Wells Fargo 2012 Annual Report Download - page 115

modifications or short sales and, in our capacity as a master
servicer, overseeing the servicing of mortgage loans by the
servicer. If we commit a material breach of our obligations as
servicer or master servicer, we may be subject to termination if
the breach is not cured within a specified period of time
following notice, which can generally be given by the
securitization trustee or a specified percentage of security
holders, causing us to lose servicing income. In addition, we may
be required to indemnify the securitization trustee against losses
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.
On February 9, 2012, a federal/state settlement was
announced among the DOJ, Department of Housing and Urban
Development (HUD), the Department of the Treasury, the
Department of Veterans Affairs, the Federal Trade Commission
(FTC), the Executive Office of the U.S. Trustee, the Consumer
Financial Protection Bureau, a task force of Attorneys General
representing 49 states, Wells Fargo, and four other servicers
related to investigations of mortgage industry servicing and
foreclosure practices. While Oklahoma did not participate in the
larger settlement, it settled separately with the five servicers
under a simplified agreement. Under the terms of the larger
settlement, which will remain in effect for three and a half years
(subject to a trailing review period) we have agreed to the
following programmatic commitments, consisting of three
components totaling approximately $5.3 billion:
x Consumer Relief Program commitment of $3.4 billion
x Refinance Program commitment of $900 million
x Foreclosure Assistance Program of $1 billion
Additionally and simultaneously, the OCC and FRB
announced the imposition of civil money penalties of $83 million
and $87 million, respectively, pursuant to the Consent Orders.
While still subject to FRB confirmation, we believe the civil
money obligations were satisfied through payments made under
the Foreclosure Assistance Program to the federal government
and participating states for their use to address the impact of
foreclosure challenges as they determine and which may include
direct payments to consumers.
As part of the settlement, 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. 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 could result in material
fines, penalties, equitable remedies, or other enforcement
actions.
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”
sections and Note 14 (Guarantees, Pledged Assets and Collateral)
and Note 15 (Legal Actions) to Financial Statements in this
Report.
Financial difficulties or credit downgrades of mortgage
and bond insurers may negatively affect our servicing
and investment portfolios. Our servicing portfolio includes
certain mortgage loans that carry some level of insurance from
one or more mortgage insurance companies. To the extent that
any of these companies experience financial difficulties or credit
downgrades, we may be required, as servicer of the insured loan
on behalf of the investor, to obtain replacement coverage with
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