay were all proposed, but none have been finalized. While the new Financial Stability Oversight Council has outlined its procedures for designating systemically important firms, no such firms have yet been designated.

For some of the bigger regulations, such as the trading ban known as the Volcker Rule, the regulators face pressure to meet the Dodd-Frank deadlines. But the lengthy proposal they issued on the rule, which included hundreds of questions for comment, also indicated their intent to methodically consider public concerns about how the ban would be implemented, almost to a fault. Critical events like the multibillion-dollar trading loss at JPMorgan Chase’s London unit, which prompted further debate about the scope of the Volcker Rule, also affected their work.

“This is a search for precision in terms of ‘We are going to nail every possible thing in our rule so there is no uncertainty,’” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics. “They are detailed-driven to the point of incoherence.”

The regulators have appeared to want to carefully consider all of the thousands of comment letters they have received on their existing proposals, even if it has meant taking longer to finish.

“When Dodd-Frank was passed, it wasn’t passed with a lot of input at all from the industry,” said Deborah Bailey, a former deputy director of the banking supervision and regulation division at the Federal Reserve Board, who is now a director at Deloitte & Touche. “Traditionally, financial legislation has been done in a way where not only regulators were involved in it, but the industry was also involved in it. So you had industry input into the legislation to make sure that there weren’t any unintended consequences associated with the laws that were passed.

“Therefore that part of the process . to really understand the implications, I think it’s naturally going to have a much slower take to it than it would have had that been during the legislative period.”

It is not a lack of urgency stalling the rulemakings, many say. Instead, with the reality setting in of the magnitude and implications of many Dodd-Frank reforms, regulators have swapped immediacy for measured caution.

“The realization that ‘My gosh, there’s so many rules here, and we have to get them right’ has taken its place, and that is not a bad thing,” Friend said.

Yet there have been other impediments to the regulators moving quickly. Different agencies that must collaborate on rules have competing priorities. Some regulators have dealt with holdups in Senate confirmation of senior positions, and then the eventual change of leadership when a principal is confirmed. Agencies are also dealing with fewer budgetary resources.

“You’ve got these agencies that not only have their requirements to promulgate all of these rules, but they also have the same responsibilities to continue to oversee and supervise financial institutions and examinations and also finalize all of the things on Basel,” Bailey said.

The pressure from members of Congress and elsewhere for agencies to provide cost-benefit analyses for certain rulemakings has also sparked a much more litigious attitude among the regulators.

“You can argue the details about what kind of cost-benefit and how it applies in a legal technical way to which agencies when, but the reality is there is this broad general principle of cost benefit analysis, which in the past has often been honored in the breach, and which the courts are telling us now needs to be truly honored,” said Tahyar.

To be sure, some strides have been made over the past year.

“When we look at where we were two years ago – ’08, ’09 – we were really on the brink,” said Cyrus Amir-Mokri, the assistant Treasury secretary for financial institutions. “Our banks didn’t have enough capital. Our regulatory system was very fractured in that we didn’t have any coordinating mechanisms. We didn’t understand products. We didn’t even have good documentation for a lot of these complex products that people were dealing with. All of that has changed. It’s a work in progress, but the direction has been set, and I think that’s very important to understand.”

Still, regulators are generally moving at a slower pace than they did initially, and under much tougher scrutiny. For every step forward, there seem to be two steps back, and even the rules they have accomplished have come after the Dodd-Frank-required deadlines.

In December regulators unveiled a package of proposed rules to dictate how much capital banks with assets of $50 billion must hold. But, given continuing discussions in the Basel Committee on Banking Supervision on international standards, they punted on certain aspects like liquidity requirements. There is still no final rule in place.

After several attempts, the FSOC, an interagency body headed by Treasury Secretary Timothy Geithner, completed its final rule on how it would designate a non-bank financial institution as systemically risky. But no firms have yet been identified.

