Investors largely shrugged off Wells Fargo’s admission this week that it mistakenly foreclosed on 545 homes, significantly more than originally reported, as well as a power shift in Congress that’s likely to increase scrutiny of the beleaguered bank.
The San Francisco-based lender’s shares slipped 12 cents to $53.04 in New York trading on Friday, for a weekly decline of just 1 percent, as Chief Executive Officer Tim Sloan works to remedy missteps and regain customer trust after bruising government settlements related to the opening of more than 3 million phony accounts and problems in its mortgage- and auto-lending businesses.
Tuesday’s midterm elections, in which voters handed control of the House of Representatives back to Democrats, occurred against that backdrop. U.S. Rep. Maxine Waters, the California lawmaker positioned to become the next chair of the chamber’s Financial Services Committee, has already said she wants to strengthen oversight of the bank, whose growth was capped by the Federal Reserve earlier this year.
“We expect an intensifying focus on Wells Fargo and its neverending series of controversies,” Jaret Seiberg, an analyst with Cowen Washington Research Group, said after the elections.
The votes came just one day before Wells disclosed in a regulatory filing that the number of customers who lost their homes after erroneous calculations to determine whether they qualified for federally-required relief programs was 36 percent higher than it told investors earlier this year. Wells Fargo said at the end of June it had set aside $8 million to help the borrowers involved.
“We’re very sorry these errors occurred and have contacted a substantial majority of the affected customers to provide remediation as well as the option to pursue no-cost mediation with an independent mediator,” the bank said in a statement on Friday.
Wells Fargo noted that a total of 870 customers were denied loan modifications, and hundreds were ultimately able to keep their homes.
The response may not be enough to satisfy lawmakers. Tuesday’s election was already going to “make it harder for the Fed to remove the asset cap as quickly as the market is expecting,” Seiberg said. The central bank’s order in February barred Wells Fargo from expanding its total assets beyond the nearly $2 trillion it held at the end of 2017 until it sufficiently improves its oversight and risk management.
The bank has grappled with further problems since. In April, it agreed to pay $1 billion in civil penalties to settle government claims it sold some auto borrowers insurance they didn’t need under the pretense they might not qualify for their loans otherwise, and charged fees to mortgage customers that it was supposed to be absorbing.
Then, in August, Wells Fargo agreed to pay $2.09 billion to settle Justice Department allegations that the bank packaged mortgages that were higher-risk than they appeared into securities sold before the 2008 financial crisis. Bank officials were aware that the borrowers had misstated their incomes, the department said, which would impede their ability to repay the loans.
Such securities, which had been awarded the highest credit ratings and were widely held by investors including large Wall Street firms, became impossible to value after a housing bubble began to collapse in 2006 and home owners defaulted on their debt.
Cascading losses in the $15 trillion mortgage market, the largest in the U.S., ultimately spurred the collapse of investment bank Lehman Brothers and forced the government to spend billions on bailouts to shore up the financial system.
