- Wells Fargo fired dozens of mortgage loan officers last week after investigations found they made allegedly improper changes to loan files.
- Wells Fargo said loan officers changed the number for a home’s value without getting the borrower’s consent.
- The changes made the loans qualify for an appraisal waiver from Fannie Mae and Freddie Mac.
Wells Fargo is cracking down on what it alleges has been widespread abuse of so-called
waivers among its mortgage staff.
Over the past week, Wells Fargo has fired dozens of loan officers across the US for what it has told them is improper use of the waivers. Appraisal waivers give borrowers and their loan officers the right to bypass a home appraisal on mortgages originated by lenders such as Wells Fargo and sold to Fannie Mae or Freddie Mac if the loan meets certain conditions, according to half a dozen current and former Wells Fargo employees who spoke with Insider.
These waivers are legal, but Wells Fargo suspects loan officers may have wrongfully changed the field for a home’s value in its database so the loan would qualify for the waivers without first speaking with the customer, according to conversations that managers have had with loan officers and other current employees who spoke with Insider. In some cases, the changes slashed $1 million or more off home valuations in expensive markets. Wells Fargo’s current guidelines suggest that home values may be changed only with the customer’s consent.
Borrowers may have a number of reasons for wanting to update a home’s value. They may believe it would make their loan qualify for a waiver, which would in turn save the hundreds of dollars that an appraisal costs or speed up the refinancing process. Or they may want to adjust an initial estimate of value that was too high. The practice is most common in refinancings, when there isn’t a real-estate transaction that can be used to set the valuation.
In California, two mortgage retail sales senior managers in the San Francisco Bay Area, Jim Lew and Jarod Johnson, fired roughly five loan officers in their areas, according to the estimates of one loan officer with direct knowledge and a second who was briefed on the numbers. Another estimate suggests that 12 to 15 people were fired across that region last week.
Many more took place in other areas of the country. The firings followed a round earlier this year, one of the people said.
“Wells Fargo terminated certain home lending employees after a robust investigation revealed they engaged in misconduct,” Tom Goyda, a Wells Fargo spokesman, said in an emailed statement. “The investigation concluded that these Home Mortgage Consultants willfully and knowingly changed property value information provided by customers, contrary to bank policies, in order to obtain appraisal waivers.”
Wells Fargo has struggled to move past a series of scandals that began with the 2016 regulatory fines over the opening of fake accounts, and the bank is still subject to a
asset cap that has limited its growth. CEO Charlie Scharf has replaced senior leaders and beefed up compliance, but last week’s terminations suggest the bank is still struggling to stamp out compliance breaches.
At least some of the behavior dates back to the first half of 2020. Loan officers have protested the terminations, saying that guidance from senior managers at the time was unclear. And if the behavior was so flagrant, they asked, why did Wells Fargo allow them to keep making loans, and money for the bank, for two years or more after the alleged misconduct? One person who said he left Wells Fargo months ago once it became clear he could be swept up in the terminations called the bank’s investigation a “witch hunt.”
Goyda said Wells Fargo has “clear expectations” around requiring employees to abide by its code of ethics and business conduct, but declined to comment specifically on the state of the bank’s policies in the early days of the pandemic.
“It is unfortunate former employees are now attempting to justify their bad behavior through anonymous claims to a news outlet,” Goyda said. “The company took appropriate corrective action consistent with our policies regarding employee misconduct. We stand by our actions and have zero tolerance for unethical behavior.”
Other loan officers are being told they can keep their jobs but received something called a “final notice” and, in some cases, had to forfeit bonuses, the people said.
A spike in appraisal waivers
Waivers gained prominence during the coronavirus pandemic after appraisals came to a near standstill when homeowners and condo associations restricted access to properties to try to control the spread of the virus.
Mortgage loan officers and their customers struggled to complete the necessary home appraisals, and the logjam slowed many loan applications. Steve Sousa, an executive with the Massachusetts Board of Real Estate Appraisers, put it in stark terms for an April 2020 story for a local news outlet in Boston.