President Obama bypassed Congress to name Richard Cordray head of the Consumer Financial Protection Bureau, a move that is currently being challenged.

Nine of the largest banks submitted their initial so-called living wills, plans that would detail how an individual firm would be unwound in the event of a disastrous episode. But those plans provided scant details to the public. More than two dozen living-will plans are due by firms over the next year and a half.

The regulators have made little headway on other key elements of the regulatory reform effort. For example, there is no clearer path ahead now on the Volcker Rule than last year, with regulators saying they need more time to complete a final rule.

Scott Garrett, R-N.J., said the agencies are grappling with trying to implement certain provisions that are really tied to policies that have yet to be resolved by Congress. He pointed to the risk retention rule in Dodd-Frank, which generally requires securitizers to hold 5% of a loan’s credit risk. But the impact of that rule, he said, relies on future decisions, such as what to do with the government-sponsored enterprises.

“They all interconnect and they all can have a damaging effect on housing mortgage finance if done incorrectly,” said Garrett, who chairs the House Financial Services capital markets and GSE subcommittee. “Obviously, a more comprehensive approach to housing mortgage finance is preferable.”

Meanwhile, regulators find themselves in a highly politicized environment – months before a big election – in which they receive a myriad of mixed signals.

“I think what you want the regulatory staff to do is put their heads down and do the right thing. That means listening to their colleagues, having this very healthy back-and-forth, entertaining comments that come in, and being very deliberate about what they’re doing,” said Friend. “But I don’t think you want them to be whipsawed by all the public pronouncements about all the rules.”

As a result, observers say regulators have done as well as can be expected given the circumstances. Still, some criticize the release of proposals that are too difficult to understand.

“They’re huge. They’re complicated,” Petrou said. “You see this in the Fed meetings after you take them up one by one, and the staff drops 300-plus pages in front of the Board of Governors and they basically throw up their hands and say, ‘This is what Congress told us to do. Yes. Is it tough? Yes. OK, let’s put it out for comment.’ ”

Rep. Shelley Moore Capito, R-W.Va., who chairs the House Financial Services financial institutions and consumer credit subcommittee, said the vagueness of provisions in the legislation is largely to blame.

“It’s just a mass of ill-defined and nonspecific regulations with onerous penalties, and so it leads to a lot of uncertainty,” Capito said.

Some said momentum for the Dodd-Frank implementation project may simply be on the decline two years later.

“It was a year of nonactivity followed by a year of confusion,” said Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University. “I think enthusiasm for the project has waned. At the same time, we see every day evidence of why a more aggressive response to the crisis was required in the first go around. I think every day we are realizing more that reform efforts are inadequate.”

Friend said it was inconceivable for regulators to continue at their breakneck pace they followed in the first year.

“There was such tremendous pressure on all of them to get out of the box really quickly and I think the pace at which they were approaching regulation was just unsustainable,” Friend said. “So in the second year, they’ve slowed down.”

Others said it would be a mistake to move too quickly to complete such an intricate process while the regulators must continue handling their normal supervisory responsibilities.

“The criticism of the regulators being too slow is totally unwarranted,” said H. Rodgin Cohen, a partner at Sullivan & Cromwell. “It should be in everybody’s interest that they get it right and that takes time and effort because these are many, many complex issues. The regulators have been moving at an appropriate and measured pace. Frankly, if they were moving more quickly there would be less time to comment; there would be less time for a deliberative process at the agencies.”

Rep. Barney Frank, D-Mass., the half-namesake of the reform law, agreed, and played down the missed deadlines.

“The deadlines were not firm in the sense they were basically approximations,” Frank said. “Progress is going forward. I’m satisfied. The point is nothing has been undone, and nothing negative has happened because the regulations weren’t in place.”

Still, observers cautioned that not moving quickly enough, especially on critical pieces like enhanced prudential regulations, single counterparty credit limits and the Volcker Rule, would be detrimental.

