T H U R S D A Y, M A R C H 7 , 2 0 1 3

Whistleblower: Wells Fargo Fabricated and Altered Mortgage

Documents on a Mass Basis
Over the last two and a half years, Wells Fargo, like most of the major
mortgage servicers, claimed that it had a rigorous system to insure
that mortgage documents were accurate and complete. The reason
this mattered was that there was signicant evidence to the contrary.
Foreclosure defense attorneys found repeatedly that, for securiti!ed
mortgages, the servicer or foreclosure mill attorney would present
documents to the court that failed to show the "orrower#s note $a
promissory note% had "een transferred properly to the trust. This
mattered not only on a "orrower level, "ut indicated that originators of
the mortgage securiti!ations hadn#t "othered transferring the notes
properly to the trusts that were to hold them. This raised the ugly
specter of what was called securiti!ation fail, that investors had "een
sold securities that they had "een told were mortgage "acked when
they might in practice not "e.
The ro"osiging scandal was merely the tip of the ice"erg of mortgage
and foreclosure pro"lems that resulted from the failure to adhere to the
re&uirements of well'settled state real estate law. The "anks
maintained that there was nothing wrong with mortgage ownership or
with the records. (ll they had were occasional errors and some
unfortunate corners'cutting with a)davits. *f they merely re'e+ecuted
all those ro"osigned documents, all would "e well.
Wells Fargo#s own actions say the reverse. *t has "een doctoring
documents in house for over fteen months for "orrowers who are
targeted for foreclosure. *t was having this sort of work done outside
the "ank for an unknown period of time prior to that.
( contractor who worked at a Wells Fargo facility in ,innesota reports
that the "ank engaged in systematic, large scale alteration of
mortgage notes and fa"rication of related documents in preparation for
foreclosure. The procedures the "ank used are &uestiona"le for a large
portion of the mortgages.
( team of roughly -.. temps divided across two shifts would review
"orrower notes $the *O/% to see whether they met a set of
re&uirements the "ank set up. (ny that did not pass $and notes in
securiti!ed trusts were almost always failed% went to another unit in
the same facility. They would later come "ack to the review team to
check if the +es and fa"rications had "een done correctly.
0ot only is having Wells Fargo tamper with documents in this way
du"ious in many cases $more detail on that shortly%, "ut amusingly, the
"ank does not even appear to "e terri"ly competent at this sort of
falsication. The "ank changed procedures fre&uently, and did not go
"ack to redo its prior work. *n addition, it regularly took loans that
appear to have "een endorsed properly and changed them as well.
Finally, even if the procedures had "een proper, the temps were
re&uired to meet such aggressive production timeta"les and were so
la+ly supervised that it seems unlikely that their work was done well.
This account conrms what foreclosure defense attorneys have
reported for some time1 that servicers have "een engaging in
document fa"rication for some time. *t#s not uncommon for a servicer
or foreclosure mill to present tah dah documents that miraculously
remedy the pro"lems that homeowner attorneys have raised,
sometimes resulting in clear proof of fa"rication, like two di2erent
notes $"orrower *O/s% having "een presented to the court, each
supposedly an original.
3ut what is striking a"out this practice is "oth the "ra!enness and the
scale. Our source was told that Wells Fargo added a second shift to its
mortgage review operation in 0ovem"er 4.-- 5update1 it is likely the
related doctoring activities were increased correspondingly67 he8 did
not know when it had "een esta"lished. 3ank employees claimed that
some of these operations had formerly "een done "y outside rms and
the cost of doing it in'house was much lower than the cost of doing it
e+ternally. (pparently having plausi"le denia"ility was too e+pensive.
We sought comment from Wells Fargo on these allegations and they
declined to respond.
Description of Mortgage Doctoring Operations
The document +ing took place at -... 3lue 9entian :oad in ;agan,
,innesota, which the whistle"lower descri"ed as an enormous facility,
and ironically, one at which one of the <=-- hijackers received >ight
training.
