Mortgage Lender May Lose License
California regulators threatened to revoke Wells Fargo Home Mortgage’s lending license Wednesday, saying the huge home-loan unit of Wells Fargo & Co. refused to make refunds to borrowers after routine examinations revealed what the state alleges are excessive interest charges and inadequate disclosures.
The move comes after San Francisco-based Wells, the nation’s largest mortgage lender, sued state regulators last week in federal court, disputing the state’s authority to regulate the nationally chartered banking company -- a position backed by the U.S. Office of the Comptroller of the Currency, which regulates national banks.
The face-off is the latest between Wells and Department of Corporations Commissioner Demetrios A. Boutris. It also marks the latest effort by state and local regulators to rein in banking companies, a trend that included a battle in California over regulating banks’ automated teller machine fees.
In a notice made public Wednesday, Boutris said Wells broke a state law that says consumers can’t be charged interest on mortgages until the day before their home loans are officially recorded. He also accused the bank of violating federal Truth in Lending Act provisions requiring full disclosures of finance charges.
In 13% of the loans examined by the state in 2001 and 2002, Wells began charging interest as soon as it funded home loans, resulting in an average overcharge of almost $157 per borrower, Boutris said.
The second alleged violation, failing to disclose all finance charges, occurred in 17% of the Wells loans examined by the state, with an average overcharge of about $507, Boutris said.
“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,” Boutris said.
The state won’t seek to have existing Wells Fargo mortgages canceled, Boutris spokesman Andre Pineda said. The bank will have an opportunity to respond to the state’s charges before further action is taken.
Wells Fargo Senior Vice President Lawrence P. Haeg said the bank, whose roots in California go back 150 years, regards its dealings with mortgage borrowers as fully legal under federal law. He called Boutris’ use of the word “overcharges” a misrepresentation.
The Department of Corporations has encountered 37 instances since 1998 in which mortgage lenders have started charging interest earlier than allowed under state law, according to Pineda. He said all except Wells Fargo have refunded the money to consumers.
“Often these large institutions take advantage of the fact that consumers don’t read the small print,” Pineda said.
Bank fees have become a hot-button topic for consumers, said Dan Jacobson, an advocate at California Public Interest Research Group in Sacramento.
“Anyone who is refinancing a house right now will be outraged when they hear about these fees,” Jacobson said. “I hope this will encourage consumers to shop around when they are looking for a loan.”
A surge in refinancings and home-equity lending helped drive Wells’ profit up from $3.4 billion in 2001 to $5.7 billion last year, an increase of 67%.
Wells shares dropped sharply in New York Stock Exchange trading on news of the state action, closing down $1.71 at $45.32.
The battle is the latest in a series involving Boutris and financial companies. In an unrelated $38-million lawsuit filed last month, the Department of Corporations accused Wells Fargo Financial, Wells’ consumer-lending unit, of failing to correct 15,000 small overcharges to consumers. Wells Fargo has attributed that problem to a computer glitch; Haeg said he didn’t know whether Wells has formally responded to the charges.
In December, the state sued Long Beach Mortgage Co., a sub-prime lending unit of Washington Mutual Inc., seeking $9 million in fines for the Orange-based company’s alleged repeat violations of the state law regulating interest charges on mortgages -- one of the laws Wells is accused of breaking. A Washington Mutual spokeswoman said the company has refunded all the overcharges but is contesting the proposed fines.
Disputes over whether national banking rules pre-empt state and local laws have arisen in several contexts in recent years, including attempts by San Francisco and Santa Monica to ban fees charged to people using ATMs at banks where they don’t have an account.
Robert Garsson, a spokesman for the Office of the Comptroller of the Currency said Wells Fargo Mortgage, as a subsidiary of the national bank, doesn’t require a state license to operate in California and the state has no authority to enforce federal laws regarding disclosure of charges.
The OCC ruled in June 2001 that national banks can charge interest as soon as loans are funded. Pineda said that at the very least, Wells should be forced to refund overcharges it made before that date.
Times staff writer Debora Vrana contributed to this report.