“If you wait too long, the uncertainty mounts and mounts and mounts,” Cohen said, adding that a “realistic time horizon” for completing the important regulations is “this year.”

“If you didn’t do that there would be a risk of loss of momentum,” he said.

CFPB Asserts Authority Over Credit Reporting Firms

By Joe Adler

JUL 16, 2012 12:01am ET

WASHINGTON – The Consumer Financial Protection Bureau plans to unveil Monday new rules for supervising credit-reporting companies, marking the first time such firms will become subject to federal oversight.

The new regulation establishes credit reporting as the first industry the bureau will supervise under special powers granted by the Dodd-Frank Act to examine larger nonbank firms that reside outside the direct lending sphere.

Starting Sept. 30, credit reporting agencies with over $7 million in annual receipts – accounting for 94% of the industry total – will enter the CFPB’s nonbank supervision program. Following that date, the bureau said, it plans to conduct exams, but before doing so will publish additional examination guidance.

The supervision for the credit reporting agencies will share characteristics with how the CFPB has supervised banks and nonbanks that already fall under its oversight, the bureau said.

“The companies will be subject to review of compliance systems and procedures, on-site examinations, discussions with relevant personnel, and they will be required to produce relevant reports,” the CFPB said.

In prepared remarks scheduled to be given in Detroit on Monday, CFPB Director Richard Cordray said the consumer reporting agencies’ “scorekeeping exerts a tremendous and growing influence over the ways and means of” consumers’ “financial lives.”

“So it is important for all of us to understand more about their work and the ways it can affect us,” he said in the prepared remarks, scheduled for a field hearing.

The new regulation, Cordray added, “affords an opportunity to gain a more thorough understanding of their business models and their business practices, to work with them to correct any problems we find, and to find ways to resolve matters that may be causing harm to consumers.”

While it was unclear what types of new regulatory restrictions credit reporting agencies may face under CFPB supervision, the regulator gave clear signals earlier this year that it was interested in the sector.

Under Dodd-Frank, the CFPB was authorized to supervise both large banks and nonbanks for compliance with consumer rules. (The bureau is also charged with writing consumer policies for the entire financial services industry.)

The nonbank supervision authority grants the bureau with express powers to oversee residential mortgage lenders, payday lenders and private student lenders. But the law also allows the CFPB to identify other industries to subject to its examinations.

In a February proposal, the CFPB had listed consumer reporting agencies, along with debt collectors, as sectors it will monitor under its Dodd-Frank authority to supervise “larger participants” in nonbank industries that play indirect roles in the exchange of consumer credit.

“Credit reporting plays a critical role in consumers’ financial lives, a role that most people do not recognize because it is usually not very visible to them,” Cordray said in the prepared remarks. “Credit reports on a consumer’s financial behavior can determine a consumer’s eligibility for credit cards, car loans, and home mortgage loans – and they often affect how much a consumer is going to pay for that loan.

“If you have a credit record that appears to show a greater risk that you will fail to repay a loan, then you may be denied credit and you likely will be charged higher interest rates on any loan offered to you.”

Last summer, the bureau indicated the larger-participant authority could also eventually extend to companies such as money transmitters, prepaid-card issuers, debt-relief services and other kinds of consumer lenders, meaning they too could be part of the supervision program.

The CFPB said it also plans to release a “consumer advisory” regarding credit reports and a series of frequently asked questions and answers about the sector as part of its “Ask CFPB” database.

By Kenneth R. Harney July 13, 2012

When the Supreme Court upheld the health care reform law on federal tax grounds, it restoked a housing issue that had been relatively quiet for the past year: The alleged 3.8 percent “real estate tax” on home sales beginning in 2013 that is buried away in the legislation.

Immediately following enactment of the health care law, waves of emails hit the Internet with ominous messages aimed at homeowners. A sample: “Did you know that if you sell your house after 2012 you will pay a 3.8 percent sales tax on it? When did this happen? It’s in the health care bill. Just thought you should know.”

