Wells Fargo to pay $85M fine to Fed in mortgage-abuse case
Posted: 3:30 pm Wed, July 20, 2011
WASHINGTON — Wells Fargo & Co. has agreed to pay $85 million to settle civil charges that it falsified loan documents and pushed borrowers toward subprime mortgages with higher interest rates during the housing boom.
The fine is the largest ever imposed by the Federal Reserve in a consumer-enforcement case, the central bank said Wednesday.
Wells Fargo, the nation’s largest mortgage lender, neither admitted nor denied wrongdoing as part of the settlement. The bank agreed to compensate borrowers who were steered into higher-priced loans or whose income was exaggerated.
The Fed said a unit of Wells Fargo inflated borrowers’ incomes on loan documents to qualify for mortgages they otherwise couldn’t afford from 2004 until 2008. Sales personnel also pushed borrowers toward higher-interest, subprime loans, even though they were eligible for lower-interest mortgages, the central bank said.
Separately, Wells Fargo is fighting a lawsuit by the City of Baltimore, which accuses it of targeting residents of Baltimore’s predominantly African-American neighborhoods for disadvantageous loans. The city has claimed that the bank steered black borrowers who qualified for prime loans into more onerous subprime loans and targeted unqualified homeowners for refinance or home equity loans that caused them to lose their houses. As a result of the foreclosures, the city claims it suffered reduced property tax revenue and increased demand for municipal services, such as fire department and police assistance.
It took more than three years and three major edits, but in April, the city’s first-of-its-kind suit survived a defense motion to dismiss the case. A hearing on how discovery will proceed is scheduled for Aug. 10.
A bank spokeswoman said she does not expect Wednesday’s settlement to have any impact on the Baltimore case.
“This agreement with the Federal Reserve doesn’t include any mention, any allegation that lending practice had any disparate impact on racial minorities,” Mary Eshet, the spokeswoman said, distinguishing it from the city’s reverse-redlining lawsuit. “They’re two very different, distinct situations.”
Between 3,700 and roughly 10,000 people could be compensated under the $85 million settlement, the Fed said. The payments will likely range from $1,000 to $20,000.
The loans were issued by Wells Fargo Financial Inc., a subsidiary of the bank that closed in July 2010, the bank said.
“The alleged actions committed by a relatively small group of team members are not what we stand for at Wells Fargo,” said Chairman and CEO John Stumpf in a statement. The bank has already paid restitution to about 600 customers, it said.
The alleged actions by Wells Fargo are similar to accusations made against many subprime lenders during the housing boom. Hundreds of those smaller lenders went bankrupt when the housing market collapsed in 2007.
Millions of homeowners who took on subprime loans during the housing boom have since lost their homes to foreclosure.
Attorneys general in all 50 states and the District of Columbia are jointly investigating whether lenders cut corners and improperly handled hundreds of thousands of foreclosure cases over the past several years.
Many lenders, including Bank of America, temporarily halted their foreclosure cases in October after allegations surfaced that employees signed but didn’t read documents that may have contained errors.
Wells Fargo also admitted it had made mistakes in thousands of foreclosure cases and promised to fix them. But it did not stop its foreclosures.
Both lenders say they’re fixing the problems.
In April, more than a dozen lenders and servicers singled out by the Federal Reserve were ordered to hire independent auditors to figure how many homeowners may have been improperly foreclosed upon in 2009 and 2010. As part of agreements, the financial firms will “remediate all financial injury to borrowers caused by any errors, misrepresentations, or other deficiencies.”
Federal regulators and state attorneys general are meeting with banks to try and strike a settlement that will significantly change the mortgage industry, forcing lenders to modify more mortgages and provide greater protections for borrowers. A final agreement is not expected for several months.
The Daily Record’s Brendan Kearney contributed to this article.
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