WASHINGTON – Wells Fargo, the largest U.S. mortgage lender, will pay $125 million and set up a $50 million assistance fund to settle allegations that it discriminated against minority borrowers.

The bank will also stop using outside brokers to create mortgages, according to a statement Thursday from Wells Fargo. The accord settles U.S. accusations in court filings that the bank put creditworthy Hispanic and black borrowers into more expensive subprime loans from 2004 to 2007, and that mortgage brokers through 2009 added charges that caused minority borrowers to pay higher fees, costs and interest than similar white borrowers.

“Wells Fargo’s internal documents reveal that senior officials were aware of the numerous tactics that subprime originators employed to keep loans in the subprime division,” when they could have qualified for prime loans, the Justice Department alleged in a complaint filed with the settlement in Washington.

The San Francisco-based bank, which controls about a third of the market for all new home loans, denied it engaged in illegal discrimination and said it agreed to settle solely to avoid litigation, according to a proposed consent order.

Wells Fargo reported a $15.9 billion profit last year.

“Wells Fargo asserts that throughout the period of time at issue in this proceeding and to the present, it has treated all customers fairly and without regard to impermissible factors such as race and national origin,” the bank said in the consent order, which is subject to approval by a federal judge.

In a separate statement, Wells Fargo said it will stop funding loans through independent mortgage brokers and after today won’t accept new applications from them.

The lender will still process and close existing applications, and the decision to stop dealing with brokers, known as wholesale lending, was made “on its own volition,” according to the statement.

The Obama administration has increased scrutiny of banks to discourage loan discrimination as the housing bust fuels loan defaults.

The settlement with Wells Fargo is the second largest fair-lending accord reached by the Justice Department after a record $335 million extracted from Bank of America in a deal announced in December.

Countrywide, acquired by Bank of America in 2008, assessed higher fees and interest rates on more than 200,000 black and Hispanic borrowers, the Justice Department said.

The Justice Department investigation of Wells Fargo uncovered “systemic discrimination” in the bank’s lending practices, Deputy Attorney General James Cole said Thursday at a news conference.

About 34,000 borrowers in total were affected, according to the complaint.