Story first appeared in USA TODAY.
Wells Fargo has issued a statement on its website indicating that it will reinforce oversight of mortgage lending practices and also move toward providing compensation to customers who were harmed by alleged mortgage abuses.
Chairman and CEO John Stumpf says in the statement that the alleged actions committed by a relatively small group of team members are not what they stand for at Wells Fargo. He added that fair and responsible lending practices have been at the core of their culture, and they will continue to guide them as they work closely with the Federal Reserve to provide restitution to customers who may have been harmed, and to reinforce their internal controls so they further reflect Wells Fargo's commitment to helping customers succeed financially.
Wells Fargo also points out in the statement that the agreement does not include an admission to committing the allegations, and indicates that before the agreement, it voluntarily provided restitution to about 600 customers in the form of cash refunds, reduced interest rates and other compensation.
To settle civil charges, Wells Fargo will pay an $85 million fine and compensate borrowers for allegedly falsifying loan documents and steering some borrowers to higher-interest subprime mortgages.
In its news release, the Federal Reserve says it is the largest consumer-enforcement fine the agency has imposed and the first formal enforcement action taken by a federal bank regulatory agency to address alleged steering of borrowers into high-cost, subprime loans.
Wells Fargo Financial, a former non-bank subsidiary, made subprime loans that primarily refinanced existing home mortgages in which borrowers received additional money from the loan proceeds in so-called cash-out refinancing loans, the Fed said.
Sales agents allegedly steered borrowers who were potentially eligible for prime interest rate loans into loans at higher, subprime interest rates, resulting in greater costs to borrowers. The Fed's order also addresses separate allegations that Wells Fargo Financial sales personnel falsified information about borrowers' incomes to make it appear that the borrowers qualified for loans when they would not have qualified based on their actual incomes.
The Fed says the tactics were linked to the company's incentive compensation and sales quota programs and the lack of adequate controls to manage the risks resulting from these programs.
In addition, 16 former Wells Fargo Financial sales personnel are barred from working in the banking industry.
The Fed is requiring the bank to improve oversight of its anti-fraud and compliance programs and incentive compensation and performance management policies for personnel who sell and underwrite home mortgage loans.
As usual in such settlements, the bank did not admit any wrongdoing.
Tuesday, Wells Fargo reported record second-quarter net income of $3.9 billion.
In another big mortgage-abuse announcement, the Federal Trade Commission said today that 450,177 homeowners who took out loans with Countrywide Financial Corp. will begin receiving their share of a $108 million settlement over claims the lender charged excessive fees to borrowers facing foreclosure, the Associated Press says. Checks will be mailed Thursday.
Bank of America Corp. acquired Countrywide in 2008.
AP writes that the FTC also accused Countrywide of making false claims to some borrowers about how much they owed on their mortgage or the status of their loan, and claimed the lender added fees and other charges to borrowers' mortgage accounts without notice.
The FTC says the refunds are going to borrowers whose loans were serviced by Countrywide between January 1, 2005, and July 1, 2008, and who were subject to the company's allegedly unlawful practices.