Wells Fargo, the embattled national bank, disclosed in a Securities and Exchange Commission filing that hundreds of individuals saw their homes in foreclosure because of a glitch in software the company used.
According to a report in CNN citing Wells Fargo, software it used denied mortgage modification requests incorrectly. The bank said it set aside $8 million to compensate the customers that were impacted by the computer glitch. The report noted that the filing also disclosed that Wells Fargo is being investigated in formal and informal manners by a government agency or agencies into how it purchased federal low-income housing tax credits. The filing, noted CNN, didn’t name the government agency but said it’s linked to “the financing of low-income housing developments.” The filing did not provide further details, reported CNN.
The computer glitch impacted some accounts that were in the foreclosure process between April of 2010 and October of 2015. The issue was corrected in October of 2015. Around 625 customers were denied a loan modification incorrectly or weren’t offered one although they qualified for it. In around 400 of the cases, the homeowner lost their home to foreclosure.
This filing comes in the same week that Wells Fargo agreed to pay $2.09 billion in penalties to settle claims related to mortgage loans that the lender processed before the last recession. The United States alleged that, in 2005, Wells Fargo began an initiative to double its production of subprime and Alt-A loans. As a result, the firm loosened its requirements for originating stated income loans, which is when a borrower states their income without providing any supporting documentation. Despite its knowledge that a substantial portion of its stated income loans contained misstated income, Wells Fargo failed to disclose this information. In addition, the lender screened out many of these loans from its own loan portfolio and limited its liability to third parties for the accuracy of its stated income loans. Wells Fargo went on to sell at least 73,539 stated income loans between 2005 to 2007, and nearly half of those loans have defaulted, resulting in billions of dollars in losses to investors.