Wells Fargo is driving its stagecoach further into the mud. The $270 billion California-based lender is facing several lawsuits alleging that it changed bankrupt borrowers' mortgage terms without consent even as its fake-accounts scandal unfolded, the New York Times reported on Wednesday. The bank now run by Tim Sloan is still struggling to get the basics right.
The actions at issue might seem to help struggling borrowers: Wells Fargo lowered some customers' monthly mortgage payments, potentially making them manageable. But there are two huge potential problems. First, the bank did this while also extending the duration of the loans – in one case by some 30 years. That greatly increased the total interest borrowers were on the hook to pay over the life of their loans.
Second, Wells Fargo made these changes, according to the lawsuits, without getting the consent of either the customers or the relevant bankruptcy courts. Wells Fargo denies this, saying it notified customers and does "not finalize a loan modification without receiving signed documents" from the required parties.
The trouble is, Wells Fargo has mucked up mortgage lending and modification in the past. It was one of the five lenders that in 2012 agreed to a $25 billion settlement with the U.S. federal government and 49 states to rectify poor loan servicing and foreclosure practices. Last year it forked over $1.2 billion to settle claims of reckless lending under a Federal Housing Administration program. Home loans should have been squeaky-clean after all that.
Add to that its recent $185 million fine after retail bankers chasing aggressive account-opening targets created 2 million fake bank and credit-card accounts – events that cost former Chief Executive John Stumpf his job – and there's a sense of a bank still not ensuring it has fundamental checks and balances in place.
Wells Fargo isn't alone. The Great Recession of 2007 to 2009 exposed the many failings of the financial-services industry. For now, though, most of its big rivals appear to have put the worst of their transgressions behind them. Sloan's shop keeps swerving into new ones.
Commentary by Antony Currie, a columnist at Breakingviews. Follow him on Twitter at @AntonyMCurrie.
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