Victor Muniz, a security dispatcher at a Las Vegas casino, recently bought his first home in Sandy Valley, Nev., a small desert community where his parents live.
But a new lawsuit filed last week alleges the experience of getting the mortgage from Wells Fargo needed to finance and close on the home was no American dream. The lawsuit alleges Muniz was among many customers victimized by embattled bank’s latest consumer rip off — a system that gouged home borrowers with improper fees to complete the mortgage process.
Seeking class-action status on behalf of other Wells Fargo mortgage customers, the lawsuit ultimately could trigger damages that rival the financial fallout from the scandal over unauthorized accounts that has rocked the nation’s third-largest bank by assets since the issue sparked national attention nearly a year ago.
The bank on Thursday said it would pay $2.8 million in additional refunds and credits — on top of $3.3 million in previous refunds — in compensation for the scandal in which bank employees opened roughly 3.5 million accounts that may not have been authorized by consumer and small-business customers.
“The same profit-over-people culture that fostered Well’s Fargo’s fake account scandal appears to have led the bank to stick borrowers with unwarranted fees,” said Derek Loeser, a Keller Rohrback L.L.P. law partner whose firm represents Muniz.
The allegations in Muniz’s lawsuit mirror charges that Frank Chavez, a former Wells Fargo private mortgage banking employee in California, raised with Democratic members of the House Committee on Financial Services in a Nov. 2016 letter.
“I believe the damage done to Wells Fargo mortgage customers … is much, much more egregious” than in the fraudulent accounts case, Chavez wrote in the letter, which was first disclosed in a January ProPublica report on the bank’s mortgage-related fees. “We are talking about millions of dollars, in just the Los Angeles area alone, which were wrongly paid by borrowers/customers instead of Wells Fargo.”
The letter produced little public sign of action. However, Wells Fargo disclosed in an August regulatory filing that the Consumer Financial Protection Bureau, the federal regulator that joined other authorities to sock the bank with $185 million in penalties last September over the accounts scandal, is now investigating the mortgage-fee charges.
The consumer bureau declined to comment, and Wells Fargo spokesman Tom Goyda said the bank could not discuss the investigation.
However, Goyda said Wells Fargo has worked with an outside law firm during recent months on a review of the bank’s mortgage-fee procedures. Changes in the senior leadership of the bank’s retail sales team announced in June, including three managers’ departures, were based in part on things learned during the review, said Goyda.
Separately a USA TODAY review of complaints filed with the consumer agency found Wells Fargo customers in at least nine states have raised similar concerns about the bank’s mortgage fees.
Muniz’s lawsuit focuses on interest rate-locks Wells Fargo typically offers for up to 90 days while home mortgage applications are processed. If missing paperwork or other borrower-caused issues delay the mortgage closing beyond the specified time period, the borrower is charged a fee to extend the time. If the bank caused the delay, it is expected to forgo the fee.
The fee costs typically can range between .125% and .25% of the mortgage amount, depending on the type of loan. For a $200,000 mortgage, that could amount to a $250 customer payment.
Muniz’s lawsuit charged that Wells Fargo in July agreed to lock in a 5.875% interest rate on a 30-year fixed-rate mortgage during the closing process for his home loan. Nonetheless, the bank charged him a $287.50 fee to extend the rate lock period last month when the mortgage processing bogged down amid “bank-caused delays,” the lawsuit alleged.
“At that point, Mr. Muniz had no choice but to accept the fee to timely complete the closing, or he risked losing the home,” the lawsuit charged. “He had already invested hundreds of dollars in closing-related costs such as the home inspection.”
Many other Wells Fargo home borrowers faced similar problems.
Chavez’s letter alleged that new financial regulations, and Wells Fargo processing changes and employee firings from 2012 through 2015 caused “a gradually increasing standstill and backlog of mortgage loan applications within the underwriting and loan closing process.”
Although some delays were caused by borrowers, the bank was responsible for “the vast majority of delays,” the Chavez letter said.
Trying to avoid having to absorb extra costs caused by such delays, the bank “systematically and wrongly” shifted the blame to borrowers, forcing mortgage customers to pay the fees, the letter alleged.
Chavez’s account was echoed in a July 2017 lawsuit filed by Mauricio Alaniz, a mortgage consultant who formerly worked with Wells Fargo’s Beverly Hills office. Alaniz alleged he told bank managers that paperwork for some of his customers was falsified by a Wells Fargo mortgage processor to make it appear that the borrowers were responsible for delays that were actually the bank’s fault.
The Wells Fargo managers said the customers “would have to be charged for a rate lock extension,” the lawsuit alleged.
Wells Fargo declined to comment on the Muniz and Alaniz lawsuits, Goyda said.
Borrowers across the country have made similar allegations against Wells Fargo, USA TODAY’s review of Consumer Financial Protection Bureau anonymized complaint data found:
- A Michigan customer complained in 2015 that the bank’s extension fees “coincidentally happen to coincide with time sensitive occurrences such as [home] appraisals … thus resulting in the consumer being pressured to agree to the rate locks or risk starting the loan process over again.”
- A New Jersey mortgage borrower last year said the bank promised to waive rate-lock extension fees but imposed a $3,800 charge just before the closing. “I could either go to closing or they would have to cancel the entire deal,” the borrower wrote.
- “I felt forced in the last minute to pay a rate lock extension of ($810) because the appraiser selected by the bank (Wells Fargo) took almost 2 months to provide the appraisal,” an Oregon customer complained in 2016.
- After many bank-caused delays, a Virginia borrower last year complained that “we now have a letter from them with over ($7,000) in rate lock extension fees and still no anticipated settlement date.”
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