Another Slap on the Wrist for Bad Bank Wells Fargo

wrist slap
Wow, Wells Fargo is guilty of pushing well qualified home owners into subprime loans and ripping them off.

Wells Fargo Financial, the lender’s consumer- finance unit, pushed customers who may have been eligible for prime interest rates into loans carrying higher rates intended for riskier borrowers, the Fed said today in a statement announcing the settlement. Separately, sales personnel used false documents to make it appear borrowers qualified for loans when their incomes made them ineligible.

The Financial unit was of course shut down when their evil doings started to be exposed. Who is taking the rap? Not Wells Fargo executives, nope, 16 of the fired employees will be banned from the banking business. The guy who oversaw this operation, Mark Oman? He gets to retire.

This measly $75 million dollar fine is being touted as a record. Worse, harmed homeowners might have to be compensated up to $10,000! Wow! $10k when you've lost your home, awesome! That might pay for the moving van.

Credit slips is warning victims to watch out for settlement papers, getting them to sign their right to sue away for the paltry sum of $7000.

As far as I could tell the agreement does not provide for consumers to release claims in exchange for these paltry sums, but advocates would be well advised to review settlement notices with affected consumers carefully.

The number of victims is 10,000 or more and Wells Fargo claims the number is 4% of 300,000 mortgages.

What is stranger is from the Federal Reserve press release:

Wells Fargo Financial--a once-active, non-bank subsidiary of Wells Fargo--made subprime loans that primarily refinanced existing home mortgages in which borrowers received additional money from the loan proceeds in so-called cash-out refinancing loans. The order addresses allegations that Wells Fargo Financial sales personnel steered borrowers who were potentially eligible for prime interest rate loans into loans at higher, subprime interest rates, resulting in greater costs to borrowers. The order also addresses separate allegations that Wells Fargo Financial sales personnel falsified information about borrowers' incomes to make it appear that the borrowers qualified for loans when they would not have qualified based on their actual incomes.

These practices were allegedly fostered by Wells Fargo Financial's incentive compensation and sales quota programs and the lack of adequate controls to manage the risks resulting from these programs. These deficiencies allegedly constitute unsafe and unsound banking practices and unfair or deceptive acts or practices that are prohibited by the Federal Trade Commission Act and similar state laws. In agreeing to the order, Wells Fargo did not admit any wrongdoing. The order requires Wells Fargo to compensate borrowers affected by these practices. To identify prime-eligible borrowers with cash-out refinancing loans who were subject to improper steering, Wells Fargo is required to reevaluate the qualifications of all borrowers who took out a subprime, cash-out refinancing loan between January 2006 and June 2008 to account for certain specific steering techniques. To identify Wells Fargo Financial borrowers whose income information was falsified without their knowledge, Wells Fargo is required to set up a procedure for potentially affected borrowers to show that their actual income at the time did not qualify them for the loans they were granted. Wells Fargo is required to provide notice of this procedure to all borrowers who obtained cash-out refinancing loans between January 2004 and June 2008 at a Wells Fargo Financial office where there is evidence that sales personnel at that office altered or falsified borrowers' income information.

These compensation plans must be approved by the Federal Reserve. An independent, third-party administrator will review determinations about the eligibility of individual borrowers for compensation and the amounts of compensation provided. The Federal Reserve will also monitor compliance with the approved plans. Failure to comply with the plans will constitute a breach of the cease and desist order.

The amount of compensation provided to individual borrowers will depend on a number of factors, including differences between what borrowers paid and what they should have paid in terms of origination points, interest payments, fees, and penalties. Until specific determinations of harm to individual borrowers are made, it is difficult to determine the total amount of compensation provided to borrowers. Based on preliminary estimates, the amount of compensation that each eligible borrower will receive ranges between $1,000 and $20,000, but some eligible borrowers may receive less than $1,000 and others may receive more than $20,000. The number of borrowers who may receive compensation under both plans is estimated to be between 3,700 and possibly more than 10,000.

It's unclear if this means Wells Fargo can remove favorable loans for some, due to falsification of income or if this just applies to victims pushed into subprime. To wit, this is what Wells Fargo gives as details to customers:

There is no customer-specific information that Wells Fargo can provide at this time

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