Imagine that you work at a company that has originated residential mortgage loans for years, following the documentation and verification requirements and guidelines established by the major banks to which your company typically sells those loans.
Imagine that Wells Fargo is one of those banks, so your company was for years originating many loans underwritten to the loose standards that Wells (just like the other major banks) had in place at the time.
Then, after the onset of the mortgage crisis, Wells Fargo wants to recoup its supposed “losses” associated with certain loans that it had purchased from your company and then re-sold at a profit.
It sends your company a flurry of buy-back demands. Knowledgeable personnel at your company try conscientiously to evaluate those demands, but find that Wells Fargo is offering very little documentary support — in other words, very little evidence — to back up its demands for substantial repurchase payments.
And the very limited information that Wells Fargo has sent your company raises as many questions as it answers: did Wells Fargo really suffer a loss at all? Does it now once again own the loan in question?
And why is it now acting as if your company was supposed to verify certain information, like the borrower’s income and assets, that your company was actually prohibited from verifying under the specific terms of the Wells Fargo loan program under which these loans were sold.
So your company asks questions, and seeks what it believes in good faith is vital additional information, so that it can fully evaluate Wells Fargo’s demands for payment. Wells Fargo subsequently provides little or none of this information.
Your company does not hear anything further for awhile. In fact, the next communication that it receives from Wells Fargo is one that, shockingly enough, is published by Wells Fargo to huge numbers of active participants in the mortgage industry.
That communication reads as follows:
In an ongoing effort to address risks associated with loan origination, Wells Fargo will begin publishing a Third Party Originator (TPO) List. Effective with Mandatory registrations and Best Effort locks on or after March 26, 2012, Wells Fargo Funding will not purchase loans if a TPO involved in the loan transaction appears on Wells Fargo’s TPO List.
In other words, Wells Fargo has widely published — to your current and potential business partners, to your competitors, and to anyone else who might care to know — that you are a “bad” originator. More importantly, it has announced that it does not want to acquire any loans that your company may have been involved with in any capacity.
The problem, of course, is that Wells Fargo is wielding its market power and influence to try to portray your company (and there are 86 companies in all on Wells Fargo’s initial published list) in a negative light, and doing so as if some objective, factual determination has been made against your company.
In reality, nothing could be more subjective, or, under the circumstances, unfair. The matters that landed most if not all of the companies on this “exclusionary list” are matters that are vigorously disputed by the originators in the utmost good faith.
But ask Wells Fargo to show its good faith, and you will probably get in response exactly what the “bad” originators typically got when they asked for evidence supporting Wells Fargo’s outrageous buy-back demands: absolutely nothing.