Wells Fargo boosts reserves for mortgage litigation

Citing potential fines and penalties related to its mortgage practices, Wells Fargo & Co. on Friday raised its reserves for legal expenses by 42 percent to a maximum of $1.7 billion, according to a filing with the Securities and Exchange Commission.

Wells Fargo had pegged the cost at $1.2 billion as of the end of the year.

Attorneys general in 50 states are investigating mortgage servicing and foreclosures at the nation's biggest banks, and Wells Fargo is among lenders that have signed consent orders with federal regulators designed to curb any abuses.

The bank said regulators could still seek civil penalties from the probe, while other agencies, including the Justice Department, continue to scrutinize its operations.

"These investigations could result in material fines, penalties, equitable remedies including requiring default servicing or other process changes, or other enforcement actions and result in significant legal costs," the bank said in its filing.

Wells Fargo shares closed up 12 cents at $28.25 in Friday trading.

Jennifer Thompson, senior analyst with Portales Partners, a provider of independent research on the financial services industry, said that while there are a number of unknown issues facing Wells Fargo, one of the biggest might be penalties or fines from regulators or a settlement with state attorneys general tied to mortgage servicing that could affect all the big service companies.

The potential costs of mortgage repurchases to the servicing industry are sizable. A congressional panel investigated the matter last fall and concluded that losses could reach $52 billion -- a cost borne mostly by Bank of America, Wells Fargo, J.P. Morgan Chase and Citigroup. The panel called the losses the "greatest potential liability of the banking sector from the foreclosure crisis."

Wells Fargo is the nation's largest home lender; it employs 20,000 people in Minnesota. The bank services, or administers, the mortgages of one out of six American households. Many of the mortgages that Wells Fargo services are originated by other banks and owned by large investors.