Under the deal, Sand Canyon, based in Irvine, Calif., will pay $9.8 million to the state and direct American Home Mortgage Servicing Inc. — which services about 5,500 loans in Massachusetts that originated with Option One — to begin a $115 million loan modification program.

Homeowners with Option One loans could receive lower monthly payments, andinterest rates, and have their principal balances reduced to reflect current property values. In addition, some borrrowers will receive refunds for fees they paid that the state considered excessive.

“Option One made loans that it knew were likely to fail and it discriminated against African-American and Latino borrowers,” Coakley said during a press conference.

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The DOJ is preparing a lawsuit against the bank, which is negotiating a settlement to avoid a public lawsuit, according to the Huffington Post. In a statement to the Huffington Post, Wells Fargo said it practiced responsible lending. "We have a very strong commitment to serving all customers along the credit spectrum, and we do so without bias."

The DOJ's investigation echoes a suit filed by the city of Baltimore against the bank, accusing it of targeting predominantly black neighborhoods with bad loans. Wells Fargo has denied the allegations.

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Predatory lending typically refers to loans that carry unreasonable fees, interest rates and payment requirements.

Poorer minority areas became a focus of these practices in the 1990s with the growth of mortgage-backed securities, which enabled lenders to pool low- and high-risk loans to sell on the secondary market, Professor Douglas Massey of the Woodrow Wilson School of Public and International Affairs at Princeton University and PhD candidate Jacob Rugh, said in their study.

The financial institutions likely to be found in minority areas tended to be predatory — pawn shops, payday lenders and check cashing services that “charge high fees and usurious rates of interest,” they said in the study.

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Wells Fargo is one of the nation’s largest banks, but it’s had a questionable record with lending to the black and Hispanic community.

As former Wells Fargo loan officer Beth Jacobson told The New York Times in June 2009, Wells Fargo singled out blacks in Baltimore and suburban Maryland for high-interest subprime mortgages. Jacobson and another former Wells Fargo loan officer said in an affidavit that the bank’s employees referred to blacks as “mud people” and to subprime lending as “ghetto loans.”

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Of borrowers who took out mortgages between 2005 and 2008, some 8% of both African-American and Latino borrowers have lost their homes to foreclosure, compared to 4.5% of non-Hispanic whites, according to a study by the Center for Responsible Lending, released Friday.

The racial and ethnic disparities continued even after controlling for income differences. The center’s research shows that African-American and Latino borrowers were about 30% more likely to get higher-rate subprime loans than white borrowers with similiar risk characteristics.

Of the total pool of homeowners, 17% of Latinos have lost their homes to foreclosure or are at imminent risk of losing their homes, while 11% of African-Americans are in that position. By comparison, 7% of non-Hispanic whites have lost their homes or are about to.

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In reviewing the research conducted by the Pew Research Center that the Times used to reach this conclusion, it does not appear that the news is as bad as the headline purports. Overall home ownership reached a peak of 69% in 2004 and declined to 67.8% in 2008. During the same time period, whites fell from 76.1% to 74.9%, Asians 60.8% to 59.1%, Blacks 49.4% to 47.5%, and Hispanics 49.8% to 48.9%. While home ownership rates declined more than the average for Asian and African Americans, the differences were marginal. And Hispanic declines were less than average, especially for more recent immigrants.

That said, the future does not look bright. African and Hispanic Americans are still two or three times more likely to get a subprime loan, pay 3 percentage points more for it, and borrow more for the same income levels when compared to whites.

This could lead to another foreclosure crisis, and we are still feeling the effects of the last one. But lets not jump the gun by making things sound worse than they really are today.

Ethnicmajority housing page.