Wells Fargo & Co. has agreed to pay a record $85 million fine to settle Federal Reserve claims that it pushed borrowers into costlier loans and falsified data in mortgage applications. Employees at Wells Fargo Financial, the lender’s consumer-finance unit, pushed customers who might have been eligible for prime interest rates into loans carrying higher rates intended for riskier borrowers. In addition, sales personnel used false documents to make it appear that borrowers qualified for loans when their incomes made them ineligible.
The company shuttered Wells Fargo Financial in July 2010, eliminating 3,800 jobs, and stopped making subprime home loans. The business was overseen by Mark Oman, who has announced he will retire by the end of the year. The San Francisco bank didn’t admit wrongdoing in agreeing to Wednesday’s action. The civil penalty is the largest issued by the Fed in a consumer-protection case. The accord requires Wells Fargo to re-evaluate qualifications of borrowers who received a subprime, cash-out refinancing loan between January 2006 and June 2008.
The bank has to compensate any borrowers damaged by the practices. The Fed estimates there may be more than 10,000 of them. Less than 4% of the 300,000 mortgage loans made by the lender between January 2004 and September 2008 are eligible for restitution, the company said. The payments will probably range from $1,000 to $20,000.
Wells Fargo said it will submit a plan to the Fed within 90 days laying out certain oversight and lending procedures. The Fed also issued consent orders against 16 Wells Fargo employees that bar them from working in the banking industry, the regulator said. The employees have been terminated, Wells Fargo said.
The alleged actions by Wells Fargo are similar to those that many subprime lenders are alleged to have done 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 all investigating whether lenders cut corners and improperly handled hundreds of thousands of foreclosure cases over the past couple of years. Many lenders, including Bank of America, temporarily halted their foreclosure cases in October after allegations surfaced that employees signed but did not read documents that may have contained errors.
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