All too often, San Diego families and homeowners are hurt by unscrupulous lenders. This month, more news about the mortgage practices of lenders has come to light as the Federal Reserve Board announced an $85 million fine against California-based Wells Fargo. The fine comes as part of a cease and desist order issued by the Federal Reserve Board, and it is the largest penalty that the board has ever assessed in any of its consumer protection enforcement actions.

What, exactly, justified the largest fine in the Board's history? The Federal Reserve found that Wells Fargo employees improperly steered borrowers into subprime loans and falsified information on mortgage applications.

According to the Federal Reserve Board, one of Wells Fargo's lending companies that focused on cash-out refinancing loans on homes improperly steered customers, who could have qualified for prime loans, into subprime loans. As a result, many borrowers had to pay higher interest rates on their loans.

The Board found that Well Fargo's incentive-based employee compensation system encouraged this conduct. In addition, the Board found that Wells Fargo did not adequately control the risks brought about by its system. Believing these actions violated the Federal Trade Commission Act, the Board brought proposed the fine and proposed an order that would force Wells Fargo to compensate affected borrowers. Wells Fargo agreed to the Board's terms, but the company declined to admit any wrongdoing.

The amount of compensation Wells Fargo will have to pay borrowers will depend on a variety of factors, including the difference between what borrowers paid and what they should have paid as well as any interest payments, fees and any penalties the borrowers paid.

Source: FederalReserve.gov, "Federal Reserve issues a consent cease and desist order and assesses civil money penalty against Wells Fargo," 20 July 2011