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Wells Fargo Fined $85 Million Over Mortgage Practices

The nation's largest home lender, Wells Fargo & Co., has agreed to pay a record fine of $85 million to settle allegations made by the Federal Reserve that the bank advised customers into more expensive loans and falsified data on mortgage applications.  Employees at the bank's financial division pushed thousands of customers who could have qualified for prime interest rate loans into loans with higher rates meant for less qualified borrowers.  Sales personnel also used false documents to make it appear as though certain borrowers qualified for loans when their incomes made them ineligible.

Wells Fargo CEO John Stumpf said in a statement that the bank will “ work closely with the Federal Reserve to provide restitution to customers who may have been harmed, and to reinforce our internal controls.”  The bank shut down Wells Fargo Financial in July 2010, cutting 3,800 jobs, and also stopped extending non-prime loans.  The bank stopped short of admitting any wrongdoing in today's settlement.  According to a statement from the Fed, the penalty assessed in the matter is the largest civil penalty ever handed out in a consumer protection case.  Under the terms of the agreement, Wells will have to reassess the qualifications of subprime, cash-out refinancing borrowers who received loans from January 2006 and June 2008.

The bank is also required to compensate borrowers harmed by its practices, which may number in excess of 10,000.  Less than 4 percent of the 300,000 mortgage loans Wells approved between January 2004 and September 2008 are eligible for restitution, a bank spokesman said.  The bank said it will submit a plan to Fed officials within 90 days laying out new oversight and lending procedures.  The Fed also issued consent orders against 16 Wells Fargo employees barring them from working in the banking industry.  Wells has fired all of those employees.

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