Wells Fargo & Co. unveiled specific new terms in the national mortgage servicing settlement on Tuesday, providing the most detailed summary to date of what concessions banks did and did not win from federal and state officials.
Those officials still have not made the final terms of the settlement public, and Wells on Tuesday referred to the deal as a "settlement in principle." The final deal is expected to release the five largest mortgage servicers from certain claims relating to their servicing and mortgage origination practices.
In its annual filing with the Securities and Exchanges Commission, Wells Fargo laid out some areas where the settlement will not indemnify it from legal risks. Specifically, certain states and agencies appear to have retained rights that others gave up.
The federal release for origination-related conduct "depends on which agency and which law is involved," Wells said in its annual report.
The Department of Justice, the Treasury and the Federal Trade Commission have given up loan origination claims, according to the filing. The Department of Housing and Urban Development (HUD) has waived its rights to pursue banks for issuing "false annual certifications of compliance" but retains its rights on individual, loan-level violations. The Justice Department has offered only a "limited" release for possible claims of intentional fraud under the Financial Institutions Reform, Recovery, and Enforcement Act.
The government, as an investor in mortgage-related securities, has retained the right to sue the five largest servicers.
Banks also retain potential liability related to private mortgage insurance, Wells said. The prospective settlement contains "a carve out under federal consumer credit laws" that would allow the government to pursue such claims under the Real Estate Settlement and Procedures Act.
Last year, ASR sister publication American Banker reported that the Minnesota Attorney General's office and the HUD had concluded that large banks had coerced insurers into giving them sweethear reinsurance deals that did not transfer risk.
PHH Corp. disclosed in January that it was under investigation by the CFPB for the alleged practices.
According to Wells' filing, the national settlements will protect the servicers from state government actions over charges of fair lending violations. Those waivers extend only to claims related to how the banks originated mortgages, Wells' filing stated. (On the federal level, the banks will also be protected from fair-lending claims related to how they serviced the loans.)
Wells said it and the other banks will not face new government charges over how they use the mortgage-industry database Mortgage Electronic Registration Systems (MERS), but they are not protected from other claims relating to MERS.
Some states declined to sign onto the MERS component, however. New York, Delaware and Massachusetts cut side deals with the banks that allow the states to continue their existing litigation relating to MERS, according to Wells Fargo.
The San Francisco bank added in its filing that under a "sub-commitment" agreement with California, the state gained a "limited expansion of its ability to pursue certain origination claims involving individual claims for actual fraud against consumers for origination conduct occurring on or after July 1, 2009."
The filing also includes additional details of banks' obligations to provide a "consumer relief program," a "foreclosure assistance program," and a "refinance program." Many of the terms are technical, laying out the dates by which certain actions must be completed, specifying possible penalties for noncompliance and providing an overview of how particular actions to assist borrowers will be counted toward Wells' overall obligation.
Wells expects under the program it will refinance 20,000 borrowers with a total unpaid principal balance of $4 billion, according to the filing. The fair value of Wells' net income on refinanced loans will decline by about $700 million.