Wells Fargo has blocked mortgage borrowers with additional fees, whistleblower lawsuit says

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As Wells Fargo & Co. continues to suffer the fallout from its fictitious account scandal, the bank faces allegations it has screwed customers in another way: by slapping them with late fees. processing mortgage loan 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 the delays on borrowers – and fired him for trying to report the practice .

The lawsuit follows a months-long internal investigation into alleged abusive practices, which contributed to an upheaval of executives in the San Francisco bank’s mortgage industry. ProPublica first reported on the alleged abusive charges in January.

When borrowers apply for a mortgage, they are usually guaranteed a fixed interest rate, assuming the loan is approved within a certain time frame, often 30 to 45 days. If the approval takes longer, the borrower can still get the promised rate, but there are financing costs associated with extending the collateral.

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

In his lawsuit, former banker Mauricio Alaniz alleged that Wells Fargo’s mortgage processing and underwriting division was understaffed, resulting in chronic delays that were not the fault of borrowers. But rather than asking the bank to waive the rate freeze fee, workers would falsely report that borrowers submitted incomplete or inaccurate information, according to the lawsuit.

Rate lock-in fees can be significant, typically ranging from 0.125% to 0.25% of the total mortgage amount, depending on the loan amount and other factors. For a buyer who wishes to borrow $ 400,000, a 0.25% fee is $ 1,000.

Wells Fargo would “routinely try to charge or pass on tariff lock expiration charges to customers, even when the delay was not the customer’s fault,” Alaniz alleged in her complaint, filed July 10 in court. Federal of Los Angeles. He alleged that the practice led borrowers to pay millions in inappropriate fees.

Wells Fargo is by far the largest mortgage lender in the country, with $ 244 billion in home loans last year, or about 12% of all mortgages in the United States. Bank spokesman Tom Goyda said he could not comment on Alaniz’s lawsuit, but the bank was looking into “questions that have been raised about past practices” related to the rate-freeze fee .

Alaniz and other former Wells Fargo bankers have said the practice of improperly shifting rate freeze fees to borrowers is a problem in Southern California, and it is not clear whether the problems are more prevalent. The bank split from several mortgage executives, including its former national sales manager and two regional directors 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 executive Greg Gwizdz. The bank said at the time that Gwizdz, along with the two former regional sales managers, were no longer with the bank. An LA regional manager, Tom Swanson, who was mentioned in Alaniz’s lawsuit, left the bank in March.

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

“While there were a number of factors, some of the things we learned from our review of the issue of the tariff lockdown extension were factors in this decision,” he said. declared.

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

Alaniz’s lawsuit alleges retaliation and discrimination from whistleblowers, claiming he was fired for reporting suspected illegal behavior to bank managers and because a branch manager believed Alaniz was gay. He is asking for back pay, punitive damages and compensation for mental and emotional distress.

His lawyer did not respond to calls for comment.

Alaniz’s complaint mirrors the claims of 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 processing loans became more frequent from 2014, the following year. Wells Fargo Cut 2,300 Mortgage Processing Jobs. Other mortgage lenders also cut spending around this time, as the volume of mortgage applications declined following a wave of refinances driven by record interest rates.

As it became more common for loan approvals to extend beyond the initial period of rate freeze, Chavez said the bank had started charging borrowers with the fees. A third former Wells Fargo banker in Los Angeles said managers essentially refused to allow the bank to cover the cost of the rate foreclosure extensions.

Jeff Lazerson, president of the Laguna Niguel mortgage brokerage, Mortgage Grader, said the allegations against Wells Fargo are not unique and that mortgage lenders often try to impose foreclosure extension fees on borrowers. He said this often happens when lenders are understaffed, resulting in delays.

“It tends to happen because they don’t have enough resources, enough manpower to work in the business,” Lazerson said. “There are always a lot of excuses when they get stuck. They’ll say, ‘It took too long to get this’ or, ‘They never sent the papers.’ Often times, they hope the borrower doesn’t get it when they charge them for a foreclosure rate extension.

But Lazerson said new mortgage disclosure rules put in place by the Bureau of Consumer Financial Protection have made it harder for lenders to hide these additional fees.

“People in this industry hate CFPB, but in this regard it highlights an issue where people were buried,” he said.

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