I recently spoke to a former Wells Fargo employee turned whistleblower about the ongoing issues of fraud and predatory banking practices implemented by the bank regarding the ongoing housing and mortgage fraud. Beth Jacobson is a former high level employee of the bank, who told me:
“In 1998, I was hired by Wells Fargo Home Mortgage as a ‘Home Mortgage Consultant’ or loan officer. I worked for Wells Fargo Home Mortgage (‘Wells Fargo’) until December, 2007. After a period of time, I was promoted to Sales Manager. I told DOJ over six years ago about Wells Fargo’s quotas. At that time it was subprime loans. A loan officer had to fund three subprime loans per month. If there was a quarter when that didn’t happen, they were fired. So the result is prime borrowers were put in subprime loans so that the loan officer kept their job.
[John] Stumpf was also part of the management team that stated the company goal was to have Wells Fargo’s fixed cost paid by the subprime division. Once Countywide went under, Wells Fargo was the #1 subprime lender in the country, specifically [in the] third quarter of 2007. The media keeps whitewashing Wells Fargo as this great lender that avoided all the pitfalls of the other lenders in the mortgage meltdown. No, Wells Fargo was the worst, they are just pure evil, [but] they hired more lawyers and more PR people to spin it Wells Fargo’s way. They are all riding the stagecoach to hell.”
Jacobson went on to illustrate the nature of the quotas imposed on Wells employees and underwriters:
“The commission and referral system at Wells Fargo was set up in a way that made it more profitable for a loan officer to refer a prime customer for a subprime loan than make the prime loan directly to the customer. The commission and fee structure gave the A rep a financial incentive to refer the loan to a subprime loan officer.
“Initially, subprime loan officers had to give 40 percent of the commission to the A rep who made the referral; later on, A reps received 50 basis points of the available commission. Because commissions were higher on the more expensive subprime loans, in most situations the A rep made more money if he or she referred or steered the loan to a successful subprime loan officer like me. A reps knew about my success in qualifying customers for subprime loans. As a result, I received hundreds of referrals. When I got the referrals, it was my job to figure out how to get the customer into a subprime loan. I knew that many of the referrals I received could qualify for a prime loan. If I had access to Wells Fargo’s loan files right now and could review these files, I could point out exactly which of these customers who got a subprime loan could have qualified for a prime loan.
“Because I worked on the subprime side of the business, once I got the referral the only loan products that I could offer the customer were subprime loans. My pay was based on the volume of loans that I completed. It was in my financial interest to figure out how to qualify referrals for subprime loans.
“Moreover, in order to keep my job, I had to make a set number of subprime loans per month. I also know that there were some loan officers who did more than just use the discretion that the system allowed to get customers into subprime loans. Some A reps actually falsified the loan applications in order to steer prime borrowers to subprime loan officers. These were loan applicants who either should not have been given loans or who qualified for a prime loan.
“One means of falsifying loan applications that I learned of involved cutting and pasting credit reports from one applicant to another. I was aware of A reps who would ‘cut and paste’ the credit report of a borrower who had already qualified for a loan into the file of an applicant who would not have qualified for a Wells Fargo subprime loan because of his or her credit history. I was also aware of subprime loan officers who would cut and paste W-2 forms. IDs deception by the subprime loan officer would artificially increase the creditworthiness of the applicant so that Wells Fargo’s underwriters would approve the loan. I reported this conduct to management and was not aware of any action that was taken to correct the problem.
“High-ranking Wells Fargo managers knew that this practice was going on, because after about a year of these standby explanations being given, underwriters in the underwriting department were told to call the customers directly rather than contact the loan officer who was working with the customer. The loan officers quickly figured out how to work around this by warning customers that underwriters might call them and then coaching the customers about what to say. For example, customers were told that they should just tell the underwriter that they did not have much in the way of assets or documentation for their income, because otherwise the underwriter would deny their loan or force them to fill out additional paperwork to document their financials. The point was to get the customer to say whatever would allow them to qualify for a subprime loan, even if it was not true. The customers went along with this because they thought it would expedite the process of getting them the loan that they had been told was the right one for them.”