Illinois Attorney General Lisa Madigan is suing Wells Fargo (WFC: 29.60 +1.89%) on alleged predatory lending practices and discrimination against African American and Latino borrowers.

The Illinois AG's suit, filed in Cook County Circuit Court, claims Wells engaged in a practice called "reverse redlining," in which lenders are said to target minority consumers or residents of minority neighborhoods for high-cost subprime mortgages. Madigan's complaint alleges Wells targeted marketing programs in areas considered minority-populated.

In 2005, according to an analysis of Chicago-area data, approximately 45% of Wells' African American borrowers and 23% of the lender's Latino borrowers received a high-cost mortgage, compared with 11% of white borrowers that received high-cost mortgages that year. In 2006, 58.5% of its African American and 35% of its Latino borrowers received high cost mortgages, compared with 16% of its white borrowers.

As of 2006, Wells was the Chicago area's second-largest lender by volume, from '05 to '07 originating more than 60,000 mortgages — of which 12,000 were high cost, according to the complaint.

“As a result of its discriminatory and illegal mortgage lending practices, Wells Fargo transformed our cities’ predominantly African-American and Latino neighborhoods into ground zero for subprime lending,” Madigan said in a statement. “The dreams of many hardworking families have ended in foreclosure due to Wells Fargo’s illegal and unfair conduct.”

The case alleges Wells Fargo Financial Illinois, a Wells subsidiary that originated subprime loans, also engaged in deceptive business practices by misleading Illinois borrowers regarding mortgage terms and refinance benefits. It also claims the company repeatedly financed borrowers' mortgages without providing any real benefit to consumers.

"In addition, Wells Fargo Financial used deceptive mailings and marketing tools to confuse borrowers as to which division of Wells Fargo and Company they were doing business with — prime or subprime," the complaint reads, in part. "As a result, borrowers believed they were doing business with Wells Fargo Home Mortgage, which offered mainly prime loans, when in fact they were dealing with Wells Fargo Financial, a predominantly subprime lender."

The suit calls for the rescission of all contracts entered between Wells and Illinois consumers through the use of unlawful methods and asks that Wells grant full restitution to borrowers. The case also calls for civil penalties for the violations.

Write to Diana Golobay.

British home builder Nationwide saw its third month of home price increases in July, according to a house price index released Thursday.

House prices gained 1.3% on a seasonally adjusted basis in July. The three-month-on-three-month rate of change gained 1% in June to 2.6% in July — the highest level since February 2007.

UK house prices are still 6.2% lower than 12 months ago, Nationwide said, but this represents a significant improvement from the 9.3% year-on-year decline seen in June.

“House prices have been remarkably resilient so far this year, despite a recessionary economic background with sharply rising unemployment," said Martin Gahbauer, Nationwide's chief economist. "Although this outcome has come as a surprise, it is not inconsistent with other economic indicators and asset prices, which have also bounced back somewhat after very severe declines around the turn of the year. During turbulent economic times, it is not unusual for economic indicators and asset prices to overshoot in one direction and then experience a correction in the other."

“The improvement in housing market conditions, however," Gahbauer added, "does not mean that the positive price trends of recent months can be extrapolated into the future in a straight line. If prices continue to increase at the rate of the last three months, they would soon rise to levels that would be noticeably out of line with earnings, rents and other fundamental determinants of housing valuations."

As prices gain — on an apparently unsustainable level, according to Gahbauer's comments — home sales in the UK are also on the rise, according to purchase origination data.

The Bank of England showed mortgage originations were up in June to 47,584, the highest level since April 2008. The volume of purchase loans approved in the month remain historically low, however, with 36% fewer originations in the first half of 2009 than the same period of 2008.

“Activity is certainly more positive than at the start of the year," said Council of Mortgage Lenders' economist Paul Samter. "This is consistent with the improvement in housing market sentiment, but the outlook is still sluggish, as capacity constraints on the lending industry and continuing deterioration in the labour market will act as a brake on the pick up."

"Overall," Samter added, "these numbers are consistent with our outlook for a gradual improvement from historic lows following the financial system turmoil last year, but for any recovery to be slow and drawn out.”

Write to Diana Golobay.

Service extras became increasingly important to both home buyers and sellers as first-time buyers took the majority of the home buyer population in the last year, according to JD Power and Associates' 2009 survey of both parties in the home selling process.

The importance of added services like inspections, appraisals and legal and moving company recommendations has increased in both processes since last year's survey — up by 12% among buyers and by 8% among sellers — although the agent remains the most important driver for both segments.

"In a tight market, every aspect of service offered will be scrutinized very closely," said Jim Howland, senior director of the real estate and construction practice at JD Power. "For this reason, it is critical for real estate companies to promote the value that they bring to buyers and sellers, not only in any additional services they offer, but also in their agents and operations."

The study also found that the proportion of first-time home buyers increased considerably — to 56% in 2009 from 44% in 2008. Many of these first-time buyers may be attracted by improved home affordability and the perception of a strong buyer's market. This presents both challenges and opportunities for real estate companies, JD Power said in its survey.

"The presence of more first-time buyers is encouraging, as it indicates that the real estate market is returning to more normal activity, with fewer speculators," Howland said. "However, real estate companies and agents must carefully manage first-time buyer expectations. Although these buyers may believe otherwise, they must still overcome the traditional barriers to purchasing a home, such as being able to fund down payments, closing costs and monthly payments."

Now in its second year, the JD Power study includes more than 3,100 evaluations from 2,801 respondents that bought or sold between April 2007 and June 2008. JD Power, a business unit of The McGraw-Hill Companies (MHP: 46.90 +0.11%), examines the agent, office and package of additional services when determining satisfaction in the buying experience. It examines marketing in addition to these categories when determining satisfaction in the selling experience.

Write to Diana Golobay.