Once litigation challenging the law’s constitutionality surfaced in federal courts, the email warnings subsided. But with the law scheduled to take effect less than six months from now, questions are being raised again: Is there really a 3.8 percent transfer tax on real estate coming in 2013? Does it pre-empt the existing $250,000 and $500,000 capital gains exclusions for single-filing and joint-filing home sellers, as some emails have claimed?

In case you’ve heard rumors or received worrisome emails about any of this, here’s a quick primer. Yes, there is a new 3.8 percent surtax that takes effect Jan. 1 on certain investment income of upper income individuals – including some of their real estate transactions. But it’s not a transfer tax and not likely to affect the vast majority of homeowners who sell their primary residences next year. In fact, unless you have an adjusted gross income of more than $200,000 as a single-filing taxpayer, or $250,000 for couples filing jointly ($125,000 if you’re married filing singly), you probably won’t be touched by the surtax at all, though you could be affected by other changes in the code if Congress fails to extend the Bush tax cuts scheduled to expire at the end of this year.

Even if you do have income greater than these thresholds, you might not be hit with the 3.8 percent tax unless you have certain types of investment income targeted by the law, specifically dividends, interest, net capital gains and net rental income. If your income is solely “earned” – salary and other compensation derived from active participation in a business – you have nothing to worry about as far as the new surtax.

Where things can get a little complicated, however, is when you sell your home for a substantial profit, and your adjusted gross income for the year exceeds the $200,000 or $250,000 thresholds. The good news: The surtax does not interfere with the current tax-free exclusion on the first $500,000 (joint filers) or $250,000 (single filers) of gain you make on the sale of your principal home. Those exclusions have not changed. But any profits above those limits are subject to federal capital gains taxation and could also expose you to the new 3.8 percent surtax.

Julian Block, a tax attorney in Larchmont, N.Y., and author of “Julian Block’s Home Seller’s Guide to Tax Savings,” says it will be more important than ever to pull together documentation on the capital improvements you made to the property and expenses connected with the house – including settlement or closing costs, such as title insurance and legal fees – that increase your tax “basis” in order to lower your capital gains.

Since the health care law targets capital gains, you could find yourself exposed to the 3.8 percent levy on the sale of your home next year. Here’s an example provided by the tax staff at the National Association of Realtors. Say you and your spouse have adjustable gross income (AGI) of $325,000 and you sell your home at a $525,000 profit. Assuming you qualify, $500,000 of that gain is wiped off the slate for tax purposes. The $25,000 additional gain qualifies as net investment income under the health care law, giving you a revised AGI of $350,000. Since the law imposes the 3.8 percent surtax on the lesser of either the amount your revised AGI exceeds the $250,000 threshold for joint filers ($100,000 in this case) or the amount of your taxable gain ($25,000), you end up owing a surtax of $950 ($25,000 times .038).

The 3.8 percent levy can be confusing, and can bite deeper when your taxable capital gains are far larger or you sell a vacation home or a piece of rental real estate, where all the profits could subject you to the investment surtax. Definitely talk to a tax professional for advice on your specific situation.

DOJ Claims Prize in Wells Deal, But Bank Avoids Trip to Court

By Kevin Wack

JUL 12, 2012 4:36pm ET

WASHINGTON – The $175 million fair-lending settlement that federal authorities announced Thursday with Wells Fargo (WFC) offered both sides the chance to claim some measure of victory and move past a three-year-long investigation.

With the settlement, Wells Fargo was able to deny – contrary to the allegations of the Justice Department – that it unlawfully discriminated against minority borrowers related to mortgages originated during the housing boom. But at the same time, the Justice Department, which has been pursuing fair-lending cases more energetically during the Obama Administration, was able to claim its second-largest prize following a $335 million settlement with Countrywide last year.

