By Aruna Viswanatha
WASHINGTON (Reuters) - A former Deutsche Bank unit will pay $12.1 million to harmed borrowers in order to resolve allegations that it discriminated against African-American and Hispanic borrowers seeking mortgage loans, the U.S. housing regulator said on Tuesday.
MortgageIT, which was an indirect subsidiary of the German bank, charged higher rates and fees to minority borrowers and denied their loan applications more often than comparable white borrowers, the Department of Housing and Urban Development said.
The money will be used to compensate borrowers who were unfairly denied a loan or whose loans violated fair lending laws, the agency said.
"It's creditworthiness and ability to pay that matter when you apply for a loan, not your race or where you come from," Bryan Greene, HUD's Acting Assistant Secretary for Fair Housing and Equal Opportunity said in a statement.
The bank, which bought MortgageIT in 2007 and wound it down the following year, disputed the agency's allegations but agreed to the fund to pay any alleged victims.
"Though we deny these allegations, we are pleased to put the matter behind us," bank spokeswoman Renee Calabro said.
A review of MortgageIT's 2007 and 2008 loan data showed that African American borrowers were 65 percent more likely and Hispanic borrowers 72 percent more likely to receive more expensive loans than similar white borrowers, the regulator said.
In the settlement agreement, MortgageIT said its own analysis of the data showed no material disparities across groups of borrowers.
Regulators have stepped up their pursuit of fair lending cases in recent years, with a focus on lending patterns during the mid-2000s housing boom.
Last year Wells Fargo & Co agreed to pay $175 million to resolve similar allegations from the U.S. Justice Department.
Bank of America Corp's Countrywide Financial unit also agreed in 2011 to pay a record $335 million to settle Justice Department claims that it charged minority borrowers more for home loans than comparable white borrowers.
Both lenders denied the claims as part of their deals.
(Reporting by Aruna Viswanatha; Editing by Chris Reese)