Wells Fargo's mortgage unit shrugs off state threat

BY DAVID SPEAKMAN

A two-year battle has California regulators trying to hobble the nation’s largest mortgage lender by revoking its residential-lending license.

In a legal tiff, labeled by Wall Street analysts and Wells Fargo & Co. of San Francisco as a bunch of hot air out of Sacramento, California’s Department of Corporations charges the bank’s home mortgage unit illegally stiffed its customers with unnecessary charges.

“Department of Corporations examiners discovered that Wells Fargo Home Mortgage was making charges not allowed in California” under the state’s Truth in Lending Act, COD commissioner Demetrios Boutris said in a written statement.

As a national lender, Wells Fargo says it is regulated by the federal government, not California, and has filed a lawsuit in federal court seeking to strike down the state’s law. It will be heard March 10.

At issue is California’s mortgage lending law, which differs from federal regulations and laws in the 49 other states on exactly when a lender can start charging interest.

“California law prohibits the charging of interest more than a day before the mortgage is recorded,” says Wells Fargo Home Mortgage CEO Pete Wissinger.

Wall Street analysts believe California’s law is headed for the legal dustbin.

“The most likely outcome would be for the federal court to rule that federal regulations pre-empt state regulations, especially since it has done so in the past,” says Lehman Brothers analyst Jason Goldberg.

In a December 2002 federal court ruling, Wells Fargo successfully fought to have California’s automatic teller machine (ATM) surcharge laws struck down.

“As we all know, banks still charge ATM fees,” Goldberg says.

Bear Stearns analyst David Hilder says Wells Fargo knows what it is doing.

“We continue to view Wells Fargo as one of the best-managed banks,” he says, noting Des Moines, Iowa-based Wells Fargo Home Mortgage is nationally chartered, not California state-chartered.

Its national charter, Wells Fargo’s Wissinger says, is proof the California license threat holds no legal ground.