Wells Fargo 2011 Annual Report Download - page 108

Risk Factors (continued)
from any failure by us, as a servicer or master servicer, to
perform our servicing obligations or any act or omission on our
part that involves wilful misfeasance, bad faith or gross
negligence. For certain investors and/or certain transactions, we
may be contractually obligated to repurchase a mortgage loan or
reimburse the investor for credit losses incurred on the loan as a
remedy for servicing errors with respect to the loan. If we have
increased repurchase obligations because of claims that we did
not satisfy our obligations as a servicer or master servicer, or
increased loss severity on such repurchases, we may have a
significant reduction to net servicing income within mortgage
banking noninterest income.
We may incur costs if we are required to, or if we elect to, re-
execute or re-file documents or take other action in our capacity
as a servicer in connection with pending or completed
foreclosures. We may incur litigation costs if the validity of a
foreclosure action is challenged by a borrower. If a court were to
overturn a foreclosure because of errors or deficiencies in the
foreclosure process, we may have liability to the borrower and/or
to any title insurer of the property sold in foreclosure if the
required process was not followed. These costs and liabilities
may not be legally or otherwise reimbursable to us, particularly
to the extent they relate to securitized mortgage loans. In
addition, if certain documents required for a foreclosure action
are missing or defective, we could be obligated to cure the defect
or repurchase the loan. We may incur liability to securitization
investors relating to delays or deficiencies in our processing of
mortgage assignments or other documents necessary to comply
with state law governing foreclosures. The fair value of our MSRs
may be negatively affected to the extent our servicing costs
increase because of higher foreclosure costs. We may be subject
to fines and other sanctions imposed by Federal or state
regulators as a result of actual or perceived deficiencies in our
foreclosure practices or in the foreclosure practices of other
mortgage loan servicers. Any of these actions may harm our
reputation or negatively affect our residential mortgage
origination or servicing business. In April 2011, we entered into
consent orders with the OCC and the FRB following a joint
interagency horizontal examination of foreclosure processing at
large mortgage servicers, including the Company. These orders
incorporate remedial requirements for identified deficiencies
and require the Company to, among other things, take certain
actions with respect to our mortgage servicing and foreclosure
operations, including submitting various action plans to ensure
that our mortgage servicing and foreclosure operations comply
with legal requirements, regulatory guidance and the consent
orders. As noted above, any increase in our servicing costs from
changes in our foreclosure and other servicing practices,
including resulting from the consent orders, negatively affects
the fair value of our MSRs.
The consent orders did not provide for civil money
penalties but both government entities reserved the ability to
seek such penalties. On February 9, 2012, the OCC and the FRB
announced that they had also imposed civil money penalties of
$83 million and $85 million, respectively, related to the consent
orders. These penalties will be satisfied through payments made
under a separate simultaneous settlement in principle,
announced on the same day, among the Department of Justice, a
task force of Attorneys General from 49 states, other government
entities, the Company and four other mortgage servicers related
to mortgage servicing and foreclosure practices. Under the
settlement in principle, which is subject to the execution of a
definitive agreement and court approval, the Company agreed to
certain commitments totaling $5.3 billion involving, among
other things, a commitment to provide $3.4 billion in aggregate
consumer relief and assistance programs for qualified borrowers,
including expanded first and second lien mortgage modifications
that broaden the use of principal reduction to help customers
achieve affordability, an expanded short sale program that
includes waivers of deficiency balances, forgiveness of arrearages
for unemployed borrowers, cash-for-keys payments to borrowers
who voluntarily vacate properties, and “anti-blight” provisions
designed to reduce the impact on communities of vacant
properties, and an expanded first-lien refinance program
commitment estimated to provide $900 million of aggregate
payment relief to qualified borrowers over the life of the
refinanced loans. In addition, the Company will be required to
implement comprehensive servicing standards. As part of the
settlement in principle, the Company was released from claims
and allegations relating to servicing, modification and
foreclosure practices; however, the settlement does not release
the Company from any claims arising out of securitization
activities, including representations made to investors respecting
mortgage-backed securities; criminal claims; repurchase
demands from the GSEs; and inquiries into MERS, among other
items. Government agencies continue investigations of whether
the Company may have violated fair lending or other laws and
regulations relating to mortgage origination practices and
whether the Company’s offering statements included adequate
disclosure of the risks associated with mortgage-backed
securities. These investigations, as well as any investigations or
litigation relating to any of the Company’s mortgage servicing
and foreclosure practices that are not covered or released by the
settlement in principle or definitive agreement, could result in
material fines, penalties, equitable remedies, or other
enforcement actions. The Company’s payment and other
customer relief obligations under the settlement in principle
were accrued for or otherwise considered in our allowance for
credit losses and in the nonaccretable difference relating to our
purchased-credit-impaired residential mortgage portfolio as of
December 31, 2011, and, therefore, are not expected to have a
material adverse effect on our financial results. However, there
can be no assurance that the settlement will not result in
unexpected costs or developments that could materially
adversely affect our mortgage business and/or our financial
results. For example, we may be required to pay additional
amounts under the settlement if we fail to satisfy our
commitment requirements in a timely manner. Furthermore,
there can be no assurance as to when or whether a definitive
agreement regarding the settlement will be reached and finalized
or that it will be on terms consistent with the settlement in
principle.
For more information, refer to the “Risk Management –
Liability for Mortgage Loan Repurchase Losses” and “– Risks
Relating to Servicing Activities,” and “Critical Accounting
Policies – Valuation of Residential Mortgage Servicing Rights”
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