Wells Fargo clients stuck with ex­tra fees, for­mer banker says

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - JAMES RU­FUS KOREN

As Wells Fargo & Co. con­tin­ues to be hit with fall­out from its sham-ac­counts scan­dal, the bank is fac­ing al­le­ga­tions that it put the screws to cus­tomers in yet an­other way: by charg­ing fees for de­lays in pro­cess­ing mort­gage ap­pli­ca­tions.

A for­mer Wells Fargo mort­gage banker who worked in Bev­erly Hills al­leged in a law­suit this week that the bank fal­si­fied records so it could blame de­lays on bor­row­ers — and that it fired him for try­ing to re­port the prac­tice.

The le­gal ac­tion fol­lows a month­s­long in­ter­nal in­ves­ti­ga­tion into the al­leged abu­sive prac­tices, one that con­trib­uted to an ex­ec­u­tive shake-up in the San Fran­cisco bank’s mort­gage busi­ness. ProPublica, a New York­based non­profit or­ga­ni­za­tion that pro­duces in­ves­tiga­tive jour­nal­ism, first re­ported on the al­leged im­proper fees in Jan­uary.

When bor­row­ers ap­ply for mort­gages, they are typ­i­cally guar­an­teed a set in­ter­est rate — as­sum­ing the loan is ap­proved within a cer­tain pe­riod, of­ten 30 to 45 days. If ap­proval takes longer, bor­row­ers can still get the promised rate but there are fi­nanc­ing costs as­so­ci­ated with ex­tend­ing guar­an­tees.

Wells Fargo’s pol­icy, like that of most lenders, is to cover those costs it­self un­less the de­lay is the bor­rower’s fault. Then, bor­row­ers are charged what’s called a rate-lock ex­ten­sion fee.

In his law­suit, for­mer banker Mauri­cio Alaniz al­leged that Wells Fargo’s mort­gage- pro­cess­ing and un­der­writ­ing divi­sion was un­der­staffed, lead­ing to chronic de­lays that were not

bor­row­ers’ fault. But rather than have the bank waive the rate-lock fee, work­ers would falsely re­port that bor­row­ers had sub­mit­ted in­com­plete or in­ac­cu­rate in­for­ma­tion, ac­cord­ing to the law­suit.

Rate-lock fees can be sig­nif­i­cant, typ­i­cally rang­ing from 0.125 per­cent to 0.25 per­cent of the amount of a mort­gage, de­pend­ing on the size of the loan and other fac­tors. For a home buyer look­ing to bor­row $400,000, a 0.25 per­cent fee is $1,000.

Wells Fargo “would sys­tem­at­i­cally at­tempt to charge or pass the rate lock ex­pi­ra­tion fees on to cus­tomers, even when the de­lay was not the cus­tomer’s fault,” Alaniz al­leged in his com­plaint, filed Mon­day in fed­eral court in Los An­ge­les. He al­leged that the prac­tice led to bor­row­ers pay­ing mil­lions of dol­lars in im­proper fees.

Wells Fargo is by far the na­tion’s largest mort­gage lender, orig­i­nat­ing $244 bil­lion in home loans last year, or about 12 per­cent of all U.S. mort­gages. Bank spokesman Tom Goyda said he could not com­ment on Alaniz’s law­suit but that the bank is re­view­ing “ques­tions that have been raised about past prac­tices” re­lated to rate­lock fees.

Alaniz and other for­mer Wells Fargo bankers have said the prac­tice of im­prop­erly shift­ing rate-lock fees to bor­row­ers

was a prob­lem in South­ern Cal­i­for­nia, and it’s not clear whether prob­lems were more wide­spread. The bank has parted ways with sev­eral mort­gage ex­ec­u­tives, in­clud­ing its for­mer na­tional sales man­ager and two re­gional man­agers who over­saw mort­gage op­er­a­tions in Cal­i­for­nia, Ne­vada and Ore­gon.

Last month, the bank an­nounced it had pro­moted Liz Bryant to head of mort­gage sales, re­plac­ing for­mer leader Greg Gwizdz. The bank at that time said Gwizdz, along with the two for­mer re­gional sales man­agers, were no longer with the bank. A Los An­ge­les re­gional man­ager, Tom Swan­son, who was men­tioned in Alaniz’s law­suit, left the bank in March.

Goyda said that find­ings of the bank’s re­view con­trib­uted to the lead­er­ship changes.

“While there were a num­ber of fac­tors, some of the things we learned in our re­view of the rate-lock ex­ten­sion mat­ter were fac­tors in that de­ci­sion,” he said.

Swan­son, Gwizdz and other for­mer man­agers did not re­turn calls seek­ing com­ment.

Alaniz’s suit al­leges whistle­blower re­tal­i­a­tion and dis­crim­i­na­tion, claim­ing he was fired for re­port­ing al­leged il­le­gal con­duct to bank man­agers and be­cause a branch man­ager be­lieved Alaniz was gay. He’s seek­ing back pay, puni­tive dam­ages, and com­pen­sa­tion for men­tal and emo­tional dis­tress.

His at­tor­ney did not re­turn calls seek­ing com­ment.

Alaniz’s com­plaint mir­rors

claims made by an­other for­mer Wells Fargo mort­gage banker, Frank Chavez, in a let­ter sent last year to mem­bers of the House Fi­nan­cial Ser­vices Com­mit­tee and the Se­nate bank­ing com­mit­tee.

Chavez, who also worked in Bev­erly Hills be­fore re­sign­ing in April 2016, said de­lays in loan pro­cess­ing be­came more com­mon start­ing in 2014, the year af­ter Wells Fargo elim­i­nated 2,300 mort­gage-pro­cess­ing jobs. Other mort­gage lenders cut back around that time, too, as the vol­ume of mort­gage ap­pli­ca­tions de­clined af­ter a surge of re­fi­nanc­ing driven by record low in­ter­est rates.

As it be­came more com­mon for loan ap­provals to stretch past the ini­tial rate-lock pe­riod, Chavez said the bank started push­ing the fees on to bor­row­ers. A third for­mer Wells Fargo banker in Los An­ge­les said man­agers essen­tially re­fused to have the bank cover the cost of rate-lock ex­ten­sions.

The bank on Fri­day re­ported a sec­ond-quar­ter net in­come of $5.81 bil­lion, or $1.07 per share.

The re­sults beat Wall Street ex­pec­ta­tions. The av­er­age es­ti­mate of 10 an­a­lysts sur­veyed by Zacks In­vest­ment Re­search was for earn­ings of $1.02 per share.

Rev­enue for the quar­ter was $24.4 bil­lion.


A cus­tomer uses a Wells Fargo ATM in Char­lotte, N.C., in April.

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