The Truth Will Set You Free .....
July 21, 2011
Wells Fargo & Co. Wells Fargo & Co. Latest from The Business Journals BofA goes for small businessOffice tenants are playing ‘musical buildings’BentleyForbes seeking BofA Plaza partners Follow this company was assessed $85 million in civil penalties by the Federal Reserve on Wednesday for steering potential creditworthy borrowers into more costly subprime mortgages through its Wells Fargo Financial unit, which the bank has since shuttered.
Wells -- Colorado's largest bank by deposits -- denied any wrongdoing relating to the Fed’s allegations, which covered lending practices at Wells Fargo Financial from January 2004 to September 2008.
"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. "Fair and responsible lending practices have been at the core of our culture, and they will continue to guide us as we work closely with the Federal Reserve to provide restitution to customers who may have been harmed."
Before and during the Fed's investigation, San Francisco-based Wells (NYSE: WFC) said it voluntarily provided restitution in the form of reduced interest rates or cash refunds to about 600 borrowers at Wells Fargo Financial, based on the company’s internal investigation.
Wells Fargo Financial also fired the individuals involved.
The Fed's allegations were frequently echoed by protesters and shareholders speaking at the bank's annual meetings in San Francisco in recent years.
The $85 million fine is the largest the Fed has assessed in a consumer-protection enforcement action. The Fed said it's the first formal enforcement action taken by a federal bank regulator to address alleged steering of creditworthy borrowers eligible for less costly prime mortgage into high-cost, subprime loans.
Anecdotal evidence suggests that such steering was a widespread industry practice during the historic credit bubble.
The Fed said Wells Fargo Financial made subprime loans that primarily refinanced existing mortgages as part of so-called cash-out refinancings.
The Fed also said Wells Fargo Financial provided false information on borrowers' applications to make it appear they made enough money to qualify for mortgages when they would not have using their actual incomes.
The bank said that over the 4 1/2 years covered by the agreement with the Fed, Wells Fargo Financial originated more than 300,000 mortgage loans, of which less than 4 percent are expected to be eligible for restitution under terms of the settlement.
Still, the fine is a blow to Wells Fargo's carefully cultivated reputation as a trusted financial adviser. The Fed said the San Francisco bank's now-defunct Wells Fargo Financial relied on incentive programs, sales quotas and inadequate controls to manage the risks from these programs that led to "unsafe and unsound banking practices."
The agreement also includes allegations that Wells Fargo's internal controls failed to detect instances in which Wells Fargo Financial employees steered creditworthy borrowers into subprime loans. The bank's leadership often cited such filters when defending Wells Fargo Financial's mortgage lending practices in recent years.
Wells Fargo shut down Wells Fargo Financial in July 2010, including its 638 stores across the nation. At the time, the bank's website listed 15 locations in Colorado.
That move resulted in Wells exiting the origination of non-prime portfolio mortgages.
By the first quarter of 2010, less than 2 percent of Wells Fargo's real estate loans were originated at Wells Fargo Financial.