Cowboy Capitalist: Wells Fargo Pushed Borrowers into Subprime Loans
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The company is also accused of having falsified borrowers’ incomes so they could qualify for loans, sometimes without their knowledge. Under the settlement, Wells must compensate anyone who took out a subprime loan, cash-out refinancing loan between January 2006 and June 2008. The amount of compensation people get will depend on how much they paid in origination fees, interest, penalties and other charges and how much they should’ve paid. The Fed estimates that as many as 10,000 or more borrowers may be eligible for restitution, with payments generally ranging from $1,000 to $20,000.
How may loan officers does it take to screw a customer?
Said Wells CEO John Stumpf in a statement:
The alleged actions committed by a relatively small group of team members are not what we stand for at Wells Fargo. 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, and to reinforce our internal controls so they further reflect Wells Fargo’s commitment to helping customers succeed financially.Help me out here. Would a “relatively small” group of people fit into, say, Jay-Z’s limo, or is that more like an Olympic-sized swimming pool kind of deal? And would they be carrying laptops? Perhaps it is such ambiguities, along with the company’s commitment to “fair and responsible” lending, that excuses it from having to admit any wrongdoing as part of the deal. Hey, if a macher like Rupert Murdoch won’t even take a shaving cream pie in the puss for the team, why should a humble banker? Blame the times.
As a deterrent, $85 million is chump change for Wells. The bank earned a record $3.7 billion in the second quarter, leading Stumpf to declare that “revenue remains king around here” (Stupid thought — remember when the customer was king?) As a penalty for hurting consumers, however, it’s the biggest one the Fed has ever handed down. It’s also the first enforcement action taken by a banking regulator for allegedly pushing people into crummy loans.
Cost of doing business?
It’s been a busy year for Wells on the legal front. In April, it agreed to another fine to settle federal charges that the bank’s Wachovia unit, which the company bought in 2008 during the financial crisis, gouged investors on the sale of collateralized debt obligations. This month it offered $125 million to state employees in California and other states to settle a class-action against the bank over pension fund losses on mortgage-backed securities.
Wells is also part of group of big banks and loan servicers that may be set to reach a deal with federal and state officials over illegal foreclosures. Indeed, for the second quarter Wells earmarked $428 million to settle related foreclosure litigation. And it may not be done on that front if reports that the company is still “robo-signing” people out of their homes turn out to be true.
Going further back, a federal judge last year ordered Wells to pay more than $200 million after ruling that the company had for years deliberately jacked up overdraft fees. Previously, its own former loan officers have detailed the bank’s shady practices, including pushing subprime loans on minorities with strong credit.
The Fed is ordering Wells to improve its anti-fraud programs and to change how it pays loan personnel, which had financial incentives to peddle higher cost loans. Enforcement is all, of course, as the resurgence in robo-signing indicates. It will be up to bank examiners, and perhaps the embattled Consumer Financial Protection Bureau, to keep the company honest.