Wells Fargo 2013 Annual Report Download - page 128

Risk Factors (continued)
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, 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
x
x
Consumer Relief Program commitment of $3.4 billion
Refinance Program commitment of $900 million
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
another provider, possibly at a higher cost than the coverage we
would replace. We may be responsible for some or all of the
incremental cost of the new coverage for certain loans depending
on the terms of our servicing agreement with the investor and
other circumstances, although we do not have an additional risk
of repurchase loss associated with claim amounts for loans sold
to third-party investors. Similarly, some of the mortgage loans
we hold for investment or for sale carry mortgage insurance. If a
mortgage insurer is unable to meet its credit obligations with
respect to an insured loan, we might incur higher credit losses if
replacement coverage is not obtained. For example, in
October 2011, PMI Mortgage Insurance Co. (PMI), one of our
providers of mortgage insurance, was seized by its regulator. We
previously utilized PMI to provide mortgage insurance on certain
loans originated and held in our portfolio and on loans
originated and sold to third-party investors. We also hold a small
amount of residential MBS, which are backed by mortgages with
a limited amount of insurance provided by PMI. PMI has
announced that it will pay 50% of insurance claim amounts in
cash with the rest deferred. Although we do not expect PMI’s
situation to have a material adverse effect on our financial results
because of the limited amount of loans and securities held in our
portfolios with PMI insurance support, we cannot be certain that
any such future events involving one of our other mortgage
insurance company providers will not materially adversely affect
our mortgage business and/or financial results. We also have
investments in municipal bonds that are guaranteed against loss
by bond insurers. The value of these bonds and the payment of
principal and interest on them may be negatively affected by
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