California officials revoked the state mortgage lending licenses of Wells Fargo & Co. on Thursday, the latest development in a long and bitter feud over which government agencies have authority over the giant San Francisco bank.
Regulators and bank officials alike said Wells’ California customers aren’t likely to be affected because Wells will be able to continue making and servicing home loans under authority granted by federal regulators.
Still, analysts said Wells’ reputation could be tarnished with some consumers. And regulators at the state Department of Corporations hoped to embarrass the bank, which is the largest financial institution based in California and the state’s second-leading mortgage lender.
The dispute turns on Wells’ refusal to obey a state law barring lenders from charging interest until the day before a mortgage is officially recorded. Wells maintains that the law is impossible to comply with and doesn’t apply to nationally chartered banks such as itself.
State officials argued that Wells, like other mortgage lenders, should obey the law until the courts decide whether it applies. And they accused Wells’ mortgage subsidiary of having misled consumers by touting its state licenses online and in mail and telephone pitches when it was refusing to comply with the law.
“Wells Fargo Home Mortgage was knowingly violating California law and not telling their customers, their competitors or the state regulator,” said Corporations Commissioner Demetrios Boutris, who enforces California mortgage laws.
Wells Fargo mortgage chief Pete Wissinger, who learned of the revocations late Thursday afternoon, said in a statement that “it makes no difference to our customers whether we have or don’t have California mortgage licenses because we are a subsidiary of a national bank operating under a charter issued by the federal government.
“Our customers ... can feel confident that Wells Fargo will continue to originate, process and service mortgage loans,” Wissinger said.
The dispute erupted publicly in February when Boutris accused Wells’ home-loan subsidiary of refusing to reimburse borrowers for its violations of the state’s so-called per-diem law limiting mortgage interest charges.
As low interest rates drove lending to record levels, officials in some California counties were taking days or even weeks to record mortgages for which Wells already had provided the funds, bank officials said. According to state officials, the lender began charging interest on all its mortgages immediately, regardless of when they were recorded.
Wissinger said it would cost millions of dollars just to conduct an audit of how frequently that had occurred.
In a secondary claim, Boutris accused Wells of providing low-ball estimates of closing costs and then socking consumers with higher fees in violation of the federal Truth in Lending Act.
In a federal lawsuit in Sacramento, Wells asked the court to rule that the state can’t regulate it, and that federal rules allow interest to be charged as soon as the lender funds the loan.
In March, U.S. District Judge Garland Burrell issued a preliminary ruling that only the U.S. Office of the Comptroller of the Currency may examine the books of national banks and enforce national and applicable state banking laws. State officials note that he didn’t rule on whether the state law is preempted, leaving them hope that the OCC might have to enforce it.
Wells and the state will be back in court Monday for more arguments before the judge makes his final ruling. If Burrell again rules for Wells the decision won’t apply to other national banks until an appeals court has upheld it.
Bear Stearns & Co. bank analyst David B. Hilder said some consumers are likely to be put off by the state action and may even believe Wells is no longer making loans. But he said Realtors, mortgage brokers and serious home-loan shoppers will certainly know the bank is still in business.
Mortgage borrowers “tend to make their decisions based on prices and service,” Hilder said.
Wells has applications pending with federal regulators to merge its mortgage subsidiary with the bank itself, which everyone, including state regulators, agrees would remove the operation from state regulation.
The Department of Corporations said that pending resolution of the court case, it has been forwarding consumer complaints about Wells to the OCC.