Thursday, January 16, 2014


whistleblower (Photo credit: ElectronicFrontierFoundation)

If this is posted, it has be posted anonymously.
Many people seeking loan modifications have difficulty with their paperwork being lost. This rarely happens. The reason their documents go missing is because they are intentionally destroyed in order to prevent a loan modification in circumstances where Wells has a legal obligation to modify a loan. Wells Fargo had a legal obligation under its TARP agreement when it still had 25 billion in Federal money, and still has the obligation as part of its servicing agreements. If Wells has an obligation to modify, but doesn’t want to, they have to create a way of rejecting the modification application without there being a record of it. Losing the documents serves this purpose.
Documents are destroyed in “The Black Hole.” The people you talk to when you are seeking a loan modification have no knowledge of it. Many of them are temps, lacking experience in loan processing. It never registers with most of them that something strange is going on. The Black Hole is kept completely isolated from Wells Fargo servicing staff. Even if they realize it exists, they have no idea of its location.
Here’s how it works. Any document pertaining to a loan modification must pass through The Black Hole. A customer cannot simply submit a document directly to the people working on their modification application. Wells gives customers a fax number to submit their documents to. This fax number goes directly into the Black Hole. If physical documents are sent to a Wells Fargo fulfillment center (known as an FC), they are faxed to the Black Hole by servicing staff. If you send documents directly to a processor working on loan modification, they are forbidden to simply take the documents and work on your application. They must fax them to the black hole. Serving staff are only permitted to communicate with a borrower via telephone or mail using form letters- no email.
The people who work in servicing are completely cut off from The Black Hole. They have never talked to anyone who works there, they have never received any communication from it. Documents go into The Black Hole, sometimes they come out, sometimes they don’t. When documents disappear, it’s not random.
The following is my belief as to how the Black Hole works. I won’t give my reasons behind the belief, because it would be a long explanation. Documents sent to The Black Hole are converted to PDF documents. A software system scans the document, pulling the loan number. With the loan number, the system automatically pulls servicing data- such as payment history, investor info, loan to value at origination, and so on. Another existing software system (an LPS product) identifies the property location and data on the local real estate market. The Black Hole uses this information to make a decision about whether or not it is in the best interest of the lender/servicer to modify the loan.
If you are way upside-down in your house, the lender/servicer may not want to foreclose if they have a risk that they can’t saddle the investor with the loss- better modify that loan! What if they can foreclose, pay off the investor, and make money on the equity in the house?- your modification docs might get lost. Depending on who the investor is, they may want to drag things out to make higher servicing fees, or in the case of a government loan, make money by the fees charged for services by third party vendors, vendors in which the servicer has ownership interest. In the case of Wells, this would be RELS. There is nothing that warms the heart of a banker like risk-free fee income. The relationships with LPS and First American should also be given scrutiny.
I think it unlikely The Black Hole is actually in Wells Fargo. They have to keep it separate from their own staff, and separation provides a layer of insulation from discovery in lawsuits. It’s likely a service provided by LPS. It’s curious that other servicers who are LPS clients have a public record of the same kinds of loan modification document disappearance. My best guess for the name of the LPS product (software) that does this is LPS HAMP Solutions.
Why would Wells do this? Doesn’t this sound far-fetched? You have to understand how they think. First, a core element of Wells Fargo corporate culture is what they call “the Wells Fargo swagger.” This a polite way of saying that at Wells Fargo corporate, arrogance is a virtue. Legally, this is outside the application of any existing regulatory box. While all of the intent for violations of law are there, there is no precedent for the law having been applied in this way.  For example, Wells Fargo knows the O.C.C. could potentially apply Reg B to loan mod applications, but they have never done so. Plus, Reg B fines levied per occurrence. Even if the O.C.C. said that every instance of document destruction is the equivalent of a loan denial, what record is there that it occurred? Wells Fargo staff meets with the O.C.C. bi-weekly. They have an established system for their interaction. All of this falls outside of their established way of interacting. The internal Wells Fargo compliance system is built to serve this existing interaction.
This is why a big corporation like Wells can run circles around regulators, making money all the way. Regulators are under funded and understaffed. Wells makes it easy to do their job with compliance systems that tell the regulators what they want to hear, while they are way out in front of the Federal Government making money on the frontier.
Wells Fargo’s public statements regarding loan modification, as well as on many other subjects, are not credible. Remember the scandal in 2009 about charitable contributions? Earlier this year, Mark Heid stood up in front of Congress and, in sworn testimony, stated Wells Fargo had 17,000 people working to keep people in their homes. This was false. Using an internal system, I counted them. The total number was a lot less, and this included all of the people in loss mitigation, even all the people whose job it is to foreclose on houses- not keep them in their homes. Just prior to Mark Heid’s first appearance before congress in 2010, Wells Fargo converted existing loan fulfillment sites to loan modification- an effort to fluff the numbers – and started converting those fulfillment sites back to loan origination right after his second testimony. Even in the interim between the two congressional appearances, there were fulfillment sites internally listed as loan modifications sites that were at least partially committed to origination. In Wells Fargo’s Branch retail fulfillment system, there was (as of June 2010), approximately 6,500 people working in loan origination fulfillment- and creating a new loan is a lot more work than modifying an existing loan. I find Mark Heid’s testimony be very difficult to believe.  How do we know Wells Fargo is telling the truth when they claim to have modified over half a million mortgages? How can this be independently verified? The compliance agent for the Federal Loan Modification program is Freddie Mac, a company with whom Wells Fargo has old, very close, and very large (hundreds of billions of dollars) relationships. How do we know they are telling the truth about anything?
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