Fed fines Wells Fargo over US subprime mortgages

The US central bank slapped Wells Fargo with an $85 million fine on Wednesday © AFP/Getty Images/File Justin Sullivan

AFP

WASHINGTON (AFP) – The US central bank slapped Wells Fargo with an $85 million fine on Wednesday for allegedly “deceptive” practices in selling subprime mortgages before the financial crisis.

The Federal Reserve said its fine against Wells Fargo — the second-largest US bank in terms of deposits — was the biggest penalty it has imposed on a bank for consumer-protection violations.

It was also the first action taken by a US bank regulator over unsavory sales tactics in which banks duped borrowers into taking out costly subprime loans during the US housing boom, the Fed said in a statement.

The Fed’s penalty was due to alleged actions taken between 2004 and 2008 by Wells Fargo Financial, a subsidiary of the bank which is no longer active.

“Sales personnel steered borrowers who were potentially eligible for prime interest rate loans into loans at higher, subprime interest rates, resulting in greater costs to borrowers,” the Fed said.

The employees also “falsified information about borrowers’ incomes to make it appear that the borrowers qualified for loans when they would not have qualified based on their actual incomes.”

Wells Fargo Financial’s failure to rein in its salespeople constituted “unfair or deceptive” practices, the central bank said.

San Francisco-based Wells Fargo did not admit wrongdoing, but pledged to strengthen internal controls over its lending practics.

“The alleged actions committed by a relatively small group of team members are not what we stand for at Wells Fargo,” Wells Fargo chairman and chief executive John Stumpf said in a statement.

Before the collapse of the US housing market in 2007 and 2008, lenders sold billions of dollars’ worth of risky subprime mortgages, often to poorly qualified borrowers.

The subprime mortgages were bundled into complex mortgage-backed securities which were resold to investors. A plunge in the value of such securities led to the global financial crisis in late 2008.

© AFP — Published at Activist Post with license