Category Archives: Investing

Wells Fargo to pay $3.4 million over investment sales practices

The Financial Industry Regulatory Authority ordered Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network to pay more than $3.4 million in restitution to affected customers over faulty sales practices.

Separate from its fake accounts scandal announced back in September 2016, FINRA said Wells Fargo broker-dealers made unsuitable recommendations of volatility-linked exchange-traded products (ETPs) and related supervisory failures.

“FINRA seeks restitution when customers have been harmed by a member firm’s misconduct,” stated Susan Schroeder, executive vice president of FINRA’s Department of Enforcement. “We also credit firms that proactively detect and correct issues prior to detection by FINRA, as Wells Fargo did in this matter.”

The announcement alleged that from July 1, 2010 to May 1, 2012, certain Wells Fargo registered representatives recommended volatility-linked ETPs without fully understanding their risks and features.

Given the complexities of volatility-linked ETPs, they can be misunderstood and improperly sold by registered representatives, FINRA said.

In this case, FINRA found that certain Wells Fargo representatives mistakenly believed that the products could be used as a long-term hedge on their customers’ equity positions in the event of a market downturn. But this is not the case, and in fact, they are generally short-term trading products.

FINRA stated that in May 2012, Wells Fargo took remedial action to correct its supervisory deficiencies. This was before detection by FINRA and around the time that the firm was fined for similar violations relating to sales of leveraged and inverse ETPs.

FINRA noted that while Wells Fargo neither admitted nor denied the charges in the settlement, the bank consented to the entry of FINRA’s findings.

In a statement provided to HousingWire, a Wells Fargo spokesperson said the company made “significant changes” to its operations since the time period in question.

“Wells Fargo has settled claims with FINRA related to the sale and supervision of certain volatility-linked exchange-traded products purchased in conservative investment accounts between July 2010 and May 2012,” the Wells Fargo spokesperson said. “We are committed to helping our clients achieve their investment goals through advice that is regularly reviewed and aligned to their objectives and risk tolerances. In cooperating fully with FINRA, we have made significant policy and supervision changes, including the discontinuation of the ETPs in focus.”

Wells Fargo has faced heightened scrutiny of its sales practices ever since the Consumer Financial Protection Bureau levied a $100 million fine against it in September 2016 for the “widespread unlawful” practices of employees who opened more than 2 million fake accounts to get sales bonuses.

Since that time, Wells Fargo has also been accused of making unauthorized changes to home loans held by customers in bankruptcy. The lawsuit against the company shows these unauthorized changes were being made even while the company was in the middle of dealing with its fake accounts scandal.

Article source: https://www.housingwire.com/articles/41572-wells-fargo-to-pay-34-million-over-investment-sales-practices

Inspector questions Fannie Mae’s new controversial Washington D.C. headquarters

An updated report from the Federal Housing Finance Agency Office of Inspector General thrust Fannie Mae’s new headquarters back into spotlight, further fueling those in Congress who say the building costs are excessive and expensive to taxpayers.

The government-sponsored enterprise’s new headquarters have been under fire ever since the FHFA OIG received an anonymous hotline complaint in 2016 that accused Fannie Mae of excessive spending on its consolidation and relocation of offices.

While FHFA Director Mel Watt has adamantly defended the headquarters in the past, Rep. Bill Huizenga, R-Mich., recently grilled Watt during a hearing, pushing him on the necessity behind the growing costs for the new office location.  

[See the glitzy architect renderings here.]

According to an article in The Washington Free Beacon by Elizabeth Harrington, Huizenga, who also co-owns a gravel company and worked in real estate and development in the private sector, said during the hearing, “Good news. I discovered what a wooden lunch hut is. Keep the wooden lunch hut, cancel the damn spiral staircase. You are making K Street law firms and lobby shops jealous. They want to move to 15th and L. They want to move off K Street if this your headquarters.”

This new report from the FHFA OIG questioned if Watt was properly doing his job in determining whether the efficiencies of the upgrades specified by Fannie Mae justified their estimated costs, especially for a entity in a federal conservatorship with an uncertain future.

“In our view, that standard was consistent with FHFA’s statutory duties, as conservator, to ‘preserve and conserve the assets and property’ of Fannie Mae,” the report stated.

One of the core issues with Fannie Mae’s new building deals with the drastic uptick in costs. According to the FHFA OIG, the project’s build-out costs had risen dramatically from $115 million, when the agency approved the project in January 2015, to $171 million in March 2016.

Plans for the building include high-end features, such as multimillion-dollar glass walkways between the towers Fannie Mae would occupy.

While Fannie Mae does operate in the housing finance world and competes with private companies for talent, the report argued that this was not enough to justify the rising costs of the renovation.

