Wells Fargo Agrees To Pay $2.09 BIllion Penalty For Mortgage Loan Abuses

The Justice Department announced that embattled Wells Fargo, which has seen its name feature in virtually every prominent banking scandal in the past year, will pay a civil penalty of $2.09 billion under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) based on the bank’s alleged origination and sale of residential mortgage loans that it knew contained misstated income information and did not meet the quality that Wells Fargo represented.

According to the DOJ, investors, including federally insured financial institutions, suffered billions of dollars in losses from investing in residential mortgage-backed securities (RMBS) containing loans originated by Wells Fargo.         

“Abuses in the mortgage-backed securities industry led to a financial crisis that devastated millions of Americans,” said Acting U.S. Attorney for the Northern District of California, Alex G. Tse. “Today’s agreement holds Wells Fargo responsible for originating and selling tens of thousands of loans that were packaged into securities and subsequently defaulted. Our office is steadfast in pursuing those who engage in wrongful conduct that hurts the public.”

“This settlement holds Wells Fargo accountable for actions that contributed to the financial crisis,” said Acting Associate Attorney General Jesse Panuccio. “It sends a strong message that the Department is committed to protecting the nation’s economy and financial markets against fraud.” 

The United States alleged that, despite its knowledge that a substantial portion of its stated income loans contained misstated income, Wells Fargo failed to disclose this information, and instead reported to investors false debt-to-income ratios in connection with the loans it sold.

Wells Fargo also allegedly heralded its fraud controls while failing to disclose the income discrepancies its controls had identified. The United States further alleged that Wells Fargo took steps to insulate itself from the risks of its stated income loans, by screening out many of these loans from its own loan portfolio held for investment and by limiting its liability to third parties for the accuracy of its stated income loans.

Wells Fargo sold at least 73,539 stated income loans that were included in RMBS between 2005 to 2007, and nearly half of those loans have defaulted, resulting in billions of dollars in losses to investors.  

Wells Fargo stock dipped on the news, and is now back to unchanged on the day.

 

 

Comments

small axe Wed, 08/01/2018 - 13:38 Permalink

and so current customers will pay for the bank's past sins...same as it ever was

just the cost of doing business in the slaughterhouse

drive a stake through Wells heart and send it to hell

847328_3527 ATM Wed, 08/01/2018 - 14:15 Permalink

What about Mozilla?

Countrywide?

Do the customers see any of this $2 Billions?

How come no one goes to jail?

I prefer zero money penalty and a 10 year prison sentence for the criminals instead. My guess is all this banker fraud would stop in a second!

Moar Bull Sh*t going on when no one goes to prison. Totally incompetent doj. Holder was the worse, but Sessons is a close second.

In reply to by ATM

All Risk No Reward JRobby Wed, 08/01/2018 - 17:43 Permalink

What does (bailout money and benefits) - $2 billion equal?

If someone robs a bank and steals $1 million, gets caught and is fined $2,000, is that $2,000 really "paying its debt to society?"

What about the criminal fraud that enabled the whole affair?  Oh, that's right, the Money Power wants criminal fraud to continue - it is their business plan.

In reply to by JRobby

glenlloyd small axe Wed, 08/01/2018 - 13:40 Permalink

Real question is where does the fine go? Does it go to to borrowers they screwed?

These fines always seem to go to the government authority and rarely if ever do they go to the people they actually screwed!

How is it equitable to fill the govt coffers and leave the borrowers hanging out to dry? This reminds me of when all the state AG's get lined up to sue someone, where does that money go?

In reply to by small axe

Balance-Sheet Arrowflinger Wed, 08/01/2018 - 13:56 Permalink

Consolidating banks is a path to partial liquidation while keeping the paperwork intact so the Fed orders the Banking Industry to purchase the dying larger members like Wachovia and work off/rationalize some of the problems. THEN WF is supposed to further rationalize itself by cutting in a timely manner.

There are too many people trying to scrape a living out of retail banking. WF might be okay with 70,000 fewer employees and life support branches closed.

Late now but sell WF to Bank of America- rationalize most of the problems with the Fed and then CUT the remaining BoA/WF Hulk immediately to ever fewer branches and employees until the results are positive.

In reply to by Arrowflinger

ATM Arrowflinger Wed, 08/01/2018 - 14:08 Permalink

Now you are onto something. The criminals should all pay individually. The "Corporation" is just a shell. For crimes, and this was a crime, the criminals should be identified, charged and convicted if found guilty.

That is the only way to fix this shit. Make the individuals have skin in the game rather than being able to hide behind some piece of paper that is meaningless.

If you commit a crime while an employee of a corporation then you should still be subject to criminal prosecution. We know there are crimes but we don't see any scalps. Without them there is no incentive to stop this type of behavior.

In fact the incentive is to keep going!

In reply to by Arrowflinger

Arrowflinger ATM Wed, 08/01/2018 - 14:22 Permalink

I think a bank down here should pay a county back about $10 million given what happened.

It would be "Doing the Right Thing" 

"...but...but... those are the most powerful men in this city!"....said the Feds...

USA is corrupt from the ground up.

I was declared a slave. 

A slave doesn't public mock his masters, though.

In reply to by ATM

Balance-Sheet ATM Wed, 08/01/2018 - 14:44 Permalink

This is how it is fixed and to the degree it is fixed. In Court off ZH a Prosecutor has to provide *airtight proof* that some person knowingly committed a crime beyond any doubt.

Someone COULD be framed by using another covert operator like Robert Mueller to fabricate personal testimony by invented eye witnesses to a jury of gaping street people and they might convict but documentation from a bank? 

