Federal Charter to Keep Wells Funding Calif Mortgages After License Suspension

Department of Corporations says borrowers overcharged on interest

February 7, 2003

By CHRISTY ROBINSON

Since 1999, the state agency said the Wells Fargo mortgage subsidiary charged interest one day prior to the recording of the mortgage, which is a state violation, and has not fully disclosed finance charges. It instructed Wells to conduct a self-audit and refund overcharges back to borrowers.

“When Department of Corporations examiners discovered that Wells Fargo Home Mortgage was making charges not allowed in California, the bank chose not to make the requested refunds to its mortgage customers,” said commissioner Demetrios A. Boutris. “On behalf of the consumers of this state who are tired of being charged hundreds more than they owe by multibillion dollar financial institutions, we intend to revoke Wells Fargo’s license to offer home mortgages in California.”

Wells said it doesn’t have to respond to the agency’s instruction because Wells is a federally chartered bank, and federal law preempts state law. Wells also stated that it discloses all settlement fees to its customers, and it disagrees with the agency that all such fees are required by the federal Truth in Lending Act to be included in the finance charge.

In late January, Wells filed a lawsuit in the U.S. District Court in Sacramento seeking relief from the state agency’s regulations. It also seeks determination that only the federal Office of the Comptroller of the Currency can regulate national banks.

Even if the agency revokes Wells’s license, the bank will continue with business as usual in California, said CEO Pete Wissinger.

“The comptroller’s office has confirmed to us unequivocally that under its regulations, California licenses are not required to conduct our mortgage business in California,” he said.

He said that federal law permits charging interest on first mortgage loans beginning the day the money is given to the borrower, and that California is the only state that says otherwise.

“Any attempt to characterize our actions as overcharges is a misrepresentation,” Wissinger said. “Consumers expect to pay interest once they receive the money. Courts have ruled time and again that federal law controls over inconsistent state laws, and we are confident that precedent will be followed in this case.”

The agency said that Wells never took issue with the commissioner’s authority until January 22, filing the lawsuit a few days later. It also complained that while Wells will not recognize agency authority to enforce state law, the bank has featured the Department of Corporations license on printed materials and on its Web site for marketing purposes. A Wells spokeswoman said she knew of no such marketing practice and therefore had no comment on the matter.

Boutris conducted a routine regulatory exam of Wells’s books and records for the period beginning Dec. 6, 1999, according to the complaint document. He found that Wells was tagging on the per diem charges on about 17.5% of the loans examined, according to the complaint. The overcharged interest averaged $279.33 per loan.

More than one-third of the loans reviewed also violated state code with excess finance charge understatements, which averaged $910.44, according to the complaint. The understatements were probably the result of Wells not including settlement fees, the document stated. The complaint took another stab at Wells by stating that it doesn’t maintain Truth in Lending calculations on all its loans and that it adds a $35.00 cushion to its calculations.

Another of the agency’s complaints is that Wells told the commissioner that it had fixed the programming on its origination system in December 2000 to include all settlement and closing fees in its finance charge calculations. At a later date, the commissioner informed Wells he found loans that were originated more than a year later that still understated finance charges by the settlement fees. Wells said it actually fixed the programming in March 2001 instead, according to the complaint.

The commissioner found more loans originated in April, May, June, July, and August 2001 that were in the same type of violation. Boutris also said that in December 2001 and February 2002, he directed Wells to perform a self-audit on the loans in question. After several “written demands,” Wells still did not perform them.

The association between agency and bank turned especially sour when the Department of Corporations announced in early January that it sued Wells Fargo Financial California, Inc. for allegedly overcharging its “instant loan check” recipients. The agency is seeking civil penalties of up to $38.8 million.

Also in January, the state agency sued Long Beach Mortgage Company, a subprime subsidiary of Washington Mutual, Inc., for the same state overcharge violations as Wells Fargo Mortgage. The agency is seeking $9 million in civil penalties against Long Beach.

Wells Fargo Home Mortgage is based in Des Moines, Iowa. Shares of Wells Fargo & Company were down $0.15 at $45.71 during midday trading, according to CBSMarketwatch.com.

Christy Robinson is the editor of MortgageDaily.com. She received a bachelor’s degree in news-editorial journalism from The University of Texas at Arlington. Her work has previously been published in The Dallas Morning News.

email Christy at: ChristyRobinson@MortgageDaily.com