Recall that some of the most damaging documents released by Edward Snowden were NSA manuals. They discuss in detail how certain abuses are performed and provide strong proof that that behavior is routine and presumably widespread.
Catherine Curan of the New York Post has an important new story on a Federal lawsuit that looks to have unearthed a smoking gun about systematic document fabrication at Wells Fargo. As the article notes, this filing confirms a report we received from a whistleblower in 2013.
Recall that we’ve long been critics of Wells Fargo, not simply for its bad conduct, but for the intelligence-insulting manner in which it keeps asserting that it is better than other mortgage servicers, when the evidence is overwhelmingly the reverse. For instance, during the not-really-supervised-by-the-OCC Independent Foreclosure Reviews, whistleblowers told us how Wells Fargo’s serving conduct was worse even than that of Bank of American, which took over subprime miscreant number one Countrywide. For instance, both by statute and via the mortgage securitization contracts, borrower payments are required to be applied in a specific order: interest first, then principal, then fees. If a borrower had incurred a late fee, Wells would apply the payment to fees first, guaranteeing the payment would be too small. That would enable Wells to declare the payment to be insufficient for the current month and charge another late fee. That scam is called “pyramiding fees” and because the amount the borrower supposedly owes grows rapidly, almost always means that the delinquent borrower is never able to dig his way out of his hole and loses his home.
The reason this new case is a bombshell is that so far, the cases against Wells, both in court and in the court of public opinion, have specific. Even though the abuses are often grotesque, they are noise to Wells, since the allegations of particular borrowers or individual whistleblowers seldom gets traction outside foreclosure-defense-oriented sites and local newspapers. By contrast, this suit has the potential to demonstrate that Wells constructed a well-oiled machine to flout the law.
In a filing in New York’s Southern District in White Plains for a local homeowner in bankruptcy, attorney Linda Tirelli described a 150-page Wells Fargo Foreclosure Attorney Procedures Manual created November 9, 2011 and updated February 24, 2012. According to court papers, the Manual details “a procedure for processing [mortgage] notes without endorsements and obtaining endorsements and allonges.”…
Attorneys, forensic accountants and consumer advocates have long suspected that banks were systematically creating improper documents to prove ownership of loans. Foreclosure defense lawyers use the term ‘ta-da’ endorsement to describe situations in which they say a document appears, as if by magic, in the bank’s possession as needed in a foreclosure case—even though the proper endorsement was not included in the original foreclosure filing. It might sound like a technicality, but correct proof of ownership lies at the heart of the foreclosure crisis for securitized loans, which were sold by the lender that originally issued the mortgage. To legally transfer a securitized loan, the endorsements and allonges have to be created in a very specific way and within a specific time frame, usually 90 days after a residential mortgage trust closes. For many loans in foreclosure now, which were originated years ago and then sold, it’s way too late to correct incomplete documents, experts said.
If the allegations in Tirelli’s court filing are true, this manual represents the first time ‘ta-da’ endorsements are “being described and admitted to be a procedure” at a major bank, as Tirelli claimed to The Post.
The manual, a copy of which was obtained by the Post, appears to provide step-by-step instructions for a Wells Fargo Home Mortgage “Default Docs Team” and foreclosure attorneys if a blank endorsement is in a file and the attorney wants that note executed. In addition, the manual outlines steps for attorneys and the Default Docs Team to create allonges, endorsements to a note on a separate sheet of paper when there is no room left at the bottom of the note. Step 3 under the header “Allonge” on page 17 reads: “WFHM Default Docs Team: If file was ordered and received, review … to determine what entities the attorney needs the note endorsement to reflect.”
Foreclosure experts called these procedures shocking.
Of course, sanctimonious Wells claims the manual has been updated 30 times since the version filed in the lawsuit, and it’s only a piece of the process, since Wells has internal checks. If you believe that, as Wells asserts, they are in full or even substantial compliance, I have a bridge I’d like to sell you.
Our Wells whistleblower saw evidence first hand of document fabrication at a Wells facility, indicating that the idea that the internal procedures were intended to follow the law is a canard. The notion was clearly to complete as many foreclosures as cheaply as possible, the law be damned. From our 2013 post:
A contractor who worked at a Wells Fargo facility in Minnesota reports that the bank engaged in systematic, large scale alteration of mortgage notes and fabrication of related documents in preparation for foreclosure. The procedures the bank used are questionable for a large portion of the mortgages.
A team of roughly 100 temps divided across two shifts would review borrower notes (the IOU) to see whether they met a set of requirements the bank set up. Any that did not pass (and notes in securitized trusts were almost always failed) went to another unit in the same facility. They would later come back to the review team to check if the fixes and fabrications had been done correctly.
Not only is having Wells Fargo tamper with documents in this way dubious in many cases (more detail on that shortly), but amusingly, the bank does not even appear to be terribly competent at this sort of falsification. The bank changed procedures frequently, and did not go back to redo its prior work. In addition, it regularly took loans that appear to have been endorsed properly and changed them as well. Finally, even if the procedures had been proper, the temps were required to meet such aggressive production timetables and were so laxly supervised that it seems unlikely that their work was done well.
This account confirms what foreclosure defense attorneys have reported for some time: that servicers have been engaging in document fabrication for some time. It’s not uncommon for a servicer or foreclosure mill to present “tah dah” documents that miraculously remedy the problems that homeowner attorneys have raised, sometimes resulting in clear proof of fabrication, like two different notes (borrower IOUs) having been presented to the court, each supposedly an original.
But what is striking about this practice is both the brazenness and the scale. Our source was told that Wells Fargo added a second shift to its mortgage review operation in November 2011 [update: it is likely the related doctoring activities were increased correspondingly]; he* did not know when it had been established. Bank employees claimed that some of these operations had formerly been done by outside firms and the cost of doing it in-house was much lower than the cost of doing it externally. Apparently having plausible deniability was too expensive.
For those with an appetite for train wrecks, the post contains much more granular detail.
I don’t know how much stamina the attorney, Linda Tirelli, has, but the fact that the core of the case revolves around a manual would enable her to do wide-ranging, potentially very damaging discovery on related policies and procedures. Wells would be nuts not to settle this case.
But bank has consistently been arrogant and obstructionist. So as much as Wells allowing her to proceed with discovery will be a longer, harder road than a quick and quiet settlement, it has the potential to do a tremendous amount of good for beleaguered borrowers by exposing the deliberate, orchestrated nature of Wells’ bad conduct. Stay tuned.