Zero Hedge has obtained Wells Fargo's brand new confidential protocol guidelines on loan repurchase demands by investors and mortgage insurers, sent out on October 15, and which becomes effective tomorrow. We have reproduced these below to see just how much more "streamlined" the process is, now that the bank is fully aware of the massive liability it faces as a "loan puttable" entity in a world that is suddenly replete with pervasive and rampant title fraud. Amusingly, in the CIM, Wells states: "Wells Fargo is committed – just like you are - to honoring contractual obligations with investors and mortgage insurance (MI) companies*. We want to ensure that the resolution process for Repurchase and Rescissions is as smooth and swift as possible." And even so, Wells continues to refuse to halt foreclosures knowing full well it would face billions in impairments should it do so voluntarily, even though as we confirmed Warren Buffett's pet bank was recently caught with its robosigning pants down as well (an event which was sufficient for everyone else to invoke a self-imposed moratorium, even Goldman, whose Litton Loan Servicing unit was rumored to have serviced about 4 or 5 mortgages in the past century... but not the California real estate monster). What is critical, is that Wells Fargo admits that should all avenues under existing legal guidelines be exhausted, and robofraud is certainly a dealbreaker that can not be "explained or validated away", then the bank will be forced to repurchase the loan. In other words, starting tomorrow Wells is preparing for the loan repruchase tsunami to hit the fan as investors and insurers everywhere swamp the bank with tens if not hundreds of billions of repurchase and recissions demands. Suck it in, Wells investors.
Here is the simplified flowchart that will end up costing the bank pretty much all of its balance sheet cash. The only question is how soon.
Wells Fargo receives a deficiency notice or demand from the investor. Typically, Wells Fargo has 60 days to resolve the issue.
Wells Fargo notifies the Seller and provides supporting documentation when available. At this time, the Seller is given twenty-one calendar days to provide an explanation, facts or documentation to demonstrate that the mortgage loan complies with the requirements. If the Seller does not respond within 14 days of the initial notice, Wells Fargo will follow up with the Seller.
Wells Fargo will begin internal research (concurrently with Step 2) to resolve the loan issues. During this process, Wells Fargo will determine if there is a missing document and if the document can be located.
For all other issues, Wells Fargo will perform research to determine if there is evidence that proves or disproves the validity of the issue. For example, if the investor provided a review appraisal indicating a value deviation, Wells Fargo will order an independent appraisal review of the origination appraisal and the investor’s review appraisal from a third party vendor.
The Seller responds to Wells Fargo’s request and either agrees with the investor’s findings or provides an explanation, missing documents or information for Wells Fargo to utilize in drafting an appeal to the demand or MI rescission notification.
If an appeal is not practical, based on all the information collected, Wells Fargo will notify the Seller, allowing them a final opportunity to provide additional documentation.
If an appeal is submitted to an investor, the Seller will be notified of the result of the appeal. If the Seller provided a response that specifically addressed the investor's issues and the investor deems the information to be insufficient to rescind the repurchase demand or MI rescission, the Seller will be given seven (7) calendar days to provide new documentation to support a second appeal. (Please note: Even if documents are provided by the Seller, the appeal may not be successful).
And here is the punchline that will make old uncle Warren just a few billion bucks poorer:
If attempts to refute the demand or MI rescission are unsuccessful, Wells Fargo will be obligated to repurchase the loan from the investor or accept the MI rescission. Likewise, Wells Fargo will issue a demand to the Seller for the repurchase of the mortgage loan pursuant to the provisions of the Loan Purchase Agreement or reimbursement for costs and expenses, if applicable.
Readers can be confident that over the weekend loan investors and mortgage insurers have received identical letters from all other banks as well. The next step: an attempt by every single mortgage investor and insurance company to get every single mortgage repruchased by the originating company on grounds of robosigning fraud.
The banks had their party of a lifetime, and now the terminal morning after hangover has commenced.
And as the letter highlights, all those who may have questions about this particular suicide process, are encouraged to write to IRMRepurchaseResponses@wellsfargo.com.
Full report (pdf)