Even though you can now get an initial approval for a home loan in a few minutes, the actual underwriting process can take so long that the interest rate you were promised at the beginning has since increased. If the delay is the borrower’s fault, they can usually pay a hefty fee to extend that lower rate, but if the bank caused the delay, it usually eats that charge. However, some former Wells Fargo workers say the bank forced borrowers to pay for these rate extensions even when it was Wells’ fault.

This is according to Pro Publica, which reports that four former Los Angeles-area Wells staffers are now claiming that bank management told employees to shoulder borrowers with these extension fees regardless of who had caused the delay.

One former loan officer from Beverly Hills wrote to the Senate Banking and House Financial Services committees in November, alleging that “millions of dollars, in just the Los Angeles area alone… were wrongly paid by borrowers/customers instead of Wells Fargo.”

Three other former Wells staffers confirmed this practice to Pro Publica, saying that the bank’s underwriting staff was inexperienced and understaffed, resulting in delays that affected applicants’ interest rates.

They claim that when loan officers argued that the bank should pick up the tab for the extension fees — often more than $1,000 — The answer from management “was always the same: No. Declined. ‘Borrower paid,’ never ‘Lender paid.’”

Since most lenders will absorb this cost when the delay is their fault, the former staffers say Wells had to create fictions to justify shifting the blame onto the borrower. Application files would often be flagged for “missing” documents or information that had already been provided by the borrower and received by the bank. Alternatively, the bank would ask for documents that were not required for underwriting. By the time the customer submitted this paperwork, the deadline would have passed and the bank could blame the borrower.

Some loan officers would, in anticipation of blown deadlines, quote the customer a higher fee at the start of the process so that it wouldn’t be tacked on when the extension was ultimately needed.

How widespread was the problem? One former employee tells Pro Publica that around one-in-four mortgages from his branch required an extension. It’s estimated that the Beverly Hills branch alone brought in half a million dollars annually in these fees.

This practice may have been limited to just the Los Angeles region, notes Pro Publica, but that’s still 19 branches, which could mean millions of dollars in fees that were questionably charged to the borrower.

The former employees contend that it was one Wells executive in charge of that region who was responsible for this policy. Attempts to go over that executive’s head to Wells Fargo upper management were only referred back to that executive, according to one former employee.

These former staffers say the exec had openly complained that his bonus would be affected if the banks in his region had to cover too many extension fees.

The legality of this alleged practice is a bit of a gray area. Banks don’t have to absorb extension fees, but if a company has a policy of paying these fees when it is at fault and then misleads a customer into thinking she is at fault, that’s a problem.

In a statement to Pro Publica, a rep for Wells says:
“We are reviewing these questions about the implementation of our mortgage rate-lock extension fee policies. Our goal is always to work efficiently, correctly and in the best interests of our customers and we will do a thorough evaluation to ensure that’s consistently true of the way we manage our rate-lock extensions.”

This latest potential scandal comes on the heels of the still-unresolved fake account fiasco at Wells Fargo. In September, federal and state regulators confirmed what some Wells customers had been alleging for years: That bank employees were opening and closing unauthorized accounts in customers’ names — all to meet strict sales quotas established by the bank.

Since then, it’s also been alleged that some Wells staffers were meeting these sales goals by opening unauthorized MyTerm insurance policies in bank customers’ names.

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