The whistle"lower worked with a team of ?.'@. temps, one of the two
shifts involved in checking documents "efore and after the
corrections were made. The temps came via agencies, were re&uired
to have a college degree and pass a security clearance, and were paid
roughly A-B... to A-C.?. an hour for eight hours $seven hours of work
D "reaks%. The whistle"lower said very few people $under 4.E% had
prior e+perience with mortgage documentation. Fince Wells has a long'
standing practice of promoting temps into permanent positions, the
workers had a strong incentive to perform well. Our source worked for
the "ank for nine months.
Gis unit would review mortgage documents of "orrowers who were
descri"ed as in foreclosure which he understood in practice meant
they were delin&uent "ut the foreclosure has not not "een initiated.
When our source arrived $spring 4.-4%, they were in the process of
dou"ling the work capacity of this e2ort. Wells Fargo "eefed up in the
wake of the state attorney general=Federal mortgage settlement of
early 4.-4, evidently seeing it as a green light for more aggressive and
systematic document +ing.
This team had two tasks. The rst was to review documents that were
delivered periodically $often daily% to make sure they were in order. The
part we#ll focus on is that they would check the notes to see if the
endorsements matched up against what the "ank wanted them to look
like. $:egular readers of this "log will recall that mortgage notes are
endorsed to convey ownership, and in foreclosures, attorneys often
challenge the foreclosure if the "orrower note does not show a
complete and un"roken chain of endorsements to the party initiating
the foreclosure%. The whistleblower estimated that 99.5% of the
notes that he reviewed that had been securitized failed the
banks tests, and roughly 1% to 15% of the bank owned
mortgages were tagged as !fails".
,ortgage notes that failed this review were sent to a neigh"oring
section. Weeks later, they would come "ack to the same section with
the corrections made, either in the form of new endorsements made to
the note, or the addition of an allonge. (n allonge is a separate piece
of paper, attached $a)+ed% to a negotia"le instrument so that more
signatures can "e added. They were virtually unheard of prior to the
ro"osigining scandal, since in the normal course of "usiness, there
would "e no reason to use an allonge $the margins and "ack of a note
can "e used for signatures%. The people in his unit were then to check
that this doctoring had "een done correctly.
The work environment had a peculiar com"ination of regimentation
and chaos. The temps were given instructions that kept changing and
were inconsistent over time $and remem"er, this worker joined after
the state=Federal mortgage settlement was nal%1
This was a document processing facility where we would go through
the les that were already in the foreclosure pipeline, as decided "y
some"ody else, so we would kind of source and classify each le
according to, you know, various criteria. First of all, just make sure
they#ve got all the parts, like the note and the mortgage and the title
policy, and if they#ve got all those and they matched, then see if
they#ve got the right information on them, the priority "eing on the,
you know, the nal endorsement on the noteH
One of the points * was going to make was, when we originally started,
the protocol was very distinct for one as opposed to the other. (nd
then rapidly states were passing laws, is what we were told, to change
it, so that the num"er of OI Joriginal document6 states "eing fewer
and fewer. Then after the second and third decree there was no
distinction anymore. (nd it seemed like we were supposed to have
original documents for everything at that point. Fo actually a lot of my
impression is that there were several things that were a little strange
that changed as some of these decrees went through. Fo like, that#s
the second one * was going to mention, is when we were rst trained,
the way that you treated a standard loan le and a securiti!ed loan le
were very, very di2erent, and there was a fairly strict protocol. Kou had
to have a continuous chain of endorsement, had to have a nal
endorsement to Wells Fargo or one of its a)liates, for a note to pass.
3ut, if it was securiti!ed, you went to this LMF data"ase called NM*, and
there would "e a list of, you know, however many people had once
claimed to own this le, this note. (nd all of a sudden the continuous
chain of endorsement rule went away and you didn#t necessarily use
the last one, you would just pick one out of the list that matches your
last endorsement and that was good enough.
