In an attempt to avoid future lawsuits, Wells Fargo has sent thousands of customers unsolicited refund checks, with a catch: if deposited, borrowers cannot later sue the lender for being placed into excessively expensive loans, the Los Angeles Times reported. As many as 10,000 Wells Fargo borrowers — those who took out loans backed by the Federal Housing Administration from 2009 through 2011 — received checks in the mail this week. These tend to be borrowers with weak credit or those who cannot afford the 20 percent down payments required for conventional loans.
Although FHA loans are government-backed and require as little as 3.5 percent down, they are actually more expensive since borrowers are made to buy insurance against default. In New York City, most FHA-eligible properties are in the outer boroughs, but Wells Fargo is one of the largest lenders in the area. The customers who received refunds from Wells Fargo were allegedly steered into these more expensive loans, despite being eligible for cheaper conventional loans.
“It sounds like they either found some problems themselves or the regulators discovered them and told them to get things fixed,” Paul Miller, an analyst who follows Wells Fargo for Friedman, Billings, Ramsey & Co., said.
This is only the latest round of bad news for bank, which was recently slapped with a lawsuit from the U.S. Attorney for the Southern District of New York, Preet Bharara, for allegedly failing to properly underwrite at least 100,000 FHA loans over ten years. The suit is seeking hundreds of millions of dollars in damages.
In July, Wells Fargo announced that it would pay $175 million for allegedly engaging in discriminatory lending practices from 2004 through 2009. [LA Times] — Christopher Cameron