Consumer Fraud

Whistleblower: Wells Fargo Defrauded Mortgage Borrowers

Wells Fargo fraud Whistleblower: Wells Fargo Defrauded Mortgage BorrowersA former Wells Fargo banker has filed a lawsuit against the banking giant, accusing it of firing him in retaliation for standing up against an alleged practice of defrauding borrowers by blaming them for delays in processing mortgage applications that were the bank’s fault, then hitting them with the resulting fees.

According to the Los Angeles Times, Mauricio Alaniz, a former banker at a Wells Fargo Beverly Hills unit, alleges in his federal lawsuit that the bank’s mortgage-processing and underwriting division was understaffed, resulting in chronic delays that weren’t the borrowers’ fault.

Borrowers applying for mortgages are typically locked into a set rate for a period of 30-45 days while their loan undergoes approval. If the bank takes longer to approve the loan, then the bank incurs fees associated with the rate-lock extension, usually 0.125 percent to 0.25 percent of the mortgage amount.

Wells Fargo “would systematically attempt to charge or pass the rate lock expiration fees on to customers, even when the delay was not the customer’s fault,” Mr. Alaniz alleged in his whistleblower lawsuit, which he filed July 10 in federal court in Los Angeles.

He alleged that Wells Fargo falsified reports to show that borrowers had caused the delays by submitting incomplete or inaccurate information. As a result, Wells Fargo wrongfully stuck borrowers with the rate-lock extension fees, he claims.

Mr. Alaniz claims that Wells Fargo violated his whistleblower protections, subjecting him to retaliation and discrimination. He alleges he was fired for reporting the alleged illegal conduct to bank managers. He seeks back pay, compensation for mental and emotional distress, and punitive damages.

It’s not clear how widespread the alleged practice was in Wells Fargo of blaming borrowers for mortgage application delays. Wells Fargo is the nation’s largest mortgage lender, having originated about 12 percent of all U.S. mortgages.

In March, Wells Fargo agreed to settle a lawsuit filed by a class of customers who accused the bank of opening unapproved accounts in their names and charging them the resulting fees. An internal review amid that scandal found evidence that the rate-lock extension issue was also a factor in a recent shake-up of the bank’s upper ranks.