“Unlike major financial institutions or large government agencies, Fannie Mae has been in conservatorship since 2008 and has an uncertain future and FHFA, as conservator, has an affirmative duty to ‘preserve and conserve’ Fannie Mae’s assets and property,” the report stated. “While Fannie Mae may perceive that all of its specified upgrades ‘above and beyond’ $175 per rentable square foot could promote employee recruitment and retention, FHFA has not determined that expenditure of Fannie Mae’s assets for those upgrades is necessary.”

And due to this, the FHFA OIG questioned the basis for all upgrades, finishes, and architectural design elements.

Watt, however, once again defended the renovations and his role as conservator of the GSEs.

In a response letter to the report, Watt said, “I fundamentally disagree with the interpretation in this Update of FHFA’s statutory responsibilities as conservator, and I especially disagree with your view of the standards I am required to apply in fulfilling my obligations to ‘preserve and conserve’ conservatorship assets.”

“Under the Housing and Economic Recovery Act of 2008, my responsibilities as conservator include both the obligation ‘to carry on the business of the [Enterprises]’ and the obligation to ‘preserve and conserve the assets and property of the [Enterprises].’ FHFA is required to balance these statutory responsibilities throughout our work as conservator of Fannie Mae and Freddie Mac and there is substantial legal authority supporting FHFA’s right to use its own judgment to make decisions about that balance.”

Watt outlined the following four reasons for why the new headquarters will result in a more effective and efficient organization that will benefit taxpayers.

  1. It will significantly reduce the costs of operating Fannie Mae relative to its current multi-building D.C. footprint by hundreds of millions of dollars.
  2. It will decrease the square footage of Fannie Mae’s headquarters and result in more efficient use of space.
  3. It will allow management to implement a new way of working with significantly fewer individual offices and more common, shared space that enables Fannie Mae employees to work in a more collaborative and efficient environment.
  4. In light of the uncertain future of Fannie Mae under housing finance reform and the uncertain timing of reform, it will allow Fannie Mae to conduct its business efficiently and effectively while it operates in conservatorship and will maximize the opportunity to sublease the space to a new tenant in the future if that becomes necessary. 

Article source: https://www.housingwire.com/articles/41519-inspector-questions-fannie-maes-new-controversial-washington-dc-headquarters

FBI, SEC reportedly looking into PACE lender Renovate America

[Update: This article has been updated to clarify the nature of the FBI and SEC investigations in question.]

The Federal Bureau of Investigation and the Securities and Exchange Commission are reportedly looking into the business of the nation’s largest green lenders.

On Tuesday, the Wall Street Journal reported that the FBI and SEC are looking into the business of Renovate America, which provides loans as part of the Property Assessed Clean Energy program.

The loans, also called PACE loans, allow homeowners to obtain financing to make improvements to their homes to increase the home’s energy efficiency. PACE loans are often used to add solar panels to a home.

But the program is shrouded in controversy because in some states, PACE liens are given super priority status above the home’s mortgage, which many in the mortgage business take serious issue with.

According to the WSJ article, the FBI wants to review how Renovate America marketed its services.

From the WSJ article:

FBI agents are seeking documents that show how Renovate America marketed its financing to homeowners, trained its sales force and outside contractors, and communicated with investors, according to a document reviewed by the Journal. The FBI also is conducting interviews of people familiar with the company, according to the people who have been interviewed.

The article also states that the SEC is looking into how the company handled its loan payments for certain borrowers.

In a lengthy release published in response to the WSJ article, Renovate America confirmed that the company has spoken to both the FBI and SEC about the the company’s business, but the company said that it had been repeatedly assured by federal law enforcement authorities that the company is not the subject or target of any investigation.  

“Renovate America seeks to lead the home-improvement industry in protecting consumers and in tightening standards for contractors with whom we do business,” the company said in a statement.

“We are fully cooperating with an FBI investigation into a contractor and its affiliated entities who offered their home-improvement customers financing from several Property Assessed Clean Energy administrators, including Renovate America,” the company continued.

“This contractor and its entities were never employed by Renovate America, and our company no longer does business with them,” the company added. “In conversations with federal law-enforcement authorities and prosecutors as recently as this past week, we have been repeatedly assured that Renovate America is not a subject or target of that or any federal investigation.”

According to the company, the SEC investigation relates to an issue with less than 100 homeowners.

“Renovate America has received a request for information from the Securities and Exchange Commission in relation to a prior Wall Street Journal story about assistance provided to 86 homeowners — something that we disclosed to investors and which was included in presale reports by rating agencies Kroll and DBRS in April and July,” the company said. “We are cooperating with the information request and believe it is unlikely to have a material effect on the business.”

Article source: https://www.housingwire.com/articles/41406-fbi-sec-reportedly-looking-into-pace-lender-renovate-america

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