[Update 1: Adds comment from Wells Fargo CEO] The Federal Reserve fined Wells Fargo (WFC) $85 million and issued a cease and desist order for allegedly steering prime mortgage borrowers into subprime loans, along with falsifying income information on applications. It is the largest fine yet issued by a federal agency when protecting consumers. It is also the first enforcement action taken against a lender for allegedly steering borrowers into higher-cost, riskier subprime loans. In addition to the fine, Wells Fargo will be forced to compensate affected borrowers. The Fed also issued consent orders with 16 former Wells employees, prohibiting them from becoming employed within the banking industry again. The Fed estimates between 3,700 and 10,000 borrowers could receive compensation. Each could get between $1,000 and $20,000, according to the central bank, but some may receive less or more than that range. According to the order, Wells Fargo allegedly targeted borrowers who pursued a cash-out refinance into a subprime loan. The Fed alleges the incentive compensation and sales quota programs of the largest mortgage originator in the country urged staff to push subprime loans while inadequately managing risk in the programs. In agreeing to the order, Wells Fargo did not have to admit to any wrongdoing. The bank said it would submit plans with 90 days. In July 2010, Wells closed this division, including 638 stores when it ceased originating nonprime mortgages. Before and during the investigation, Wells fired the employees responsible and offered reduced interest rates and cash refunds to roughly 600 customers. The banking giant is now required to re-evaluate qualified borrowers who took out a subprime, cash-out refinancing mortgage between January 2006 and June 2008. Wells must also set up a procedure for borrowers to show their actual income did not qualify them for the loan the bank granted through falsified information. Any borrower who received a subprime, cash-out refinance between January 2004 and June 2008 must be given the opportunity to show their actual information, according to the Fed. “The alleged actions committed by a relatively small group of team members are not what we stand for at Wells Fargo,” said Wells Fargo 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.” Write to Jon Prior. Follow him on Twitter @JonAPrior.