Frank A. Chavez 109 East Ramona Road Alhambra, CA 91801 home: (626) 284-7081 cell: (310) 651-1267 November 23, 2016 US. House Committee on Financial Services Democrats 4340 Thomas P. O'Neill, Jr. Federal Office Building Washington, DC 20515 US. Senate Committee on Banking, Housing, and Urban Affairs 534 Dirksen Senate Office Building Washington, DC. 20510 RE: IMPROPERIFRAUDULENT CHARGING of INTEREST RATE LOCK EXTENSION FEES to BORROWERS by WELLS FARGO HOME MORTGAGE Dear Representatives and Senators, This is to inform members of Congress and others regarding a systematic effort on the part of area and regional management of Wells Fargo Home Mortgage in at least the Greater Los Angeles area to pass on the cost of interest Rate Lock Extensions on pending conventional and jumbo mortgage loan applications which Wells Fargo should have paid out of its own pocket rather than the bank's borrowers/customers over a period of approximately two years. We are talking about millions of dollars, in just the Los Angeles area alone, which were wrongly paid by borrowers/customers instead of Wells Fargo. Though the practice I will attempt to outline below is more complicated and less intuitive than the Fraudulent Account Opening Scandal of earlier this year, i believe the damage done to Wells Fargo mortgage customers in this case is much, much more egregious. My name is Frank Chavez, and I worked at Wells Fargo in various capacities from November 2005 until April 2016. I began as a retail banker in a branch. By September 2011, was working in the Private Mortgage Banking (PMB) group of Wells Farao Home Mortgage (WFHM) at its Beverly Hills office. I resigned this last April of 2016. I will attempt to describe and outline an otherwise confusing subject and timeline in a way that the average American consumer can understand without having sophisticated banking or mortgage lending experience. i will provide the names of some specific managers involved with this systematic effort to wrongly offload the cost of those Interest Rate Lock Extensions onto borrowers and the efforts they made to protect themselves (management) while attempting to lay blame on the lower level sales employees in the event of a future scandal. I will also try to provide additional information that may help to further investigate and document this improper activity (mostly to be found through subpoenas of internal Wells Fargo emails). The time period related to the improper behavior that I will outline covers approximately the beginning of 2014 through about beginning of 2016. Though the exact process of management's systematic efforts during this period varied, the goal was ultimately to burden the borrowers/customers with the Interest Rate Lock Extension fees that should have othenrvise hit the bank's own financial statements. I have attached a customer complaint letter dated June 29, 2015 (Attachment A) which was sent to the now former head of Wells Fargo Home Lending, Mike Held, and to then CEO John Stumpf. Coincidentally, Mike Heid's retirement was announced shortly after in August 2015. The attached letter alludes to the interest rate lock extension practice described below on the part of area and and regional management, and demonstrates that then CEO John Stumpf was either aware of a problem or should have been aware of unusual behavior as of June 2015. A combination of a series of newly implemented financial regulations, WFHM's self imposed process changes and Wells Fargo's "expense reductions" employee firings) from 2012 through 2015 lead to a gradually increasing standstill and backlog of mortgage loan applications within the underwriting and loan closing process. These mostly self-imposed structural and procedural changes (along with some other internal, non-customer related inefficiencies) caused the mortgage loan application process to go well beyond the interest rate lock periods of 45 or 90 days. Though almost all types of loans were affected (conventional conforming, jumbo, purchase and refinances), the loan applications that were probably most affected were refinance loans both conforming and jumbo. It became apparent by at least mid-2014 that area management of Wells Fargo's PMB division in Los Angeles was making a concerted effort to find any way possible to lay any all blame for delays in the mortgage loan application process into the laps of borrowers/customers so that they could rationalize having the customers pay for the Interest Rate Lock Extension fees that would allow the borrowers to keep the interest rates that were locked-in at the beginning of the loan application process. Both the PMB Area Manager in Los Angeles, Kenneth (Ken) Vils, and the Regional WFHM Manager, Torn Swanson, overseeing both the retail home mortgage lending and PMB lending in the Los Angeles region were the primary individuals leading the systematic effort in Los Angeles to shift this specific financial burden onto borrowers/customers. Of course, there were instances when borrowers would drag their feet in collecting and providing the requested or required financial documentation needed for underwriting and/or loan closing. The vast majority of delays, though, were caused by either by front line home mortgage consultants (HMC's) or PMB sales team members, underwriting backlogs, loan processing backlogs, other circumstances outside the control of the customer/borrower or some combination thereof. The three most blatant methods of attempting to transfer blame onto customers for past and expected future delays in the mortgage process were: (1.) Having the underwriter stop the "Reg clock" and