“All too frequently, Wells Fargo’s African-American and Latino borrowers had no idea whatsoever that they could have gotten a better deal,” Assistant Attorney General Thomas Perez said at a press conference in Washington. “No idea that white borrowers with similar credit would pay less. That is discrimination with a smile.”

Much of the alleged wrongdoing involved the bank’s wholesale lending channel, which utilizes outside mortgage brokers, and Wells suggested in a press release that any bad conduct was beyond the bank’s control because mortgage brokers operate as independent businesses.

“Wells Fargo cannot set loan prices for independent mortgage brokers nor control the combined effect of the negotiations that thousands of these independent mortgage brokers conduct with their customers,” the bank stated.

Wells separately announced that it is closing the wholesale mortgage channel, which currently represents about 5% of its residential mortgage volume. The San Francisco bank had already closed its wholesale nonprime division five years ago, and it stopped making retail nonprime loans more than four years ago.

The settlement also frees up resources inside the Justice Department, and in particular in the Civil Rights Division’s Fair Lending Unit, to pursue similar cases against other banks.

Perez would not comment Thursday on other specific probes, but did say: “We have other investigations pending.”

Anand Raman, a lawyer at Skadden Arps who often represents banks, said, “The Justice Department sees as part of its mission going after big settlements, and I would not be surprised if this is not the last such resolution.”

When pressed on why the Justice Department agreed to settle a case involving what it alleged was a racial surtax on loans, rather than going to court, Perez said: “There are real people affected, and we were able to reach a resolution with Wells now to provide assistance for people.”

“When you have protracted litigation, that can take years,” Perez added. “There’s obvious mutual litigation risk on everyone’s side. And our goal here is to help people, and to come to a resolution that can in fact help ensure equal credit opportunity.”

Like many recent fair-lending cases, the government’s case against Wells Fargo did not allege that the bank, or the mortgage brokers with whom it did business, discriminated against minority borrowers intentionally.

Instead, the Justice Department relied on statistical analysis to show that minority borrowers were far more likely than whites to be steered into subprime loans even though they qualified for prime mortgages, and that minorities were also more likely to pay higher rates and fees.

“It meant that an African-American wholesale customer in the Chicago area in 2007 seeking a $300,000 loan paid on average $2,937 more in fees than a similarly qualified white applicant,” Perez said.

This kind of statistical analysis – which prosecutors use to support claims that lending practices have a “disparate impact” on minorities, even if minorities were not intentionally targeted – is controversial at banks.

But Perez insisted that discrimination took place, and he rejected Wells Fargo’s suggestion that the problem could be blamed on mortgage brokers.

“The complaint alleges that individual originators, whether they were retail or wholesale, were given discretion which wasn’t properly monitored, to go beyond the terms and conditions that were based on objective indicia of a person’s creditworthiness,” he said.

As part of the settlement, Wells Fargo agreed to provide $125 million to the roughly 34,000 alleged victims, and also committed another $50 million to community improvement programs in Washington DC, Chicago, Baltimore, Philadelphia, Oakland-San Francisco, New York, Cleveland and southern California’s Inland Empire.

The bank will also conduct an internal review of certain retail subprime loans that it originated between 2004 and 2008 to identify and provide compensation to minorities who were improperly steered into subprime loans.

Perez estimated that between 3,000-4,000 borrowers will be identified through that process, and he said that payments to them will be in addition to the $175 million committed under the settlement.

The Wells Fargo case was referred to the Justice Department by the Office of the Comptroller of the Currency in 2010, prior to the start of Comptroller Thomas Curry’s tenure.

While Justice Department officials spoke Thursday about a reinvigoration of fair-lending enforcement, Curry was careful not to suggest that anything has changed with regard to his agency’s handling of such cases.

“In terms of fair lending, we’ve had a long-standing practice that goes way back and prior to my becoming the comptroller of referring of businesses of credible complaints,” Curry said. “So this is a continuation of the long-standing practice and tradition of the Comptroller’s Office.”