Risk Management

Wells Fargo Says Calculation Error Led to Foreclosures

The bank also says it is facing multiple inquiries over its use of federal low-income housing tax credits.
William SprouseAugust 6, 2018
Wells Fargo Says Calculation Error Led to Foreclosures

Troubled banking giant Wells Fargo said on Friday that a calculation error in its mortgage loan modification underwriting tool caused about 625 customers to be denied, or not offered, loan modifications they would have otherwise qualified for. About 400 of those borrowers eventually had their homes foreclosed.

In a statement, Wells Fargo apologized for the error and said it was “providing remediation,” including an $8 million fund set aside for those consumers that were affected.

A spokesperson said there was no “clear, direct cause-and-effect relationship between the modification” denials and the subsequent foreclosures, but he confirmed that customers who were denied loan modifications eventually lost their homes.

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The spokesperson said there was no breakdown of where in the United States the foreclosures occurred. According to an internal review, the problem began in 2010 and was fixed in late 2015.

The bank said that the customers had been using federal programs that helped families at risk of losing homes.

Also on Friday, Wells Fargo disclosed it was facing multiple government probes into how it negotiated and purchased “federal low-income housing tax credits in connection with the financing of low-income housing developments.” The bank did not name the multiple agencies involved in the inquiry.

The announcements continued the drumbeat of revelations about the regulatory violations committed by the San Francisco-based financial services firm.

Last week the bank said it had agreed to pay $2.1 billion to settle allegations over its role in selling subprime mortgages in the lead-up to the financial crisis, and two years ago the bank disclosed it might have created 2.1 million accounts without customers’ consent.

In June, the bank’s brokerage division, Wells Fargo Advisors, announced it had agreed to pay $4 million to settle allegations from the Securities and Exchange Commission that it had collected large fees by “improperly encouraging” brokerage clients to actively trade high-fee debt products that were intended to be held to maturity.

Regulators said the advisors did not investigate or understand the costs of the recommendations and that supervisors “routinely approved” transactions despite internal policies.

The bank neither admitted nor denied the SEC’s allegations, but it said in a statement that it “cooperated fully” with the investigation.

In February, the Federal Reserve slapped Wells Fargo with a cap on its assets.

The company is facing huge legal bills and said that the costs could exceed its legal reserves by more than $2 billion.