On Wednesday, Wells Fargo (WFC) reached an agreement with the Federal Reserve and agreed to pay a $85 million fine to settle civil charges -- the largest fine the Fed has ever imposed in a consumer case. The bank, which did not admit wrongdoing in the settlement, had been charged with steering customers whose credit qualified them for better rates into more expensive subprime loans, and with falsifying loan documents between 2004 and 2008. As part of the settlement, the bank has been ordered to set up a process to determine who will qualify for a refund. The Fed estimates that between 3,500 and 10,000 homeowners may be owed funds, ranging from several hundred dollars to more than $20,000.
Meanwhile, the Federal Trade Commission has begun mailing checks as part of the $108 million settlement it reached with Countrywide, now owned by Bank of America (BAC), in June 2010, the FTC said Wednesday. The FTC is distributing the settlement money among more than 450,000 homeowners, who will receive payments ranging from less than $500 to as much as several thousand dollars.
Those refunds represent repayment for excessive fees and improper charges the mortgage company levied on homeowners whose loans were serviced by Countrywide between January 1, 2005, and July 1, 2008. According to The New York Times, it took more than a year for Bank of America to identify all the borrowers it owed payment on account of Countrywide's "disorganized and chaotic" record keeping. Like Wells Fargo, the company did not admit wrongdoing in the settlement.
"There are people who have suffered irreparable harm and lost whatever down payment they had ... and also had their credit wiped out," Brown said. "Kudos to regulators for taking a step that makes a statement and ordered Wells to compensate borrowers. ... but I fear it will be more symbolic than actual."
Kristina Bedrossian, spokeswoman at the California Reinvestment Coalition, voiced a similar reaction. "Those $1,000 or $2,000 payments will not do anything to right the wrongs that have been perpetrated against countless homeowners," she said. "In the end, many of these people have lost their homes."
It remains to be seen how long it will take Wells Fargo to identify all the homeowners it owes refunds to, and start making payments. But Countrywide's 12-month delay illustrates the disorganization that is prevalent in the large-scale mortgage brokers, and underscores the need for disclosure about the industry's operating systems, said Brown. "There are 4-year-olds who organize their crayons more effectively," she said.