Two of the Senate’s top Democrats are demanding answers from Wells Fargo after the bank revealed last week that an error in its mortgage underwriting software led to hundreds of improperly denied mortgage modifications and unnecessary foreclosures.
Wells Fargo disclosed last week that due to the software error, approximately 625 customers were incorrectly denied a mortgage modification or were not offered one in cases where they would have otherwise qualified. And of those borrowers, approximately 400 of them were incorrectly foreclosed on.
Now, Sens. Elizabeth Warren, D-Mass., and Brian Schatz, D-Hawaii, are pushing Wells Fargo for more information on the faulty foreclosures.
In Warren’s case, she’s actually lobbying for much more than information.
In the wake of Wells Fargo’s reveal, Warren took to Twitter to call for Wells Fargo CEO Tim Sloan to be fired over the affair.
Because of an error @WellsFargo made, 400 of its customers lost their homes. What’s the bank doing to make it right? Setting aside a few thousand dollars for each of the people affected. Pathetic. The execs who oversaw this – including CEO Tim Sloan – should be fired. https://t.co/dqlp3Py6IS— Elizabeth Warren (@SenWarren) August 6, 2018
Schatz was more judicious, sending a letter this week to both Sloan and the chair of Wells Fargo’s board, Elizabeth Duke, asking a series of questions about the issue and what Wells Fargo plans to do about it.
Last week, Wells Fargo said that it set aside $8 million to be used to remediate the customers whose modification decisions “may have been affected by the calculation error,” but if divided equally among the 625 borrowers that were affected by this software error, each borrower will receive approximately $12,800.
That figure is nowhere near enough, according to Schatz.
“It is hard to overstate the impact of a foreclosure on people’s lives. In addition to causing displacement and housing instability, foreclosures have a devastating ripple effect. Foreclosures increase financial insecurity and economic hardship, they cause stress and trauma, and they can lead to related health problems. Foreclosures destroy people’s credit, which drives up the cost of loans or closes off access to credit for years,” Schatz, a member of the Senate Banking Committee, said in his letter.
“The impact on children is particularly profound and long-lasting. Housing instability harms children’s behavioral and social development, health, academic performance, and educational attainment,” Schatz continued. “It is hard to imagine how Wells Fargo’s estimate of $8 million for remediation would come close to remunerating impacted customers.”
The issue in question dealt with an automated miscalculation of attorneys’ fees that were used to then determine whether a borrower qualified for a loan modification with Fannie Mae or Freddie Mac, or under the terms of the government’s Home Affordable Modification Program.
“HAMP was created specifically to help struggling homeowners avoid foreclosure, so it is deeply troubling to learn so many years after the fact that Wells Fargo’s errors could have prevented homeowners from seeking relief or worse, resulted in foreclosures,” Schatz said.
Schatz also wants to know why it’s taken so long for Wells Fargo to disclose the issue publicly.
As Wells Fargo noted, the error affected certain mortgages that were in the foreclosure process between April 13, 2010 and Oct. 20, 2015, but the bank did not make the issue public until last week.
“Apparently the error was corrected in October 2015, but Wells Fargo has not yet explained why it is only now disclosing the impact on its customers,” Schatz said.
In his letter, Schatz said that he hopes that regulators take action against Wells Fargo over the issue, but Schatz also laid out the following lengthy list of questions for Wells Fargo and said that he expects answers by the end of the month:
- When was the error in Wells Fargo’s HAMP underwriting tool first discovered? What actions did Wells Fargo take when the error was first discovered? At that time, did Wells Fargo examine whether the error impacted any customers?
- What led Wells Fargo to examine the impact of the error on consumers who applied for a loan modification? When did that examination begin and end? When will Wells Fargo know the total number of impacted consumers, if the company does not yet know?
- Have the impacted customers been notified that they were harmed by Wells Fargo’s error? If so, through what medium? Can you confirm that they received this notification? If not, what steps will Wells Fargo take to ensure that impacted customers are aware that they were harmed?
- Has Wells Fargo notified impacted customers of the funds available to remediate the harm that they suffered? If so, through what medium? What will customers need to do to receive compensation?
- What methodology did Wells Fargo use to determine that $8 million should be accrued for remedying customers for the harms that resulted from this error?
- Please provide details on the specific types of harm that Wells Fargo plans to remediate for the impacted customers, and how Wells Fargo plans to make those determinations.
- What terms will Wells Fargo require impacted customers to agree to as a condition of accepting remediation from Wells Fargo? Will Wells Fargo ask an impacted customer to waive any legal rights?
- Through HAMP, the Treasury Department provided financial incentives to participating institutions who modified eligible troubled borrowers’ mortgages. Did Wells Fargo receive any incentives for the customers who were impacted by the underwriting tool error? If so, has Wells Fargo returned those financial incentives to the Treasury?
- Did Wells Fargo report the foreclosures or any missed payments that could be directly or indirectly related to Wells Fargo’s errors to credit reporting agencies? If so, will Wells Fargo commit to working with the credit reporting agencies to remove these entries from borrowers’ credit reports?
- Please provide information about the disposition of impacted customers’ foreclosed properties. Did Wells Fargo sell these properties? Does Wells Fargo plan to reconnect families to their homes?
- In the same quarterly report, Wells Fargo announced an increase in its common stock dividend of 10% and a plan to buy back $24.5 billion of stock. Please explain how the company made the decision to use these funds for shareholder returns ahead of other uses, such as increasing consumer remedies or investing in improving internal investigations and controls. How much is Wells Fargo currently investing or planning to invest in improving internal controls and consumer protection?
- At this moment, can Wells Fargo say with confidence that it has identified and disclosed all incidents of consumer harm across all of its business units? If not, why not?
- Should we conclude from the steady stream of news of consumer harm at Wells Fargo that the bank is too big to have meaningful internal controls or policies to prevent violations of law and consumer abuses?