Wells Fargo Agrees To $85M Settlement For Mortgage Fraud
In what is the biggest fine ever levied by the Federal Reserve in a consumer case, Wells Fargo, the largest mortgage lender in the United States, agreed to pay $85 million to settle charges that it falsified loan documents of its borrowers and pushed borrowers into higher interest subprime mortgages even though they qualified for a mortgage with lower interest rates, according to Investment News. This is pretty much like chump change for an institution that has just announced that it made a $3.9 billion profit for the last quarter, or a total profit of $7.7 billion this year.
According to the article there were over 10,000 borrowers who were steered into more expensive subprime mortgages with higher interest rates or had their loan paperwork falsified by Wells Fargo personnel. The time period when the fraudulent activity was going on was over a four year span between 2004 and 2008, when the bank personnel falsified loan documents by inflating the borrower’s earnings in order to make them qualify for a loan. In accordance with the settlement, Wells Fargo must compensate the victims for losses, some of whom will get over $20,000. The Fed estimates that there will be at least 3,700 borrowers who will receive some settlement, as a result of being illegally steered into expensive subprime mortgages.
According to the investigation, it is theorized that Wells Fargo personnel were driven to the fraudulent activity in order to meet their company goals required for consideration to receive bonuses. Wells Fargo Financial was the unit responsible for the majority of the illegal acts. It had strict rules and goals requiring employees to originate a minimum number of loans to keep from losing their jobs and loan targets for those wanting to receive bonuses. Per the article, that unit of Wells Fargo has been closed down and sixteen of its members have been banned from the banking industry. The ongoing investigation primarily focused on mortgage loans originating in Florida, Pennsylvania, New York, Texas, Tennessee and New Mexico.
This is yet another blemish on Wells Fargo’s pristine image, once said to be the cleanest mortgage lender of the largest U.S. banks. In 2010, the bank was faced with “robo-signer” issues when depositions revealed that some of its employees acted as robo-signers to speed the foreclosure process with falsified or inadequate underlying documentation. Many borrowers who were placed in subprime mortgages have since lost their homes to foreclosure.
Federal regulators and state attorneys general are working on a deal to change the mortgage industry as a whole, forcing lenders to modify more mortgages and provide increased protection for borrowers.