Wells Fargo Mortgage Fine: Largest Ever & No Wrongdoing

July 29th, 2011. By Hunter West

Well, it’s a big one.

Wells Fargo—the fourth largest bank in the country in terms of assets—was assessed the largest fine ever issued by the US Federal Reserve (The Fed) for allegedly pushing borrowers into more expensive mortgages, and in so doing helping to foster the sub-prime mortgage mess.

These were borrowers with good credit and cash flow, and could have easily qualified for conventional mortgages at prime, according to a report yesterday in CNN Money.

Instead, they were allegedly nudged into mortgage products that would have proved more expensive in the end. Wells Fargo Financial, a subsidiary that closed last year, was also accused of pushing through loan applications that would otherwise not have qualified due to income restrictions. It is alleged that the income information was ‘doctored.’

We say ‘alleged,’ because even though Wells Fargo agreed to pay the largest fine ever handed out by The Fed—$85 million—the banking juggernaut was not required to admit to any wrongdoing.

In fact, Wells Fargo explained in a statement that the alleged wrongdoing occurred at the hands of a few ne’er do well former employees, and that such conduct is not within the mandate or policy of Wells Fargo.

That’s like parents claiming they are not responsible for the actions of their children.

Come on…

And what does that say about ethics in the banking industry?

I was doing a story on personal finance some years ago and a banking executive was very frank in her assessment of the lengths some banks will go to get loans on the books—in other words, generate business for the bank.

To paraphrase:

“If you come in looking to borrow, say, $15,000 to buy a new truck and the loans officer realizes that you have the cash flow that would accommodate $25,000—you’re going to be pushed to borrow that $25,000. It will be a polite push. But it will be a firm push, and a push just the same. All you want is fifteen grand.

“But the bank seems to know what’s better for you, than you do.”

That interview took place around 1991 or so—20 years ago.

So look what that policy got us into (and I’m not picking on Wells Fargo here, this applies to everyone…)

It was the banks that helped fuel the sub-prime mortgage meltdown by pushing people into more expensive mortgages beyond their comfort zones (or their financial contingencies). It was the banks or their agents that allegedly doctored income statements. The stories of individuals who qualified for a mortgage without the capacity to confirm their income at all are legend, and the stuff of modern financial folklore.

The bank is supposed to say, ‘whoa…wait a minute…you may not be in a position to afford that truck, or that big house. C’mon now, take a good hard look at your finances. You have to dial your expectations back a notch.’

But no. The opposite proved true. Or, at least in one case, the opposite is alleged to have proven true. Wells Fargo will pay $85 million in fines, plus compensate up to 10,000 borrowers to the tune of between $1,000 and $20,000 apiece.

They can afford it. Earlier this week Wells Fargo reported $3.9 billion in net income for Q2 from revenues totaling in excess of $20 billion.

An $85 million fine? Millions more to compensate victims?

That’s nuthin’…

What’s something, is that they didn’t have to admit they (allegedly) screwed up…

Tags: Sub-prime Mortgage, Subprime Mortgage, US Federal Reserve, Wells Fargo

This was posted on Friday, July 29th, 2011 at 8:29 am and is filed under Consumer Fraud, Financial . Feel free to respond, or trackback. Read our comments policy.