“Homeowners, when they find out an appraiser has to come inside, are simply refusing to let them go in,” Sousa told the outlet. “As a result, the refinance transaction dies.”
Initially, according to two current employees, Wells Fargo executives told its loan officers that the bank couldn’t underwrite the loans if it couldn’t get an appraisal. It was a tough pill to swallow for loan officers who are paid on commission.
Then Wells Fargo changed its message, and on one national sales call, a senior Wells Fargo executive cited the appraisal waivers as one option potentially available to loan officers looking to keep their production pipeline on track, said one of the two current employees, who was on that call.
As loan officers began to take more advantage of the appraisal waivers, they learned that the waivers were available only for properties valued at less than $1 million. Some loan officers, including those who were later fired, proactively changed the value of the home in their system to trigger a waiver, according to three people with direct knowledge of the matter. In some high-cost locations like the Bay Area, that might mean moving the value for a $2 million home to below $1 million.
One former employee said some loan officers might change the value if they found a more advantageous valuation on the real-estate websites Redfin or Zillow, which rely on algorithms fed on data from millions of homes across the country. Borrowers might request a change after looking at those same websites.
In at least one case, according to a loan officer who said they were fired for the offense, loan officers changed the value after talking to the borrower but forgot to document the conversation in Wells Fargo’s system.
Some managers encouraged loan officers to take advantage of the waivers to keep their team’s production humming along or meet Wells Fargo’s aggressive timeline for getting loans closed, according to one person. Another said they cautioned colleagues to proceed carefully with using the waiver program and instructed loan officers to always talk to the customer first before changing the value in the system.
“There was a period of time when no one knew what we were supposed to do,” said the former loan officer who referred to the investigations as a “witch hunt.” Managers encouraged loan officers to get loans processed as quickly as possible, and their message was that “if it saved you money and saved you time, go for it,” the former loan officer said.
Sometime in about May 2020, Wells Fargo changed its mind. Another national sales call hosted by Wells Fargo’s then head of retail sales, Liz Bryant, addressed what had become a widespread practice. During this call, according to two people who heard it and another who was told about it, loan officers were told that they should stop changing the home value in the system unless the borrower specifically requested it.
The guidance for loan officers stopped there. If a loan officer missed that call, as many did, there was little to no other way for them to know about the policy change. Wells Fargo, for example, never sent a follow-up email, highlighted the change for loan officers who had missed the call, or put anything in writing, one person said.
Waiver use encouraged
During this period, government authorities also encouraged the use of waivers as a way of breaking the appraisal delays that the pandemic had created. In March 2020, Fannie Mae issued guidance to lenders about how they should adapt to the backlog, encouraging lenders to take advantage of a “Property Inspection Waiver” that would allow for underwriting a loan without an appraisal.
“Lenders are encouraged to accept appraisal waiver offers when eligible,” according to the guidance, “to address concerns around contact between appraisers and homeowners.”
Across the industry, waivers were used on 25% of the Fannie Mae and Freddie Mac loans in March 2020, a record high at the time, according to data collected by the American Enterprise Institute’s Housing Center. Use picked up throughout 2020 and into the next year, peaking in February 2021 at 49% of all agency loans, according to the data, which goes back to 2012.
Since then, use has declined; it was just 30% of all Fannie Mae and Freddie Mac loans in February.
Wells Fargo used waivers on 26% of home loans in March 2020, in line with the industry, but then its use spiked. In February 2021, 60% of all the loans underwritten by Wells Fargo on behalf of Fannie Mae and Freddie Mac used waivers, the data shows.
Feeling blamed for institutional failings
The loan officers who spoke with Insider feel they are paying the price for unclear policy directives and mixed messages from Wells Fargo. The bank should have had a clear and consistent policy around waivers from the beginning, these people said. In lieu of that, they argue, they shouldn’t be held accountable.
