The U.S. Department of Housing and Urban Development (HUD) has launched an investigation into Wells Fargo, alleging the bank may have violated the Fair Housing Act through racially discriminatory mortgage lending.

Marketing campaigns, lending programs and public outreach specifically geared toward boosting Black homeownership were cited as the basis of the probe in a letter sent to Wells Fargo Chairman and CEO Paul Scharf on Wednesday.

“In response to your bank’s repeated public promotion of explicit race-based lending policies, I have directed the Office of Special Investigations to investigate Wells Fargo for potential fair housing violations,” wrote Craig Trainor, an assistant secretary leading the Office of Fair Housing and Equal Opportunity at HUD.

The letter noted that the investigation was being undertaken to determine whether any fair housing violations had occurred or would occur based on past commitments.

A spokesperson for Wells Fargo told Scotsman Guide that the bank had no immediate comment.

Wells Fargo has scaled backed its origination footprint in recent years, but the lender remains a major player as the second-largest investor among depositories in residential mortgage-backed securities, behind Bank of America.

According to Ginnie Mae reporting, Wells Fargo held nearly $280 billion in RMBS as of the end of the second quarter of 2026. That was double the holdings of JPMorgan Chase, the largest bank in the U.S. by total assets.

Allegations of race-based mortgage lending

Dating back to 2017, HUD describes Wells Fargo as engaging in a deliberate campaign to “implement a racialized home loan policy.” HUD believes Wells Fargo did so by “offering different products or terms on those products” based on race.

The federal department cited annual reports from Wells Fargo that celebrated diversity, equity and inclusion (DEI) programs, which President Donald Trump banned in federal hiring, contracting and spending through a series of executive orders signed in 2025. DEI programs proliferated under the Biden administration as an affirmative effort to increase minority representation in various aspects of business and society.

HUD took aim at special purpose credit programs (SPCPs) that Wells Fargo said were part of its effort to advance “racial equity in homeownership.” SPCPs are authorized under Regulation B of the Equal Credit Opportunity Act (ECOA) passed in 1974, and had formerly allowed lenders to extend financing to historically disadvantaged individuals and communities based on protected classes such as race or gender.

The Consumer Financial Protection Bureau issued a new rule in May, however, that reinterprets Regulation B to prohibit for-profit firms from considering race and other protected classes in their use of SPCPs — though considerations of race had been encouraged during the Biden administration under a different interpretation of the regulation.

“Federal regulators, HUD included, put in writing that these programs were legal,” said Nikitra Bailey, executive vice president of the National Fair Housing Alliance, in a statement shared with Scotsman Guide. The NFHA is one of several organizations currently challenging the final CFPB rule in federal court.

Bailey added that investigating a lender “for following the government’s own rules” amounts to “an abuse of the agency’s investigative authority” and “a transparent attempt to scare every lender in the nation away from their legal obligation to serve underserved communities.”

Much of the public material HUD cites as its grounds for launching the probe into Wells Fargo no longer exists on the company’s website.

“Wells Fargo’s public statements, commitments and reports over an extended period, preserved within internet archival records, call into question whether the bank continues to make loans and craft their terms according to the race of the applicant,” said HUD.

Biden administration policies scrutinized

Under the Biden administration, housing regulators encouraged mortgage lenders to adopt lending programs that would affirmatively address the nation’s longstanding racial homeownership gap.

The Fair Housing Act was passed in 1968 to outlaw the practice of redlining, which since the 1930s had allowed lenders to deny borrowers access to mortgages based on their skin color. Lenders had actively been encouraged to redline by federal housing regulators before it was banned.

But the homeownership gap between white and Black adults is wider now than it was in 1970, when white homeownership was 66% and Black homeownership was 42%, according to a Pew Research Center review of Census Bureau data. The white homeownership rate was 73% in 2024, while the Black homeownership rate was 46%.

SPCPs were one of the primary vehicles through which regulators encouraged lenders to tailor their lending toward historically disadvantaged groups. Many SPCPs were deliberately race-conscious and catered to non-white applicants.

While provisions of ECOA allow some lenders to use SPCPs to target borrowers on the basis of race, the Fair Housing Act expressly prohibits considerations of race in real estate transactions. That friction underscores unanswered legal questions bubbling away beneath HUD’s investigation, which have yet to be fully tested in courts as it relates to race-based decision-making in mortgage lending, experts say.

In August, HUD and the Federal Housing Finance Agency, alongside federal banking regulators, withdrew Biden administration guidance from 2022 promoting the use of SPCPs in mortgage lending. According to that guidance, HUD had previously ruled that SPCPs “instituted in conformity with ECOA and Regulation B generally do not violate the [Fair Housing Act].”