note the file for "missing" customer documentation or information that had already been provided by the borrower and which was available to the underwriter for review. This is known as an NHL. (2.) Having loan processors and loan closers note (aka AIRL) the file for "missing" customer documentation or information that had already been provided by the borrower. (3.) Rationalizing HMC or PMB banker delays in requesting and/or submitting customer/borrower documents, info or forms as "customer-caused" or "customer-related" delays. This is probably one of the more obvious and egregious of the improper activities, as it treated the HMO or PMB Banker as an extension of the customer rather than as an WFHM or WFHM PMB employee proper. These three methods of systematically and wrongly shifting the blame for delays onto the customer can be evidenced by internal emails between: frontline HMC's or PMB mortgage bankers; the Los Angeles PMB Area Manager, Ken Vils; Regional WFHM Manager, Tom Swanson; Regional Processing Manager, Heidi Schlagel; and various branch managers throughout the Los Angeles area. PMB Bankers were instructed to send specifically structured/worded emails to one or more of the above managers (depending on the situation) requesting approval for needed Interest Rate Lock Extensions. Subject lines of emails to and from the individual managers listed above will indicate certain words or phrases that may serve as starting points for possible initial reviews of internal emails related to the matter. Searches through internal emails to and from the above mentioned managers will likely be most fruitful during the periods covering early 2014 through early 2016. A newly implemented loan origination processing system called (I cannot recall for what the acronym stands), which began to control the mortgage process in a more automated fashion by early 2016, may have reduced the number of Interest Rate Lock Extension requests in general and the frequency of improperly charging borrowers/customers the thousands of dollars per loan that should have otherwise been paid from the Bank's own balance sheet. Nonetheless, those reading this will find that during early 3014 through early 2016, the Bank made a concerted effort to wrongly pass the cost on to the consumer/borrower for costs that the Bank should have paid. This was wrong and known to middle management and executive management. The attempt by middle management to protect themselves from liability was also apparent by June 2015 (as demonstrated by the attached complaint letter). To illustrate how this business practice could easily and wrongly burden the Los Angeles County consumer (alone) in the millions of dollars, I will demonstrate a hypothetical Refinance Loan scenario for a conventional conforming mortgage loan which would be typical for a Wells Fargo customer/borrower in Los Angeles County. EXAMPLE - Conventional-Conforming Refinance Loan: Loan Type: Conventional Refinance Collateral: Single Family Home - Primary Residence Loan Amount: $417,00 Interest Rate:: 4.000% interest Rate Lock Period: 90-day A customer approaches a Wells Fargo employee regarding a mortgage refinance of their primary residence. The customer finds themselves in front of a Private Mortgage Banker (PMB Banker) initiating a refinance mortgage loan application on their primary residence. The PMB banker will more likely than not quote the customer the currently offered mortgage interest rate for the customer's given circumstance. Next, we'll say that the customer agrees to the interest rate and initiates an Interest Rate Lock with the HMO or the PMB Banker. At this point, the quoted interest rate is locked-in and the loan has to close within 90- days in order to avoid the cost of extending the offered and locked-in mortgage interest rate to the customer. If the loan isn't closed and funded by the time the 90 days are over, and the offered interest rate for the customer's given circumstance has increased, then the borrower or the bank will have to pay a percentage of the loan amount in order to extend the promised rate for 15-days to allow the loan process to complete itself as well as provide the promised rate to the borrower. This is when the HMO or PMB Banker should begin to request, either in writing or verbally, all the required documentation from the borrower that will be needed for underwriting of the home mortgage loan. Again although there are always individual borrowers who "drag their feet? in providing the required documentation in order for the Bank to in good faith meet the Reg deadline, my experience has been that the vast majority (an exact I do not know) of borrowers provide the required documentation needed to make an underwriting decision within the Ref deadline of 30 days. Now, assuming that the customer/borrower has continued to provide everything requested of them. The delays that will begin to manifest are those on the part of the individual HMC or PMB Banker, underwriter(s), processing department and/or 3rd party vendors (escrow, tile, appraisers, insurance agents, etc.). None of these are, for the most part, the fault of the customer/borrower. We've now arrived at the 90-day mark and, because of one or more reasons, have not met all the mortgage loan milestones required in order to close and fund the loan within the 90-day period of the Interest Rate Lock initiated at the beginning of the loan application. The cost of extending the Interest Rate Look of 4.000%% for 15 days (in order to let the loan close at the promised interest rate) will be 0.250% of the loan amount. The math follows as such: 