Wells Fargo & Co. said it will re-file documents on 55,000 foreclosures, drawing immediate fire from one of the state attorneys general most critical of banks in the continuing home foreclosure crisis.
The announcement was the first admission of possible problems in the way the San Francisco-based bank repossesses homes.
Wells Fargo, the second largest U.S. home mortgage servicer, has continued to foreclose on delinquent borrowers in recent weeks, even as its rivals instituted moratoriums amid a public furor over whether banks cut corners in the foreclosure process with so-called "robo-signers" of legal documents used to justify taking homes.
Ohio Attorney General Richard Cordray, who filed a lawsuit against Ally Financial Inc. earlier this month over affidavit problems, said he was "pretty unhappy" about the Wells Fargo announcement.
"We had talked to them and they assured us they didn't have any of these problems," said Cordray in an interview with Reuters.
He added that the Wells Fargo admission "makes it hard to believe any of the big financial firms in terms of what their process has been."
Attorneys general in all 50 U.S. states are investigating whether lenders rushed through foreclosures and evicted borrowers from their homes without properly checking documents. Lawsuits have already begun to trickle in and banks may also face fines or be forced to repurchase faulty loans.
Wells Fargo found problems with foreclosure affidavits in 23 U.S. states where the final internal review or the notarization of the documents did not meet company standards. The bank plans to re-file the affidavits by mid-November.
In cases where the foreclosure is imminent, the bank will ask for an extension from the local courts.
"We found human errors, and we are fixing those errors," said Teri Schrettenbrunner, Wells Fargo spokeswoman, who declined to discuss the nature of the errors the bank found.
NO SYSTEMIC U.S. PROBLEM
Despite problems, the bank had no plans to institute its own moratorium because it believes the filing mistakes did not lead to borrowers being unjustly evicted from their homes.
On average, borrowers are 16 months behind on payments at the time of their foreclosure, according to Wells Fargo data released on Wednesday.
One analyst said Wells Fargo's announcement was a minor surprise, given it's prior statements that a foreclosure moratorium was unnecessary.
"Do I regard this as devastating? No, but the bank should have known this before they spoke about it beforehand," said Nancy Bush, bank analyst with NAB Research.
Bank of America Corp, the largest U.S. mortgage servicer, instituted a 50-state foreclosure moratorium earlier this month that has since been partially lifted. JPMorgan Chase & Co. and GMAC Mortgage, a division of Ally Financial Inc., both imposed 23-state halts.
Wells Fargo also said the affidavits will have no impact on its mortgage repurchase obligations.
The bank has reserved $1.3 billion to repurchase bad mortgages from investors.
The foreclosure crisis in recent weeks has sparked fears of a shoddy paper trail for mortgages held by third-party investors totaling billions of U.S. dollars, which banks could be forced to repurchase.
On Wednesday, the chief of the U.S. Treasury's homeowner preservation office told a Congressional panel she did not see a systemic threat posed by banks rebuying mortgages, and regulators were monitoring the situation closely.
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