Wells Fargo Fined $70M By OCC, Servicing Limits Lifted

Wells Fargo & Company (NYSE:WFC) has been hit with a $70 million penalty by The Office of the Comptroller of the Currency (OCC) as the bank failed to correct the shortcomings identified in the 2011 consent orders related to mortgage practices in a “timely fashion.”

However, the OCC ended the mortgage servicing consent order against Wells Fargo as the bank was found to be compliant. The release stated, “The termination of the orders ends business restrictions affecting Wells Fargo that the OCC mandated in June 2015.”

On imposing penalty, the OCC noted that the bank violated the 2011 consent order from Oct 1, 2014, through Aug 30, 2015. The agency identified that Wells Fargo’s payment change notices in bankruptcy courts were not in compliance with “bankruptcy rules and safe and sound banking practices”. Also, the San Francisco-based banking giant made inaccurate escrow calculation.

In Brief

Last June, Wells Fargo was among the six banks including JPMorgan Chase & Co. (NYSE:JPM) , HSBC Holdings (LON:HSBA) plc (NYSE:HSBC) and U.S. Bancorp (NYSE:USB) who faced restrictions on business activities related to mortgage servicing as they failed to comply with the consent orders tied to faulty foreclosures in the past. Precisely, the banks did not fulfill all the requirements of the consent orders related to the 2011 independent foreclosure review (IFR).

The banks faced restrictions with respect to the acquisition of residential mortgage servicing or residential mortgage servicing rights, new contracts of residential mortgage servicing for other parties, outsourcing and off-shoring of new residential mortgage servicing activities. However, the restrictions differed depending on the case of each bank.

Notably, the IFR review was part of the $10 billion settlements with the OCC and the Federal Reserve related to mortgage abuses. Per the agreements, banks were required to modify and improve their mortgage servicing operations to settle claims of mishandling loan documents, robo-signing papers to initiate rapid foreclosures and undertaking other fraudulent measures that triggered large number of home foreclosures following the 2008 financial crisis.

In a similar move, the OCC imposed a $48-million fine on JPMorgan in January while U.S. Bancorp was hit with a $10 million penalty in February. However, the regulator lifted mortgage servicing restrictions on both the banks.

Bottom Line

The latest announcement by the OCC seems to send a clear message that the banks cannot escape from their past misconducts and that they are strictly required to improve their business practices in order to prevent any further crisis. We remain encouraged by the continued efforts of regulators to bring stability in the financial sector and protect interest of investors.

Wells Fargo currently carries a Zacks Rank #3 (Hold).


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