Thousands of Wells Fargo home loan customers recently received refund checks in the mail, along with a letter saying they had paid unnecessary fees for their mortgage.
However, there is a catch. If customers decide to cash the checks, they cannot sue the bank. The refunds, which were sent out to an estimated 10,000 borrowers, was a way for Wells Fargo to avoid further litigation for putting customers into more expensive loans when they could have qualified for cheaper ones.
The refunds involve Federal Housing Administration-backed mortgages made from 2009 through 2011, and were loans made to those who were not qualified. Approximately 528,000 Wells Fargo borrowers received FHA loans during those years, of which fewer than 2 percent were offered refunds. The checks totaled about $5,000.
This is not the first time a U.S bank has been in trouble regarding bad mortgages. Wells Fargo was recently sued by the government under the False Claims Act for recklessly issuing mortgages, a claim the bank is denying. In October, the government also sued Bank of America, claiming the bank defrauded Fanny Mae and Freddie Mac out of $1 billion. Three other large banks settled for $490 million in similar cases.
Under the False Claims Act the government can go after parties that submit false information to receive payments, or to avoid making payments to a federal agency. The act calls for triple pay off if it can prove that taxpayers were ripped off.
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Source: The Miami Herald, "Wells Fargo quietly sends refunds to some FHA mortgage customers," Oct. 29, 2012.
Wall Street Journal, "U.S Sues BofA Over Mortgage Sales," Oct. 25, 2012.