0.250% of $417,000 is $1,042.50. Now, either the Bank or the Borrower/Customer will have to pay this dollar amount, depending on who caused the delays. As I stated above, the vast majority of Wells Fargo borrowers/customers provided the necessary documentation withln a reasonable amount of time for the Bank to not only in good faith meet the Reg deadline of 30 days but also meet 90-day Interest Rate Lock deadline. The Interest Rate Lock Extension must now be requested by the HMO or PMB Banker in an email to any one or more of the managers previously listed. The exact individual to whom the request is sent will depend on when the request was made during the subject two-year period. Generally speaking, though, the vast majority of these email requests for approval of Interest Rate Lock Extensions will have involved Ken Vils (PMB Area Manager) and/or Tom Swanson (Regional WFHM Manager). There are two (2) aspects to an emailed Interest Rate Lock Extension approval request that would be sent to whomever has been designated as the appropriate manager: 1. The first aspect is simply the request and subsequent approval to extend the locked-in rate for another 15-days. 2. The second aspect relates to whom (Borrower vs Bank) should or will pay for the 0.250% of the loan amount or $1,042.50 (in the above scenario). Please note that the cost of an Interest Rate Lock Extension for a Jumbo Loan would be 0.125% of the loan amount. This is a very critical part of what I am trying to convey to Congress and regulators. in the body of the emailed requests for interest rate lock extension approvals, Ken Vils and Tom Swanson required PMB Bankers to provide a timeline of events such as: - NSD Date - Day 0 of the loan application and Regulation clock - Date the Interest Rate Lock was initiated - Date Borrower documents were requested tax returns, bank statements, letters of explanation, etc.) . Date Borrower documents were obtained . Date which loan application was sent to underwriting . Date various regulatory and/or internal forms were obtained and submitted to undenrvriting or processing departments . Date when a Credit Decision was made (approve, deny, or any - Explanation for any/all delays by any of the parties (Borrower, Banker, Underwriter, Processor, 3rd party vendors, etc.) I mention what would be detailed in an email request for an Interest Rate Lock Extension approval because the information would aid investigators in a more precise search of internal emails and evidence how and PMB Bankers tried to argue (to no avail) on behalf of borrowers/customers to WFHM management in the Los Angeles area. These internal emails will show (along with other emails and loan application records) that many, if not most, delays were caused by bank employees or 3rd party vendors and NOT by the Borrower/Customer. The attached complaint letter (Attachment A - section titled ?Unprofessional Call from Mr. Joshua Isaac Oleesky") demonstrates how Tom Swanson enlisted the help of a very loyal Private Mortgage Banking branch manager, Joshua Oleesky, in making telephone calls directly to borrowers/customers who had been, or were going to be, charged the fees for the interest rate lock extensions. Under the organizational structure and protocol of WFHM at that time, there was absolutely no reason for Mr. Oleesky to be the one to directly contact borrowers/customers of or PMB bankers who did not report directly to him as a branch manager. These phone calls were an attempt to ?document? whether or not or PMB bankers had informed the loan applicants of the interest rate lock extension fees that were charged to them. These calls by Joshua Oleesky appeared to be an organized and concerted effort specifically on the part of Tom Swanson to protect himself and other managers by laying blame on frontline employees and/or convince the borrowers that they were to blame for the delays that caused the need for any interest rate lock extensions and related fees. I hope you have taken the time to read through this letter and are able to see, given the market share and number of mortgage loans Wells Fargo Home Mortgage originates in Los Angeles County and the rest of the nation, how this practice of wrongly charging borrowers/customers for these Interest Rate Lock Extension Fees can easily and quickly total into the millions of dollars. I can only speak to my experience with Wells Fargo Home Mortgage in the Los Angeles region. Given the corporate culture nurtured by John Stumpf throughout Wells Fargo Bank, NA, though, I can?t imagine that similar behaviors regarding Interest Rate Lock Extensions Fees did not occur in other regions throughout the nation during the same period. If you have any questions or concerns, i may be reached by phone or email and would be more than happy to assist in any way possible. Very respectfully, Frank Antonio Chavez ATTACHMENT A Jun029v2015 Mr. Mike Held, President Wells Fargo Home Mortgage Moincs. IA 50306-0335 5 ubjeet: t2) and Request for Refund ererenctz: Refinance Application. Loan No. 01 12204136 -- Dca: Mr, Held: We are writing to express our disappointment with Wells Fargo Bank in its response to our recent application to refinance the reference loan. Wells Fargo decisions made in underwriting this loan were incorrect and we were ol'fmded by a very unprofessional call we received frum Mr. Joshua Isaac Olecsky. Assistant Vice President Wells Fargo Home Mortgage. Additionally, we are requesting a refund ufthe appraisal fee we paid it; Wells Fargo at the offset of our applicaiion. A summary or the facts follow: Refinance Loan Anglia 1. We contacted Mr. Keith prendergast regsrding this refinance on March 03. 