WASHINGTON — A Democratic member of the Senate Banking Committee is calling on Wells Fargo to explain a mistake that led to hundreds of customers being denied mortgage adjustments, leading many to lose their homes to foreclosure.
On Friday, Wells Fargo disclosed a software mistake that miscalculated eligibility for loan modifications, causing roughly 625 homeowners to be denied a mortgage adjustment. Roughly 400 of those customers later lost their homes to foreclosure.
Sen. Brian Schatz, D-Hawaii, questioned the bank’s $8 million compensation fund for homeowners hurt by the errors, which occurred between April 2010 and October 2015.
“Foreclosures increase financial insecurity and economic hardship, they cause stress and trauma, and they can lead to related health problems,” Schatz said in a letter to Wells Fargo Chief Executive Timothy Sloan and Board Chair Elizabeth Duke. “It is hard to imagine how Wells Fargo’s estimate of $8 million for remediation would come close to remunerating impacted customers.”
The error occurred in a tool Wells uses to determine whether a customer qualified for a mortgage loan modification pursuant to the requirements of government-sponsored enterprises, like Fannie Mae and Freddie Mac, and the Treasury Department’s Home Affordable Modification Program.
“The news of this loan modification error is just the most recent incident in two years of negative developments that show a pattern of consumer harm at Wells Fargo,” Schatz said.
Schatz noted that beyond Wells Fargo opening as many as 3.5 million fake accounts in customers' names, the bank has charged 570,000 customers for auto insurance they did not need, leading to 20,000 customers having their cars seized. He said the bank “illegally repossessed” over 800 service members’ cars, “wrongly fined” 110,000 mortgage clients, sold brokerage customers “dangerous investments they did not understand,” overcharged small businesses for credit card transactions, and “deceptively sold” customers add-on products, such as pet insurance and legal services.
Schatz is also asking the bank to explain the timeline for how it discovered the loan modification error, how it acted on the incident and what further remediation measures it intends to take. He asked Wells why it announced a plan to increase its common stock dividend of 10% and buy back $24.5 billion of stock, rather than using the funds to increase consumer remedies or invest in internal controls.
Schatz also asked Wells if it has identified and disclosed all incidents of customer harm across all business units, and if it might be correct to conclude that the bank is “too big to have meaningful internal controls or policies to prevent violations of law and consumer abuses.”
Schatz is calling on Sloan and Duke to respond to his inquiry by Aug. 29.