Washington told banks to run these programmes. Now it investigates one for it

A bank did the thing in public, and the public record became the charge sheet

Wells Fargo’s offence, as described in the letter sent to its chief executive this week, is partly that it went first and said so. The assistant secretary for fair housing and equal opportunity writes that banks “sometimes reluctantly acceded” to race-conscious lending practices, but that Wells Fargo “emerged as the ‘first mortgage lender to make a public commitment’”. The quotation marks are doing the work of evidence. The announcement is the exhibit.

The Department of Housing and Urban Development is investigating two things. One is a 2017 pledge of $60 billion in lending aimed at creating at least 250,000 African American homeowners by 2027. The other is a $150 million programme from 2022 — a special purpose credit programme — letting eligible Black homeowners refinance into lower rates. HUD’s position is that the Fair Housing Act contains an unambiguous, categorical prohibition on race-based home loans, and that the previous administration used these programmes to import racial discrimination into the housing market. The housing secretary has called them immoral, unethical and un-American. Wells Fargo declined to comment.

Two statutes, one borrower

Here is the problem nobody in Washington has written down properly. A special purpose credit programme is not an invention of the Biden administration. It is a defined creature of federal credit law, which expressly permits a lender to run a programme extending credit to an economically disadvantaged class that would not otherwise receive it. Fair housing law, which HUD enforces, prohibits discrimination because of race in residential real-estate transactions and carries no equivalent carve-out on its face.

So a bank running a mortgage programme sits under both statutes at once, and they do not obviously agree. In 2022 federal agencies issued guidance encouraging financial institutions to use these programmes to meet the needs of economically disadvantaged communities. Banks that took the encouragement are now the ones with the exposure. That is not a trap anyone sprang deliberately. It is the predictable result of four or five agencies regulating the same loan under two statutes and never being made to reconcile them in a single document.

An investigation does not reconcile them. At best it produces a settlement, which binds one firm and tells the other several thousand mortgage lenders nothing they can rely on. At worst it produces litigation that takes years, during which every compliance officer in the country guesses.

Two very different things in one envelope

The letter also lumps together two things that are not alike. A commitment to lend $60 billion and reach 250,000 Black homeowners is a volume target — it says where a bank will market, staff branches, and hunt for borrowers. A special purpose credit programme that gives a differentiated refinance rate to a defined group changes the terms of the credit itself. One is outreach; the other is pricing. They raise different legal questions and deserve separate analysis. Treating them as a single “racialized home loan policy” makes for a cleaner letter and a worse legal document.

It is also worth noting the chronology without reading too much into it. The $60 billion commitment dates from 2017, the early months of the first Trump administration. Whatever one concludes about the law, the idea that these programmes are a distinctly partisan artefact does not survive contact with the dates.

The case for the investigation

The strongest version of HUD’s position is not weak. The Fair Housing Act’s prohibition is written as a prohibition, not as a prohibition with exceptions for well-intentioned programmes. A refinance offer available to one racial group and not another is race-conscious on its face, and the general direction of recent constitutional law on race-conscious programmes has been towards scepticism, not deference. An agency that sincerely believes a widespread practice is unlawful is entitled to test it. Investigations are how agencies build the factual record that a rule or a court case later needs. Demanding a finished rulemaking before any enforcement would freeze every agency permanently.

That is fair as far as it goes. But it does not survive the letter’s own framing. You do not open a neutral investigation by announcing that the subject’s conduct is immoral and un-American before the first document request lands. And where the government itself encouraged the conduct, the first target should be the government’s guidance. Withdrawing the 2022 encouragement costs nothing, binds everyone equally, and would convert a retrospective hunt into a prospective rule.

What the alternative looks like

It is not hypothetical. The same week this letter went out, the Federal Reserve and the Comptroller of the Currency took a joint action against American Express over anti-money-laundering failures, with a $350 million payment, two regulators aligned on one set of facts and a published order. Agree with it or not, every other card issuer can now read it and act. The Wells Fargo letter gives the rest of the mortgage industry nothing but a reason to stop talking.

If special purpose credit programmes in mortgage lending are unlawful, that is an enormously consequential conclusion affecting thousands of lenders and, eventually, borrowers who were told these programmes existed for them. It deserves a document the whole market can read.