SAN FRANCISCO - July 20, 2011
Wells Fargo & Company (NYSE:WFC) announced today an agreement with the Board of Governors of the Federal Reserve that resolves allegations arising from an investigation into internal controls at its former Wells Fargo Financial unit. The Federal Reserve alleged that Wells Fargo Financial did not adequately detect and prevent instances of fraudulent loan applications and directing of prime borrowers into higher-cost nonprime loans. As part of the agreement, Wells Fargo & Company is reinforcing oversight of mortgage lending practices and implementing processes that will identify and provide compensation to customers harmed by the alleged practices.
“The alleged actions committed by a relatively small group of team members are not what we stand for at Wells Fargo,” said Chairman and CEO John Stumpf. “Fair and responsible lending practices have been at the core of our culture, and they will continue to guide us as we work closely with the Federal Reserve to provide restitution to customers who may have been harmed, and to reinforce our internal controls so they further reflect Wells Fargo’s commitment to helping customers succeed financially.”
The Company’s agreement with the Federal Reserve does not include an admission of the allegations cited, which cover lending practices at Wells Fargo Financial between January 2004 and September 2008. The agreement notes Wells Fargo Financial identified instances in which sales personnel altered income documents to inflate prospective borrowers’ incomes, so the customers could qualify for loans they may not have otherwise been eligible to receive.
Before and during the Federal Reserve’s investigation, Wells Fargo voluntarily provided restitution, such as reduced interest rates and cash refunds, to approximately 600 Wells Fargo Financial customers pursuant to its own internal investigation. Wells Fargo Financial also terminated the individuals involved.
The agreement also includes allegations that the company’s internal controls failed to detect and prevent instances of evasion by Wells Fargo Financial team members of the unit’s “A paper filter,” a control which was designed to help identify mortgage loan transactions that might qualify for prime loan pricing.
Within 90 days, Wells Fargo will submit plans to the Federal Reserve that will outline its oversight of its mortgage lending practices regarding certain compliance and incentive compensation programs. In addition, Wells Fargo will develop a plan for continuing to identify and provide compensation to Wells Fargo Financial customers who may have been harmed by the practices alleged in the agreement. Over the four and a half years covered by the agreement with the Federal Reserve, Wells Fargo Financial originated more than 300,000 mortgage loans, of which less than 4 percent are expected to be eligible for restitution under the terms of the settlement.
While there is no customer-specific information that Wells Fargo can provide at this time, Wells Fargo Financial customers who would like to discuss this general issue further can call 1-877-546-0090.
Wells Fargo closed its Wells Fargo Financial division in July, 2010, including its 638 stores across the U.S., a move that also resulted in the company exiting the origination of non-prime portfolio mortgage loans. By the first quarter of 2010, less than 2 percent of Wells Fargo’s real estate loans were originated in Wells Fargo Financial stores.
The Company had accounted for this matter in its reserves.
About Wells Fargo
Wells Fargo & Company (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.3 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 stores, 12,000 ATMs, the Internet (wellsfargo.com and wachovia.com), and other distribution channels across North America and internationally. With approximately 275,000 team members, Wells Fargo serves one in three households in America. Wells Fargo & Company was ranked No. 23 on Fortune’s 2011 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy all our customers’ financial needs and help them succeed financially.