Two people objected to Wells Fargo’s decision to focus on loans where the value had been changed by some amount that had been deemed “egregious,” which they argue unfairly targets loan officers in high-cost locations like the Northeast or markets in California. One of them said they knew of loan officers who had revised the home value down by as much as $1 million and remained employed by Wells Fargo.
At least two of the people said Wells Fargo fired people last week for infractions that took place before loan officers were told in about May 2020 to stop the behavior. At least one person was held responsible for a loan file they worked on before the pandemic even began.
Most of the loan officers who spoke with Insider also point out that Wells Fargo allowed all of them to continue writing new loans for another two years, raising questions about why Wells Fargo waited so long if the behavior was so harmful that it required firing broad swaths of the bank’s loan officers.
Tobias Peter, the assistant director of the American Enterprise Institute’s Housing Center, said his research suggested that waivers, while relatively new, had a positive effect on the real-estate market. Peter said appraisal waivers tended to cut down on price inflation that sometimes occurs when human appraisers, especially working on refinances, might be inclined to work with borrowers to provide a valuation that they need, say, for a cash-out refinance.
“We don’t like home-price inflation because if you are allowed to take more equity out of your home, that automatically increases the risk,” he said. “We are always a little worried about these value overstatements, versus with the waivers where we have not seen the price inflation. We are finding the waivers come in below the human appraisers.”
Homeowners save money by not having to pay an appraiser, and the underwriting process can be sped up considerably, adding more certainty that the loan will close.
An October 2020 report from the Urban Institute, a nonprofit focused on upward mobility, was titled “Appraisal Waivers Have Helped Homeowners Find Payment Flexibility Amid Pandemic-Induced Economic Struggles.”
Nonetheless, Peter said, waivers provide an opportunity for gaming the system.
“If the loan officer can change the values, that system can be gamed,” he said. “If the taxpayer is on the hook for that, that’s something I am concerned about.”
The firings are just the latest outcome of a series of widescale investigations that Wells Fargo has been conducting in recent years that has led some colleagues to call it the “Wellstapo,” after the secret police of Nazi Germany.
The bank hired an outside consultant trained in police interrogations to conduct thousands of “enterprise investigations” to examine the loan files of mortgage personnel looking for irregularities. Their process, which often takes the form of an intense interrogation, has led to widespread anger inside the mortgage operation.
“The company tends to assume you are committing fraud,” one person said. “When they first contact you, they don’t know if your behavior is malicious or you just didn’t note” that you made the change based on customer input, the person said.
Two loan officers who were fired last week said the interrogations didn’t give employees enough of a forum to defend themselves or provide evidence to back up their claims. Loan officers are allowed to make their case over what’s usually 30 to 45 minutes of questioning and may be invited to submit further evidence by email. In many cases, the call ends and that’s the last a loan officer will ever hear about it until the person’s manager is notified about the next steps. In many cases, no further action is taken.
In at least one case relating to last week’s firings, a loan officer left the conversation with the belief that they had successfully made their case to the investigator, only to learn last week that they were out of a job.
When Wells Fargo communicated the terminations to loan officers last week, it didn’t provide any documentation detailing or backing up its allegations, two of the people who were fired last week said. Within hours, the loan officers’ laptops stopped working and Wells Fargo wiped the email from their phones.
Most loan officers had files in the pipeline, and at least two people have been told by their managers that because they were being let go for cause, Wells Fargo may not pay their commissions on any loans they have in process. A third person said the compensation plan clearly stated that loan officers would forfeit their commissions if they were terminated for cause and that Wells Fargo intended to uphold the terms.
For one person, this amounts to losing tens of thousands of dollars for what they insist was a failure to note in the system that the customer asked for a lower value to be entered into the system.
And what recourse do the loan officers have to challenge Wells Fargo’s findings, or even get something in writing that explains why they were let go?
One loan officer received a case number and was told to call the bank’s human-resources department — using an impersonal toll-free number.