SAN FRANCISCO - Wells Fargo & Co., the largest U.S. home lender, agreed to pay a record $85 million fine to settle Federal Reserve claims it steered borrowers into costlier loans and falsified data in mortgage applications.
Employees at Wells Fargo Financial, the lender's consumer-finance unit, pushed customers who may have been eligible for prime interest rates into loans carrying higher rates intended for riskier borrowers, the Fed said Wednesday in a statement announcing the settlement. Separately, sales personnel used false documents to make it appear borrowers qualified for loans when their incomes made them ineligible.
Wells Fargo will "work closely with the Federal Reserve to provide restitution to customers who may have been harmed, and to reinforce our internal controls," Chief Executive John Stumpf said in a separate statement.
The company shuttered Wells Fargo Financial in July 2010, eliminating 3,800 jobs, and ceased making nonprime home loans. The business was overseen by Mark Oman, 56, who has announced he will retire by the end of the year. The San Francisco-based bank, Minnesota's largest bank by deposits, didn't admit wrongdoing in agreeing to Wednesday's action.
The civil penalty is the largest issued by the Fed in a consumer-protection case, according to the Fed's statement. The accord requires Wells Fargo to re-evaluate qualifications of borrowers who received a subprime, cash-out refinancing loan between January 2006 and June 2008.
Wells Fargo must compensate borrowers harmed by the practices, which may exceed 10,000, according to the Fed. Less than 4 percent of the about 300,000 mortgage loans made by the lender between January 2004 and September 2008 are eligible for restitution, the company said.
Twin Cities customers of Wells Fargo Financial said they were not immune from improper lending practices. Several lodged complaints against Wells Fargo with the Minnesota Department of Commerce as far back as 2003. In interviews with the Star Tribune, they complained that they were overcharged or misled.
One customer complained in 2004 that Wells Fargo Financial wrongly saddled them with $8,500 in closing costs on their tiny, $110,000 home. Another couple said that Wells Fargo Financial switched their interest rate at the closing to 12.9 percent, much higher than the 6 percent rate they say they were promised. The couple later refinanced with another bank at 7 percent.
Staff writer Dee DePass contributed to this report.
