Wells Fargo scandal

Quote: reno

Serious question: what about the low risk loans to high income buyers with excellent credit? Don't the banks keep those loans for themselves?

No, the only loans that are not sold are non-conforming loans. It has been this way for a generation.

Non-conforming can mean several things, from paperwork not being quite right to an unusual property type to the loan being a jumbo.

Do not confuse owning the mortgage with servicing it. Just because you send your payment to WFC does not mean they own it. This caused issue in the Panic of 2008. Many people said, "the bank will not work with me!" when they were behind on payments. Well, the bank couldn't work with them as it was no longer the bank's loan.

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Example: a high income customer (doctor or lawyer) with excellent credit pays $900,000 for a beautiful house in a desirable neighborhood. The customer makes a downpayment of 50%, so the loan amount is only $450,000. Over the course of 30 years at 4%, that loan brings in a whopping $323,412 in compounded interest. Surely no bank would pass up on the opportunity to earn $323,412 in interest on a low risk loan. Worst case scenario: the guy loses his job and stops paying the mortgage, forcing the bank to take possession of the property. Even if it were a perfect storm of bad luck with the housing market crashing 30% or 40%, the bank still wouldn't lose a penny since the downpayment was 50%.

Keeping this low risk loan is a no-brainer, so under these circumstances would the bank still sell the loan to a third party? Why?

First thing, it is not "compound interest" just simple interest paid monthly. Second, banks try to get rid of any and all risk. That is why the Credit Default Swap was invented. It insures against risk. A bank might be making just 2% on a particular loan. Say that loan is $10,000. They lose it all. Now they have to make 50 similar loans to make back what they just lost.

Then you have to consider tying up all that capital. Also consider the average mortgage gets paid off 5-10 years only after it is taken out, not 30.

It is not as simple as they teach in school.

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"We are eliminating product sales goals because we want to make certain our customers have full confidence that our retail bankers are always focused on the best interests of customers," CEO John Stumpf said in a statement about the change.

Hey, just a thought CEO. You hit on something that can substitute for driving sales goals,i.e, focusing on actual customer satisfaction.

I hear satisfied customers are returning customers. They also will speak favorably of you. You may not be able to measure the success as precisely as driving sales goals but you won't end up in this pile of shit either.

Quote: reno

Over the course of 30 years at 4%, that loan brings in a whopping $323,412 in compounded interest. Surely no bank would pass up on the opportunity to earn $323,412 in interest on a low risk loan.

Mortgage originators make money through the fees that are charged to originate a mortgage. Obviously a mortgage at 50% loan to value is going to go into a different security than a 5% LTV. But over the course of 30 years, the originator can make far more money than $300K by using the money over and over to originate new mortgages and collect the fees.

Quote: Pacomartin

Mortgage originators make money through the fees that are charged to originate a mortgage. Obviously a mortgage at 50% loan to value is going to go into a different security than a 5% LTV. But over the course of 30 years, the originator can make far more money than $300K by using the money over and over to originate new mortgages and collect the fees.

See "The Big Short" for how this works. Doesn't work how you might think.

It's a big bank. Surely some of the top executives knew exactly what was going on. But, to be fair, some of the top executives in other divisions honestly had no clue.

All of the 5,300 fired employees who committed the fraud worked in the Wells Fargo division run by Carrie Tolstedt. She's retiring. Wells Fargo has awarded her with a $124.6 million retirement package-- mostly stock options & restrict shares.

A spokesperson for Wells Fargo said that the timing of Tolstedt’s exit was the result of a “personal decision to retire after 27 years” with the bank. (Just a coincidence.)

Quote: Fortune Magazine

Tolstedt was regularly praised for her unit’s ability to get customers to open numerous accounts. For a number of years, Wells Fargo’s proxy statement, which details executive pay, cited high “cross-selling ratios” as a reason that Tolstedt had earned her roughly $9 million in annual pay. For instance, in Wells Fargo’s 2015 proxy statement, the company said that its compensation committee had authorized Tolstedt’s $7.3 million stock and cash bonus that year, because “under her leadership, Community Banking achieved a number of strategic objectives, including continued strong cross-sell ratios, record deposit levels, and continued success of mobile banking initiatives.”

Some of her stock options haven't vested yet, but Tolstedt gets to keep all of it because she technically retired. Had she been fired, Tolstedt would have had to forfeit at least $45 million of that exit payday, and possibly more.