Kou can see how irregular this procedure was. 0otice how the "ank
went from having the view that fewer and fewer states re&uired a
review and correction of original documents, then reversing itself and
deciding all did.
Fimilalry, if the temps were instructed to match a note to any listed
party they could nd on a Lender Mrocessing Fervices data"ase $which
relies on manually input data and is thus not relia"le%, and it was not
the nal party, that means they are constructing a chain of title that is
at odds with the "ank#s own touted system of records. *f the "ank were
serious a"out even getting its +es right, for securiti!ed loans, it would
go to the pooling O servicing agreement and see what it stipulated as
the chain of title and work from there. 5Update1 our source claried
upon seeing the post that once the were given only actual mortgage
notes to work with, they were instructed to look for a complete chain of
endorsements. ThatPs an improvement over the previous process, "ut
not necessarily su)cient. This is now playing on the lack of patience of
judges in understanding how ela"orately lawyered'up securiti!ations
were supposed to work. ( complete'looking chain might not "e the
proper or complete conveyance chain as set forth in the relevant MF(.
This is "asically looking to see if the documents look internally
plausi"le enough to pass muster with most judges, rather than doing it
correctly6.
*t is important to point out that it perfectly OQ for the "ank to transfer
notes it owns $loans owned "y Wells Fargo entities, including "anks it
ac&uired% any time it wants to prior to foreclosure. Where this gets
dodgy is on the securiti!ed loans. These loans were supposed to have
"een transferred to the securiti!ation trust, through a series of
intermediary parties, with a complete and un"roken chain of
endorsements on each "orrower note. These transfers were to have
"een completed "y a specied cut'o2 date, with a limited period of
time after that for any document clean'up. The trustees on these deals
provided multiple certications to the e2ect that they had the notes in
good order $which would mean the trust properly owned them, that is,
all the transfers had "een completed as re>ected, among other things,
in the note "eing endorsed correctly%.
The fact that Wells Fargo is dorking with documents on a mass "asis at
this late state is an indication of how little of the work that the
mortgage industrial comple+ has kept insisting was done correctly was
done at all.
(nd this was a high'volume operation. 3ack to our source1
There was a "ig "oard that would have inventory in and out for each
shift on each day, "ut that is a little fu!!y. ,y recollection is that we
could move anywhere "etween ?,... and --,... les a day. ( really
slow day would "e B,... for our shift and people might have to go
home early. That happened a couple days a week for several weeks the
last few months * was there. We generally measured the shift inventory
in "ins. We would have just a few "ins on a slow day, "ut on a typical
"usy day there would "e 4? to B? "ins full of les to go through.
*#m getting fu!!y on what our hourly targets were. For electronic les *
"elieve we were supposed to do at least B? or more an hour. * also
remem"er the num"er ??. * can#t remem"er if that was a target or not.
With paper les * "elieve we were supposed to do at least 4? an hour,
although after two or three months there wasn#t so much discussion of
volume and the focus was mostly on accuracy. There were many who
did more than this.
These targets don#t seem to s&uare with the daily nal tallies *
remem"er people putting in which ranged from C?'-B. per person per
shift. There were people who would dou"le the target and people who
were fairly "elow it.
Let#s take the midpoint of his C?'-B. les a shift range, which is RS.?.
They worked S hour per shift. That#s under ? minutes a le. That is to
check not only that all the "asic documents were there, "ut also to go
into the NM* data"ase, and possi"ly also into a "ackup spread sheet if
the desired information was not in NM*, and look for a match.
The o"jective was to have the nal endorsement "e to "lank or what
is more typically descri"ed as in "lank. The whsile"lower gave this
e+ample of how a note was supposed to look once it was corrected1
* was checking to see if whoever had written out the new
endorsements really had copied what was in NM* word for word, letter
for letter. (fter checking the rst couple with increased scrutiny, it
"ecame clear that they had copied them a"solutely ver"atim, only in a
new endorsement to "lank.