Impractical with average people or any people at all.

In reply to by ATM

Balance-Sheet Arrowflinger Wed, 08/01/2018 - 14:37 Permalink

You have to drop the word 'should'- these consolidations are handled administratively regardless of what causes a bank to fall apart. Trials may last decades if skillful lawyers and judges are involved in the process so it has to stay OUT of court.

Sovereign banking cannot be explained to a jury of people pulled off the streets and away from TVs. These cases cannot be made.

In reply to by Arrowflinger

Arrowflinger Balance-Sheet Wed, 08/01/2018 - 15:16 Permalink

I don't totally agree. The local bailout IMHO arranged by a bank's major shareholders on a county commission was basically a contracts and bid fraud question, with damning video, SEC filings, FDIC statistical reports, bid submissions, discriminatory selection, and county financial records.

The reason the regulators and LE flat refused to look was due to the acknowledged political power of the involved parties.

Instead they questioned  my motives for digging into it.

In reply to by Balance-Sheet

Balance-Sheet Arrowflinger Wed, 08/01/2018 - 17:10 Permalink

;-) Actually you totally agree as "the case cannot be made" - my man point is that a jury could never follow the evidence in a bank trial so there can be no case. In your instance corruption prevented any attempt at a court case but the outcome is the same - no case can be made.

ear in mind that smaller banks ARE snuffed for various reasons because the Fed does not deem them to be systemically essential but the big money center banks driving the feed onto the securitization belts cannot be taken offline. It takes YEARS to fix the paperwork/data and this is done in the dark after consolidation. **Stealth Bankruptcy **

In reply to by Arrowflinger

Arrowflinger Balance-Sheet Wed, 08/01/2018 - 18:52 Permalink

Yes. I never got the logic of the FIRE economy that slicing and dicing assets into fractional ownership could in the sum of the parts be more valuable than the whole, when even the IRS recognized the opposite - the diminution of value based on the loss of control inherent in divided ownership.

And, yes, one rotten apple spoils the whole bunch.

Fever than 1 in a million can grasp hypothecation, but probably for a right good reason.

It defies common sense.

 

In reply to by Balance-Sheet

Balance-Sheet Arrowflinger Wed, 08/01/2018 - 21:24 Permalink

Why is it done and why is it still being done? The Securitization Conveyor is the key. Just relax your mind and let is sink below the surface of common sense. Debt has to keep expanding in order to issue adequate amounts of currency to keep pace with an expanding 20T US economy and generate 2-3% inflation.

Ideally the Fed would prefer that the private sector do all of this or nearly all as the Fed does not want to carry a large number on the Balance-Sheet.

BUT the banks tell the Fed that they cannot lend any more as they have hit their statutory lending limits. What to do? The idea is that the banks just originate the loans and when they have a portfolio with 1B face value (or whatever) in loans they bundle them up label it something like Maiden Lane 2 through a brokerage house who buys the bundle. Going forward the bank collects a fee strictly for servicing the loan contract which they no longer own so they collect the payments, pursue defaulters, arrange repos, refinancing, or resale then pass the remaining proceeds up the conveyor belt. This releases the banks reserves and permits the bank to originate another 1B in new loans/mortgages bundled and sold on as Maiden Lane 3- repeat-repeat.

Now the brokerage house then breaks this down in slices for sale to something like the "Teacher's Pension Fund of Greater Dusseldorf Germany" which wants a slice of US Real Estate action to pay retirees pensions. The Primary Dealer sells a slice based on what the pension manager needs to see as return so he takes a shakier slice that pays 5% instead of 2.5%.

The pension manager in Dusseldorf does NOT want control of the asset because he is in Dusseldorf and does not want the liability of entering the US court system to repo a house in San Pedro the occupant burned down out of spite. The German Government is selling too many cars to the US and they are urging fund managers to purchase US financial instruments to make the balance of payments look better or else the fund manager is going to find Life less worth living.

I see you are starting to get the picture! Remember that the rating is based on the entire package which could have 100s of mortgages in it so if one of the little chiclet squares with a registration number winks out another chiclet just as good will be dropped into the gap :-) with another reg number attached to it.

Your question is good but ONLY if the originating bank continued to own the mortgages which are now converted into AAA securities. If it is sold on to a fund especially overseas the fund manager wants a 10% slice of 200 mortgages not 100% of 20 mortgages especially as the Fed (it was implied) understands the business and while not under contract as such backstops these products and they did in 2008/09/10! they offered to purchase the securities for cash or guarantee them if the holder preferred to maintain the revenue stream which most did.

Okay the original loan is placed on the house as security BUT the real transaction is the income earners *promise to repay*- this is what is being sold on not the lien(s) on the property as that is a desperation recovery measure (hostage) as no one in the securitization conveyor wants to wind up as owner of any houses. The asset is the promise to repay the mortgage monthly not the house as such!

In reply to by Arrowflinger

izzee Wed, 08/01/2018 - 13:39 Permalink

But Who? gets t $2Bln???????

How about every Mr and Mrs Saver with a Bank Acct that used to earn 5% but have been "given" 0.05% for the past 10 Years.

 

Doubtfull

Balance-Sheet izzee Wed, 08/01/2018 - 14:48 Permalink

They're corrupt too as they insist on risk free loans through the FDIC. Drop the FDIC guarantee, bail in the depositors who are actually lenders with the banks as borrowers in this case.

Share the risks and the returns might improve or lose all or part of your money.

As it is minus 2.5% real return is about right for FDIC covered loans to the banks.

In reply to by izzee