They should sue her for damaging the brand.

Quote: reno

It's a big bank. Surely some of the top executives knew exactly what was going on. But, to be fair, some of the top executives in other divisions honestly had no clue.

All of the 5,300 fired employees who committed the fraud worked in the Wells Fargo division run by Carrie Tolstedt. She's retiring. Wells Fargo has awarded her with a $124.6 million retirement package-- mostly stock options & restrict shares.

A spokesperson for Wells Fargo said that the timing of Tolstedt’s exit was the result of a “personal decision to retire after 27 years” with the bank. (Just a coincidence.)

Quote: Fortune Magazine

Tolstedt was regularly praised for her unit’s ability to get customers to open numerous accounts. For a number of years, Wells Fargo’s proxy statement, which details executive pay, cited high “cross-selling ratios” as a reason that Tolstedt had earned her roughly $9 million in annual pay. For instance, in Wells Fargo’s 2015 proxy statement, the company said that its compensation committee had authorized Tolstedt’s $7.3 million stock and cash bonus that year, because “under her leadership, Community Banking achieved a number of strategic objectives, including continued strong cross-sell ratios, record deposit levels, and continued success of mobile banking initiatives.”

Some of her stock options haven't vested yet, but Tolstedt gets to keep all of it because she technically retired. Had she been fired, Tolstedt would have had to forfeit at least $45 million of that exit payday, and possibly more.

They should sue her for damaging the brand.

We joked about this kind of thing when I was at Chase. One day they paid some kind of a billion dollar fine for I forget what, but I think it was backing one of the darlings of the late 1990s that was all fake and imploded in 2000-2002. Someone cost all those zeros and all kinds of execs remained, but if we did not get each and every doc right we would be written up and fired.

Did WFC top brass "know?" I think they probably more chose to ignore it. When one manager is blowing away numbers when the rest are not, nobody asks if something is wrong. No, you cheer the person, tell the rest to shape up, and hope you are somewhere else when it all falls apart. Seen it happen.

Quote: AZDuffman

Did WFC top brass "know?" I think they probably more chose to ignore it. When one manager is blowing away numbers when the rest are not, nobody asks if something is wrong. No, you cheer the person, tell the rest to shape up, and hope you are somewhere else when it all falls apart.

I'm wondering how all 5,300 employees learned to cheat using the same methods (fake email addresses, etc.) Coordinated conspiracy? Or just a coincidence that 5,300 bad apples were all doing the same thing, independent of each other.

I'm also wondering about the unpaid fees assessed on the customers who didn't know about the accounts. Surely that screwed up some credit scores and many people were denied home mortgages, auto loans, student loans, apartments, car insurance, etc. Those customers have standing to sue. (As mentioned in another thread, it is extremely difficult to get a credit bureau to correct a mistake-- case in point being the woman who tried to convince Equifax that she wasn't dead. There have been 200 complaints to the FTC from people who couldn't convince Transunion, Equifax that they weren't dead.)

Quote: reno

(As mentioned in another thread, it is extremely difficult to get a credit bureau to correct a mistake-- case in point being the woman who tried to convince Equifax that she wasn't dead. There have been 200 complaints to the FTC from people who couldn't convince Transunion, Equifax that they weren't dead.)

I could start a whole thread about how 3 companies came to have so much impact over everyone. Yet they do. They're not remotely connected to our Constitutional makeup yet they are certainly a major factor in daily life as if they were an original product of the founders.

Quote: rxwine

I could start a whole thread about how 3 companies came to have so much impact over everyone. Yet they do. They're not remotely connected to our Constitutional makeup yet they are certainly a major factor in daily life as if they were an original product of the founders.

The libertarian argument against consumer protection laws is that you don't need government interference in the market because corporations who don't treat customers right will lose market share to competitors who do. (That's often true for markets with lots of competition.)

But how does that libertarian philosophy apply to TransUnion, Experien, Equifax? It's impossible for a consumer to boycott those particular companies. And hiring a lawyer because they think you're dead is extremely costly and time-consuming.

Quote: reno

But how does that libertarian philosophy apply to TransUnion, Experien, Equifax? It's impossible for a consumer to boycott those particular companies. And hiring a lawyer because they think you're dead is extremely costly and time-consuming.

I guess you would be boycotting them if you just avoided all forms of banking and financing. I have one friend that has no bank accounts and lives an all cash existence in Las Vegas.