3efore it would "e1
May to the Order of
3ear Ftearns Trust, Mass through certicate holders 4..B, T**.
Without :ecourse
/.F. 3ank
Uoe 3low,
Tice Mresident, /.F. 3ank
(ccording to our training, that would "e an incomplete and therefore
invalid endorsement as the chain did not end with the nal noteholder
endorsing it to "lank.
*n order to remedy that, they would add an additional endorsement1
May to the Order of
Without :ecourse
3ear Ftearns Trust, Mass through certicate holders 4..B, T**.
3illy No"ham
Tice Mresident, Wells Fargo
3y power of attorney
*n this way, the note endorsed to the trust and stopping $an incomplete
chain as * was taught at Wells% would "e modied into a complete
chain, The trust would endorse it to "lank and that endorsement would
"e added "y Wells power of attorney, * assumed, "ut was never directly
informed, "y way of its authority as servicer for the trust.
0ow what is peculiar a"out this is that our source reports that the
notes were almost always endorsed to the trust $description includes
Trust Feries 0ame, Trust 0um"er, Kear%. This is not only a permissi"le
endorsement, some legal e+perts think it is the only sort of nal
endorsement that is proper.88 Fo Wells also appears to "e e+pending a
great deal of e2ort doctoring documents that may "e perfectly kosher
$assuming the chain of title up to the trust is un"roken, something our
source was not instructed to e+amine%.
0one of the higher ups &uestioned the revisions to procedures1
9enerally, however, the whole process was a matter of ever changing
orders and >owcharts to follow. There was ne+t to nothing in the way of
e+planation even if you asked. *t is my impression that the work
directors didn#t have the slightest idea a"out the "igger picture, what
was going on or that there might "e a pro"lem.
(nd for a su"stantial period of time, the priority appeared to "e
production, not accuracy8881
They would periodically restructure the >ow chart to improve
productivity. There were also a group of seven or eight auditors who
were hired as team mem"ers out of the temp pool and e2ectively
served as managers and who even did training near the end. They
were the "est informed regarding the process and the most hands on.
They would also "e involved in +ing oversights in the process >ow
charts. Their primary jo" was auditing assigned samples of each
employee#s production per week and compiling statistics on them for
the managers to see. These weekly stats were released in an email
every week with all employees on the shift ranked "y name in terms of
productivity $les per working hour%, and later in terms of accuracy.
Our source stresses that the procedures "ecame more reasona"le
over time, in terms of having more coherent internal logic and "eing
less production'driven, "ut it still raises the &uestion of the apparent
failure to correct earlier documents $which were presuma"ly used in
foreclosures% and whether even the later improved processes were
ade&uate or even permissi"le.
Troubling Legal and ractical !ssues
*t is not clear whether Wells Fargo could make these changes legally to
private la"el $non'Freddie and Fannie% securiti!ed mortgages. While our
source "elieves that Wells may have gotten a power of attorney from
the trustee to make these changes, the MF( does not appear to convey
this authority to the trustee.8888 (nd why would itV ,aking sure the
notes were endorsed properly was something the trustee repeatedly
certied it had done years ago.
( party cannot convey authority to another party that it does not
possess. Fo these document changes may "e a complete legal fail.
3ut even if they could "e construed to "e permissi"le, the process is
clearly hugely >awed. The temps were ine+perienced, and not well
supervised, and under pressure to produce at unrealistic levels. They
relied on a data"ase of &uestiona"le accuracy. Mrocedures were
changed so often and so radically that some clearly had to "e wrong.
(nd our source reports some of his colleagues waved through
documents he would have failed.
Fo we have document doctoring on top of widespread fraud. Welcome
to property rights and records in (merica. *f you are a "orrower, you
have to "e punctilious in living up to your contractual commitments, or
you can e+pect to have your lender use your lapse to ma+imum
advantage. 3ut if you are a "ank, the government and courts will cast
a "lind eye to virtually any error. (nyone with any sense will avoid
"eing in de"t, which will ultimately "e to the detriment of commerce.
