Wells Fargo (WFC)recently surprised thousands of home loan customers by sending refund checks to a fraction of its Federal Housing Administration-backed borrowers. The checks came with a letter informing recipients they had previously paid unnecessary mortgage-insurance related fees.

When the checks are cashed, the borrowers loses the right to sue the nation’s top home lender, on the grounds that the refunds came as a result of borrowers being placed into FHA-backed mortgages unnecessarily.

In an email to HousingWire, Wells Fargo stated: “During the course of our own internal review, we identified a small group of borrowers who had received FHA loans between 2009 and 2011 who may have qualified for conventional financing under circumstances where such financing could have been a preferred option.”

FHA loans, typically offered to borrowers who are unable to pay the 20% down payment required for traditional loans, may be more expensive in terms of fees and insurance.

"The FHA loans impacted by this remediation are less than 2% of our total FHA originations for this period and the bulk of the refunds are between $2,000 and $5,000,” said Wells Fargo.

These loans were granted on the upward journey of Wells Fargo to become the No. 1 originator of loans. In September, Wells Fargo identified their error and began mailing notifications to customers.

"FHA and conventional loan products have a great deal of overlap," the Wells email said, "there are many times that a borrower qualifies for both products but that the FHA choice is the preferred choice for that customer given interest rate and down payment considerations, among other things.”