Wells Fargo recently reported that hundreds of customers lost their homes following a computer glitch.
These customers were foreclosed on after a loan modification would have saved their homes. This has been an ongoing inquiry, with the situation only now being resolved. Yet Wells Fargo stock isn’t doing that badly, actually going up on August 7th. The computer glitch was said to have impacted accounts between April 2010 and October 2015.
A Software Glitch Led to Denied Modifications
When a customer is unable to pay their mortgage loan due to hardship, a loan modification is often recommended. A loan modification takes one or more payments for the mortgage loan and slides it onto the back-end of the loan; if you need to skip two months of payments, your loan becomes two months longer. This is often the lender recommended solution, as ultimately they receive more in interest. Wells Fargo reported that their computer system incorrectly denied mortgage modifications for about 625 customers, with 400 of these customers ultimately being foreclosed on.
When taken as reported, this doesn’t seem like that big of a deal: the customers weren’t able to pay their mortgage, so their house was foreclosed. However, a large Reddit thread indicated an additional problem: customers report that they were told to file for loan modifications (by not paying their loans and waiting for the paperwork to process) and then were denied the modifications that they had previously been told to file for. By the time these customers were told that their loan modification hadn’t gone through, they no longer had the money that would have been required to pay upfront. These are unverified reports, but there appears to be a trend.
A Bad Year for Wells Fargo
In June of this year, Wells Fargo was fined $500 million by the Office of the Comptroller of the Currency. This fine was related to “bank-specific instances of accounts being opened without proof of customer consent.” Wells Fargo had an aggressive policy which led to the cross-selling of services to its existing customers. Employees for the bank would open multiple accounts for each customer, some of which had very poor documentation. That’s not to say there was not customer consent for many of these accounts, but that Wells Fargo’s poor controls led to having no documentation of this consent.
Wells Fargo was further fined another $500 million by the Consumer Financial Protection Bureau for improperly charged fees in addition to up-selling their auto loan customers on policies that they didn’t need. Ultimately this led to many cars being repossessed because they had higher than necessary payments, creating a trend of aggressive foreclosures and repossessions.
Wells Fargo Isn’t Alone in their Foreclosure Woes
Following the housing boom, many lenders found themselves with poorly documented mortgage packages. These packages were bought, sold, repurchased, and generally shifted from investment bank to investment bank, often losing critical documentation as it went. It wasn’t an option for lenders to go to the borrowers and say they had no documentation, so instead, errors were often made in the favor of the bank.
Bank of America found itself foreclosing on homes that didn’t even have a mortgage, let alone a mortgage with the bank. In terms of home lending and foreclosures, 2010 was just a weird year. This even escalated when one individual attempted to foreclose on Bank of America in 2011, after they incorrectly foreclosed on his home.
Wells Fargo Stock Rises, As Is Tradition
Savvy investors may have noted that Wells Fargo appears to have its stock go up every time it’s in the news, even when the news is quite negative. That’s because Wells Fargo investors are aware that these issues are currently in court. When the issues are resolved, their confidence actually goes up. In the case of this computer glitch, Wells Fargo has ear-marked $8 million to go back to the customers impacted. $8 million is a pittance to a bank like Wells Fargo, and it places a numerical amount where before there was only uncertain risk.
Wells Fargo may not be out of the woods yet; the last few months have been brutal. All-in-all, this has seen Wells Fargo responsible for about $20,000 per evicted homeowner, which is just a drop in the bucket. Future inquiries, though, may lead to further fines and penalties. As it stands, Wells Fargo stock dropped in February and March, but has been cautiously rising ever since.
Since Wells Fargo has weathered every storm, it may be that this is a good time to get the stock for a cheap price — but probably not to bank with them.