3ut it will take the authorities a long time to recogni!e that their e2orts
to save the system rather than reform it will only weaken it further.
WWWWW
8 We refer to all whistle"lowers as male irrespective of gender.
88 The overwhelming majority of mortgage securiti!ations elected 0ew
Kork for its governing law, precisely "ecause its trust law is settled. 3ut
it is also very rigid. For a transfer to a 0ew Kork trust to "e valid, the
assets need to "e transferred to the trust, not just the trustee.
Gowever, this issue has rarely "een raised in foreclosures, since it
would add an large cost to hire 0ew Kork trust e+perts to provide
supporting testimony. Fince pretty much all MF(s allowed for
endorsement in "lank, that is accepted in courts7 the ght is usually
over whether the chain of endorsements is complete and whether the
nal party is the one who is in court trying to foreclose. *n fact, our
source indicated1 They were almost alwaysn endorsed to a trust and
then the endorsement chain would just stop there. Fo "i!arrely, Wells
Fargo was doctoring documents that were correctX
888 The "ank apparently started emphasi!ing accuracy more later in
4.-4, "ut with no redo of the earlier work, this appears to $at "est% "e
an e2ort to shut the gate after the horse is in the ne+t county. (nd as
indicated, their ideas of accuracy appear su"ject to &uestion.
8888 We contacted a securiti!ation e+pert on this matter, who $not
surprisingly% could not recall and did not nd language in a MF( that
authori!ed this sort of post'trust'closing endorsement. Tia e'mail1
Fo far, this is all * could nd a"out the trustee signing title over to the
master servicer $from section B.-C of the MF(%1
/pon the occurrence of a Nash Li&uidation or :;O Iisposition,
following the deposit in the Nustodial (ccount of all *nsurance
Mroceeds, Li&uidation Mroceeds and other payments and recoveries
referred to in the denition of Nash Li&uidation or :;O Iisposition,
as applica"le, upon receipt "y the Trustee of written notication of
such deposit signed "y a Fervicing O)cer, the Trustee or the
Nustodian, as the case may "e, shall release to the ,aster Fervicer the
related Nustodial File and the Trustee shall e"ecute and deli#er
such instruments of transfer or assignment prepared b$ the
Master %er#icer, in each case without recourse, as shall "e necessary
to vest in the ,aster Fervicer or its designee, as the case may "e, the
related ,ortgage Loan, and thereafter such ,ortgage Loan shall
not "e part of the Trust Fund.
3ut notice this section relates to a Nash Li&uidation or :;O
Iisposition and not in preparation for commencing a foreclosure
action.
One might try arguing from Fection B..-1
The Trustee shall furnish the ,aster Fervicer with any powers of
attorney and other documents necessary or appropriate to ena"le the
,aster Fervicer to service and administer the ,ortgage Loans. The
Trustee shall not "e lia"le for any action taken "y the ,aster Fervicer
or any Fu"servicer pursuant to such powers of attorney or other
documents.
3ut again, we have a pro"lem of legitimate authority. *f the note has
not "een conveyed to the trust properly, altering original mortgage
documents argua"ly does not fall in the scope of servicing and
administering the mortgages. *ndeed, if the notes were not conveyed
to the trust "y the cuto2 date, they are not the property of the trust
and trustee lacks authority to take action. This is precisely the scenario
that no one in the mortgage industry wanted e+amined closely, and
why they#ve gone to such lengths to pretty up document trials to
indicate otherwise.
:ead more at http1==www.nakedcapitalism.com=4.-B=.B=whistle"lower'
wells'fargo'fa"ricated'mortgage'documents'on'a'mass'
"asis.htmlYM&f<(9&;ZyFsr(Tg.<<