2015. We noted uur finances and residency situation are but utter prodding significant preliminary information. Mr. said he felt Wells Fargo would be able to do ills refinance. We had lower qumcd [mm Kinecla Federal Credit Union and Chase with whom we are privme clients but moved forward wiih Wells Fargo because you hold [he existing loan and ihe past good service provided by Mr. Pmndergae't. Wells Fargo requested volumes ofdccurnentation and numerous letters of explanation which we provided upon rcqnesL Around the end of May, an underwriting decision was that ihis was not our principal residence: Mr. ctrered invcsim' financing at it higher mu: We said we would accept the higher rate but Wells Fargo must reduce the loan cosi as compensation for the dclay, and, in our View, erroneous decision. Tn hrieily explain the complexities ofcur financial and residency situation. we offer the following: a. We are financially strong with a net worth of over 55.504), substantial liquidity, gross income of over a year. and FICO scores over 800. o. fiur Children live in Las Vegas and Manhattan Beach. -- Las Vegas of refinance) is eur primary residence. We have lived in this home since 2008, our home has lawn in Las Veyls since 1999, we have also been Nevada residents since 1999, Nevada is our tax home (see our l040 on file with WF), and our vehicles and drivers licenses are registered to _lvs have a secondary home at Beach that we share with our daughter. Jennifer, her husband, and their young son (our grandson). They leased out their home and give us the rent from that property. a. Because we travel is lot, our daughter, Loretta, her husband. and their young son (our grandson) have lived with us 3! our 1st Vegas home (subject of refinance) sinse 2009. and her husband leased our their home give us the rent frnru This is an ideal family/financial/security situation. The sharing mngernents for both homes are documented by a signed lease agreements and our Schedules E. d. We travel a lot due to business, leisure and familyMandarin Beach for rent payments and so our eldest daughter can receive aur mail when we are away, However, the subject pmperty is our principal residence and where we will retire once we fully mire (been trying to do that since 2007). e. Finally. Wells Fargo underwriting's decision is illogical. We do not have any other residences and the subject property is our primary residence (home) It happens that our family members live with us. If they did not pay rent, the underwriting question would have been moot Because our daughter and her family has chosen to contrith to household expenses, that makes the house an and not our pn'ncipnl Not well founded logic! 4, Allth Mr. Prendergast did is superb job of communicating and keeping us informed, explaining additional requirements. and transmitting documens to your underwriting team; we got the feeling Wells Fargo underwriting was not capable of analyzing our admittedly complicated situation and rock the easy way out by saying nu Further the amount of time it took to get to this decision is unacceptable 5. As a result of: call from Mr. Olcesky on June 12, 2015. it became obvious refinancing with Wells Fargo had no financial benefit and we advised Mr. Prendergast we would not amopt the higher interest rate. We mlde the loan applicationhas been closed. Ungrofggianal call from Mr. Joshua lune Oleeskv: 1. On June 12. 20155, Mr. Oleesky called me, advised (hat he was Mr. Prenderg'zst's manager and asked ier. Preudergasi had advised me of substantial cost of the extended rare locks. I advised him that Wells Fargo was responsible for the delays that caused the exlension or the rate locks and would not be paying any additional cost. Further, told him [had advised Mri Pmdergast that We would only be interested in the higher interest rate ifWells Fargo substantially reduced our loan cosl [this was dune verbally and in 2 emails). 2. Mr. Oleesky lhen starved interrogating m: on why Wells Fargo was responsible for the delay. I suggested he look at the documentation on filo: and the correspondence that had transpired Mr. Oleesky was very wndescending verging on rudcl He said I seemed lik: an intelligent person and asked me to put myself in the shoes of the underwriter and [cl] him what I would decide. I politely asked Mr. Oleasky [0 send me his cunlacl lnfonnalion and that the conversation was over He again asked me something to the efl'ccr it camel that Mr. did not lell you about the cost of additional rate locks". I mid him to look at Wells Fargu's files and bid him a polite good-bye. 3' Mr. Olecsky's call was offensive and unprofessional. Basically, he was questioning the urn fellow team member (Mr. ln my world ii is inappropriate to transmit intemal criticisms beyond the team and. especially to a customer, 1 suggest Mn Oleesky he coached on teamwork and cuxmmer communications and hope no male than that happens. 4. Finally, we have nothing but praise {or the way Keith dealt with working llirougi the delails of our situation Ilest for Refund: cc: As noted. we believe Wells Fargo took loo long to process out application and took the easy way our an unreasonable underwriting determination on our refinance. This is out principal residence and we do not understand how an underwriter can make a decision to the contrary. Therefore, wc request a mfund of the appraisal fee we paid in advance: of the erroneous underwrillng. you Mr. John G. Stumpr, Wells Fargo CLO, min Mr. Keith A. Prendergnsi, "cllafaruo com nell Mr. Joshua Isaac Eoshll leash MI. Mark n):er Rickard".