Nation’s Largest Mortgage Lender Settles Robo-Signing Litigation

At first this sounds like great news for consumers.   In reality, the only good news for consumers is that we live in America where you have the freedom to make risky choices.   Only a decade ago you could buy more home than you could afford by paying just a little higher interest rate using a “no documentation” loan or other high risk loan products.    The test of time has vindicated the homeowners with enough wisdom to live within their means, keep the monthly mortgage payment low, and invest some of the savings in stock in Wells Fargo.   The largest mortgage company in the country seems to have survived the economic recession quite nicely despite doing some high risk lending in the early 2000’s and some high volume foreclosing afterwards.

Contrary to popular understanding, robo-signing has nothing to do with robots.   In a news release today in the LA Times, robo-signing was described as the practice by Wells Fargo and other lenders overwhelmed by mortgage defaults of  “abusing  the foreclosure process .   .   . , including the signing of sworn affidavits by employees who had no knowledge that the facts in the documents were true.”

The shocking aspect of the article was the identity of the litigants involved in the settlement.    No where is there a mention of the homeowners who lost their real estate in foreclosure!   The suits against Wells Fargo were filed by its own investors and shareholders!   So the $67 million dollar settlement has more to do with improving Wells Fargo operations than it does with making reparations to victims of robo-signing:

•Provide $6 million in free counseling to Wells Fargo customers having trouble paying their home loans.

• Streamline internal operations and consistency of  handling of borrowers by integrating the servicing operations of two Wells Fargo units and two lending operations acquired by Wells. The bank estimated the cost of that to be $24.5 million.

and most intriguing of all:

•Provide $36.5 million in down-payment assistance to home buyers in certain areas hit hard by the financial crisis: California’s Central Valley; Detroit; St. Louis; Albuquerque; Virginia Beach, Va.; and New Haven, Conn.

YES, VIRGINIA, there is an implied admission that despite being one of the easiest, cheapest, fastest of the 50 states in which to complete a foreclosure legally, some lenders nevertheless cut corners on the foreclosure process (robo-signing).   To make it up to you, some part of $36.5 million dollars will come back to consumers in Virginia in the form of down payments from Wells Fargo to help foreclosed homeowners “get back into the game”!   As FHA products with low down payments have gotten more expensive, this is a welcomed concept indeed.   But wait . . . weren’t down payment programs and waiving “skin in the game” requirements part of what caused the great mortgage collapse of 2007 -2008-2009 ?    God bless America!   The idea of taking some risks apparently appealed to the shareholders enough to lead them to settle suits against Wells.   The age of entrepreneurs finding shrewd ways to secure their market share has survived Dodd-Frank, the CFPB, and other attempts to rain on the parade of the mortgage industry.

Today’s takeaways?   Mix in some Wells Fargo shares  to your stock portfolio.   And if you are one of those homeowners facing inevitable foreclosure don’t look for a safety net from the fact that your mortgage company used robo-signing practices against you.   Another similar and  popular myth among consumers is the idea that the defaulting homeowner  has a safe haven from foreclosure if their mortgage servicer has lost their original Deed of Trust Note.  Be wary of loan document review programs or companies, many charging $600 or more to review borrower loan documents for anomalies.   These generally out-of-state companies are generally a rip off.   If you can’t afford your home, work proactively toward a short sale or if you are sure you have beaten the system and the lender will never foreclose, save your mortgage payments wisely . . .  you will need the money sooner or later to make a deposit on a rental property to live in.

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