Wells Fargo Sends Refund to Borrowers
In a surprise move, Wells Fargo is sending thousands of dollars in refunds to customers who have taken out home loans. The checks are accompanied by letters stating the borrowers had paid unnecessary fees for their mortgages.
The San Francisco based banking institution stated their refunded clients had been placed into more expensive loans when they could have qualified for cheaper ones. Analysts state the refunds were a way for the bank to sidestep further allegations that they had been influencing their customers to take out unfavorable loans. Wells Fargo is one of five major banks accused of “robo-signing” foreclosure affidavits and abusing distressed borrowers. The five banks recently paid a 25 billion dollar settlement after being barraged with lawsuits concerning defaulted loans. The US government has also recently filed complaints against the institutions, which include JP Morgan Chase and Company and Bank of America Corp. as well as Wells Fargo.
Wells Fargo mailed refunds involve government backed FHA mortgages taken out between the years 2009-2011. These loans are often offered to borrowers with little to no credit or who can’t come up with the 20% down payment required for conventional loans. Though they require as little as 3.5% down, ultimately, FHA loans are more expensive because they require borrowers to pay steep insurance payments as protection against a default. However, the refunded customers had been steered into taking out the FHA loan even though they had the down payment or equity needed to take out a conventional loan.
Wells Fargo states a traditional loan carries the same interest rate as an FHA loan, however under the FHA loan, borrowers were not only required to pay steep insurance premiums, but also higher appraisal and processing fees. Furthermore, FHA loan backers received a 2.5 % commission on loan amounts, compared with a 1.75% commission for a conventional loan.
If it seems like Wells Fargo is trying to make up for its flawed mortgage policies, there is one catch to the payments sent out to its customers. If the borrowers cash their checks, they cannot sue later to the prominent home lender.