By Benming Zhang, Frank A. Hirsch, Jr., Dustin H. DeVore, Credit Union

Wells Fargo Must Pay $250 Million Fine

The Office of the Comptroller of the Currency (OCC) issued a $250 million civil penalty against Wells Fargo Bank, NA for flaws in the bank’s home loan loss mitigation program. In addition, the OCC issued a cease-and-desist consent order requiring Wells Fargo to make significant improvements to its loss mitigation program.

As a result of this consent order, Wells Fargo is restricted from acquiring certain third-party residential mortgage servicing and ensuring that borrowers are not transferred out of the bank’s loan servicing portfolio until remediation is provided, with few exceptions.

In the consent order, the OCC identified the bank has the following significant deficiencies and unsafe or unsound practices regarding loss mitigation:

• Failure to fully implement and maintain adequate loss mitigation practices and related Independent Risk Management practices;
• Deficient loss mitigation decisioning and operational tools, causing errors in the bank’s loss mitigation processes and controls that negatively affected borrowers;
• Inadequate staffing and training of staff responsible for loss mitigation activities, a lack of disaster playbooks that anticipate a variety of scenarios that could cause customer to experience financial stress or hardship;
• Inadequate controls, insufficient independent oversight, and ineffective governance related to loss mitigation activities causing failure to timely detect, prevent, and quantify inaccurate loan modification decisions impairing the bank’s ability to fully and timely remediate harmed customers;
• Inadequate complaint management processes and policies; and
• Deficient Internal Audit coverage of loss mitigation activities.

Complying with the Consent Order

To comply with the consent order, Wells Fargo is required to constitute an independent Compliance Committee within its Board of Directors charged with the duty to meet quarterly and to submit a written progress report to the Board and an OCC-appointed Examiner-in-Charge each quarter. In its consent order, the OCC outlined the remedial actions to be submitted by a written Action Plan that must be developed and approved within five months of the consent order’s effective date. Ultimately, the Examiner in Charge will direct the Board to ensure the bank executes and adheres to the plan after review, and the bank’s Internal Audit department must complete an assessment of the bank’s progress of implementing the Action Plan. The Action Plan must remain in place until such time the OCC deems it no longer necessary.

Additional Directives

The Board must adopt a comprehensive written internal audit program that adequately assesses controls and operations with respect to the bank’s loss mitigation activities to allow the Board and management to understand the sufficiency of the bank’s Loss Mitigation Independent Risk Management Program.

The Board must ensure that the bank has implemented all corrective actions required by the consent order. In addition, the bank is required to ensure that any remediation due to customers as a result of errors, deficiencies, or omissions in the loss mitigation program is processed in accordance with the consent order. Foreclosures for impacted borrowers will remain on hold until remediation is provided. 

This major announcement signals the OCC’s ongoing efforts to ramp up regulatory oversight and scrutiny on financial institutions. This OCC Consent order, in conjunction with the CFPB’s loan forbearance and foreclosure practices guidance, forms the foundation for loan servicers to improve and implement measures identified in the order. Takeaways include regularly checking for compliance on loss mitigation policies and procedures; maintaining adequate internal controls; and establishing sufficient and independent oversight on the financial institution’s lending practices.

The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2024.