Houston, Texas, USA: Wells Fargo Bank is cutting 638 mortgage employees as the nation’s largest home lender contends with a slowdown in that arm of it’s business.
“After carefully evaluating market conditions and consumer needs, we are reducing to better align with current volumes,” Wells Fargo spokesman Tom Goyda said in a statement.
The company is cutting in states including California, Florida, North Carolina and Colorado. The Orlando Sentinel reported earlier on the decision.
The affected employees were notified of the cuts Thursday and will receive pay and benefits through Oct. 21, the bank said.
The bank doesn’t detail how many employees it has in its mortgage business. Companywide, it had a workforce of 264,500 at the end of June, making it one of the largest U.S. employers.
As interest rates rise, Wells Fargo is facing the end of a refinancing boom that helped push profits to a record. In the second quarter, mortgage fees declined by a third to the lowest in more than five years. Chief Executive Officer Tim Sloan warned investors of “overcapacity” in home loans at a May conference.
Wells Fargo has been making sporadic cuts to its mortgage workforce as part of a bid to rein in costs. These layoffs are the largest so far this year.
The latest cuts were mainly to retail fulfillment and servicing jobs, Goyda said, reflecting a continued slump in application volumes.
Analysts have said such moves address overcapacity and will improve the bank’s efficiency.
The San Francisco-based bank is also navigating under a punitive growth ban from the Federal Reserve. Expense reductions to the tune of $4 billion by the end of next year and a shift to higher-yielding products such as credit cards are part of Wells Fargo’s strategy to boost profitability while growth is restricted.
Wells Fargo has vowed to cut $4 billion in costs by 2020 in order to grow profits as it operates under the punitive asset cap levied by the Federal Reserve.
Wells fargo recently disclosed a counting error that cost hundreds their homes
In a short section of its most recent quarterly report, Wells Fargo revealed that for more than five years, beginning in April 2010, the company had made “an automated miscalculation” that had dropped 625 mortgage holders below a threshold where they could receive a loan modification. Four hundred of these people subsequently had their homes foreclosed on. Wells Fargo finally caught the error in October 2015.
Coverage of the problem described it as “an error,” or even “a computer glitch.”
“This error in the modification tool caused an automated miscalculation of attorneys’ fees that were included for purposes of determining whether a customer qualified for a mortgage loan modification.”
As a result, Senators Elizabeth Warren and Brian Schatz sent Wells Fargo executives a long list of questions demanding to know the details of the case. In sum, their queries add up to an exasperated How could this have happened?
Wells Fargo created this software itself, according to Tom Goyda, a spokesperson for the company. “It was a tool that we developed,” he said, “so the programming error was made internally.”
In most loan modifications, the debtor is not actually getting out of paying back any of the principal. Instead, the bank rolls the past-due principal and interest into a larger loan. The bank (or “servicer,” in industry terms) can also roll a bunch of other things like insurance premiums and fees into the new loan balance. Then, sometimes with government money as an incentive, the bank agrees to lower the interest rate and extend the term of the loan to generate a smaller monthly payment. The target amount for that payment, under the main federal program, is 31 percent of the borrower’s gross income. The new loan also has to pass another test for calculating whether the bank is likely to make roughly the same amount of money on the new loan as the old. If it does, and the debt-to-income ratio is right, perhaps the borrower can get a loan modification. If not, then it’s a no-go.
These calculations were made in tremendous numbers during the foreclosure crisis (which was precipitated, in part, by the bad loans that banks targeted to largely black and brown neighborhoods, and for which Wells Fargo was fined $175 million.) Under the most important government-backed loan-modification scheme, hamp, or the Home Affordable Modification Program, Wells Fargo alone received 1.6 million applications from desperate people.
For these borrowers, the “automated-decisioning tool” that Wells Fargo built took all of the variables from individual loans and borrowers, and combined them with various constants—including, crucially, that incorrect calculation for attorneys’ fees—and came back with a thumbs-up, thumbs-down determination of modification eligibility. But because of that miscalculation, the automated tool gave a thumbs-down to people who were right on the borderline of getting a modification and who should have gotten a thumbs-up.
Only the decision—not its actual calculations—was rolled forward to other parts of the bank, Goyda said, so no one saw the erroneous attorney-fee number. That’s also why, as Wells Fargo disclosed, customers were not actually overcharged; the standalone tool made the decision, but the actual loan terms were dealt with by other means.
Wells Fargo approved 28 percent of modification requests, a little below the average for the four biggest servicers. The number of people affected by the attorney-fee error added up to 0.0386 percent of that hamp pool.
Set against the massive scale of the Great Recession—9 million jobs lost, 9 million homes lost—this is the kind of small error that could seem insignificant. But this is hundreds of lives irrevocably changed, with all the ripples outward. And there’s still a lot we don’t know, as indicated by the senators’ letter full of questions.
For example, why did it take three years for Wells Fargo to report the problem after it had found the error?
Wells Fargo & Company is a diversified, community-based financial services company with $2.0 trillion in assets. Wells Fargo provides banking, investments, mortgage, and consumer and commercial finance through more than 8,300 locations, 13,000 ATMs, the internet and mobile banking, and has offices in 42 countries and territories. With approximately 263,000 team members, Wells Fargo serves one in three households in the United States.