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Wells Fargo (WFC) Settles Decade-Long Lawsuit on VA Loans

Zacks

Recently, Wells Fargo & Company WFC announced that it entered into an agreement with the U.S. government to pay $108 million for a lawsuit settlement.

Filed in 2006, the lawsuit claimed that some Veterans Administration (VA) Interest Rate Reduction Refinance Loans (IRRRLs) originated by Wells Fargo should not have been eligible for VA guarantees on account of the fees charged to the borrowers. However, the bank had denied all allegations.

In 2011, the bank had provided compensation to all veterans who received a VA IRRRL from Wells Fargo between Jan 20, 2004 and Oct 7, 2010.

Per Tim Sloan, CEO of Wells Fargo, this settlement would allow the bank to look ahead and rebuild trust of shareholders. However, the bank’s troubles are unlikely to end soon.


Wells Fargo’s structure, composition and practices are all under review and is expected to be completed in the third quarter.

The bank is reviewing whether fees charged to extend the interest rate lock periods on residential mortgages and its practice of freezing deposit accounts for suspected fraud caused undue harm to customers.

Last week, the bank disclosed that it charged about 570,000 auto borrowers for insurance they did not want. This resulted inabout 274,000 of them defaulting on loans. Further, it led to nearly 20,000 unjustified repossessions.

The bank’s involvement in such legal proceedings are likely to keep hurting its reputation and lower investor confidence. Further, the legal costs are expected to remain on the higher side.

Wells Fargo’s shares have lost 4.1% year to date, underperforming the 7.3% rally for the industry.

Currently, the stock carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the financial space include Washington Federal, Inc. WAFD, Bank Of New York Mellon Corporation BK and Trustmark Corporation TRMK. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Washington Federal’s Zacks Consensus Estimate witnessed an upward revision of nearly 1% for current-year earnings, over the past 30 days. Also, its shareshave gained 43.1%, over the last one year.

Bank Of New York Mellon’s Zacks Consensus Estimates for the current-year earnings moved nearly 1% upward, over the past 30 days. Its share price has increased 19.1%, over the last one year.

Trustmark’s current-year earnings estimates were revised 1.6% upward, over the past 30 days. Over the last one year, its share price has jumped 22.3%.

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