Gretchen Morgenson: In Wells Fargo’s Bogus Accounts, Echoes of Foreclosure Abuses

http://www.nytimes.com/2016/09/22/business/in-wells-fargos-bogus-accounts-echoes-of-foreclosure-abuses.html

John Stumpf, the chairman and chief executive of Wells Fargo, won a dubious achievement award from one of his interrogators during Tuesday’s scorching hearings on Capitol Hill. The bank’s yearslong practice of opening bogus accounts for customers and charging fees to do so, said Senator Jon Tester, Democrat of Montana, had united the Senate Banking Committee on a major topic for the first time in a decade. “And not in a good way,” he added.

But this was not the first time problematic and pervasive activities at Wells Fargo succeeded in uniting a disparate group. After observing years of abusive mortgage loan servicing practices at the bank, an increasing number of judges hearing foreclosure cases after the financial crisis grew to understand that banks could not always be trusted in their pleadings.

This was a major shift: For decades, the nation’s courts had been largely pro-bank when hearing foreclosure cases, accepting what big financial institutions produced in documentation and amounts owed by borrowers.

“Wells didn’t intentionally educate judges. They didn’t raise their hand and say, ‘Judge, we’re sorry,’” said O. Max Gardner III, a prominent foreclosure defense lawyer who teaches consumer counsel how to represent troubled borrowers. “It was people really digging in and having the resources and the time to ask the right questions about what they were doing with the money.” Those practices included levying improper fees and incorrectly foreclosing on homes.

Tom Goyda, a Wells Fargo spokesman, said: “The housing downturn was a challenging time for our nation, and Wells Fargo has acknowledged that we made mistakes in the handling of mortgage foreclosures along the way. Lenders, investors, along with policy makers and regulators — all sides — learned foreclosure processes had to be addressed, and Wells Fargo made significant improvements to the way we work with customers when they fall behind in their payments and during the foreclosure process.”

During the financial crisis, Wells Fargo was at a remove from Wall Street and was not a big player in creating toxic and complex mortgage securities that were engineered to fail. But the bank’s ability to emerge from the crisis with a relatively good reputation is something of a mystery to anyone who paid attention to its aggressive foreclosure activities.

There were enough problematic foreclosure cases involving Wells Fargo moving through the courts that the bank’s dubious practices seemed as pervasive then as the questionable account-opening scheme does now. And some of the elements of both scandals — improper fees and forgeries — are the same.

“I sure as heck haven’t seen it,” said Linda Tirelli, a longtime foreclosure defense lawyer at Garvey Tirelli & Cushner in White Plains, who has often battled Wells Fargo. “I don’t remember ever hearing him apologize, because that would admit wrongdoing, and that’s not part of Wells Fargo’s corporate culture. Their culture is about not holding anybody at the top accountable.”

Some judges tried to hold Wells Fargo to account for its foreclosure practices. One was Elizabeth W. Magner, a federal bankruptcy judge in the Eastern District of Louisiana. She was among the first judges to identify problematic patterns in Wells Fargo’s foreclosure practice and to respond with vigor.

In an early 2008 case, she assessed damages and sanctions against Wells Fargo after concluding that the bank had levied fees on Dorothy Chase Stewart, a widowed borrower, without notifying her. This had the effect of pushing Ms. Stewart deeper into default and increasing the amounts she owed.

Judge Magner highlighted Wells’s “abusive imposition of unwarranted fees and charges” and its improper calculation of escrow payments. And, she added, Wells Fargo’s practice of not telling borrowers about the fees they were being charged “is not peculiar to loans involved in a bankruptcy.” Wells had also failed to credit Ms. Stewart with $1,800 that it had charged her for an eviction that did not occur.

An especially egregious aspect of the case involved Wells Fargo’s regular appraisals of the Stewart property. Banks conduct such appraisals when a property is in default to ensure that it is being maintained properly.

But in the Stewart case, the court cast doubt on two of the appraisals Wells Fargo charged Ms. Stewart for in 2005, noting that they were said to have been completed on the same day that Jefferson Parish, the location of the Stewart home, was under an evacuation order because of Hurricane Katrina. In addition, the court found that a unit of Wells had done the appraisals, charging double its costs for them.

In a 2013 Massachusetts case, William G. Young, a Federal District Court judge overseeing a foreclosure, was so distressed by Wells Fargo’s litigation tactics that he required the bank to provide him with a corporate resolution signed by its president and a majority of its board stating that they stood behind the conduct of the bank’s lawyers in the case.

“The disconnect between Wells Fargo’s publicly advertised face and its actual litigation conduct here could not be more extreme,” Judge Young wrote. “A quick visit to Wells Fargo’s website confirms that it vigorously promotes itself as consumer-friendly,” he continued, “a far cry from the hard-nosed win-at-any-cost stance it has adopted here.”

In Tuesday’s Senate hearing, Elizabeth Warren, Democrat of Massachusetts, made a similar observation, comparing Wells Fargo’s stated rules of the road — respecting its customers — with its improper account-opening activities.

When judges criticized Wells Fargo in foreclosure cases, bank officials either maintained that the situation was unusual or that the judge was being unreasonable. Only occasionally did the bank concede that it had handled a case badly.

Responses like these also ring a bell today.

One remarkable foreclosure ruling against Wells Fargo came in January 2015, in a Missouri state court. Judge R. Brent Elliott ordered Wells to pay more than $3 million in punitive damages and other costs for harming David and Crystal Holm, borrowers in Holt, Mo., who fought the bank’s improper foreclosure of their home for more than six years.

“Defendant Wells Fargo’s deceptive and intentional conduct displayed a complete and total disregard for the rights” of the couple, wrote Judge Elliott, a circuit judge in the 43rd Judicial District of Missouri. “Wells Fargo took its money and moved on, with complete disregard to the human damage left in its wake.”

Punctuating his view, Judge Elliott cited the testimony of a bank employee who told the court: “I’m not here as a human being. I’m here as a representative of Wells Fargo.”

Wells Fargo said it was appealing the case.

Finally, there was the scathing 2010 contempt ruling in a Wells Fargo foreclosure case by Jeff Bohm, a federal bankruptcy judge in Houston. To the bank’s argument that unintentional errors, including a computer malfunction, had caused Wells to demand money from two borrowers who had previously settled with the lender, Judge Bohm conceded that mistakes could happen.