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Bank Issues Mortgage Refunds

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Thousands of Wells Fargo & Co. home-loan customers recently received a surprise in the mail: refund checks from the big bank, along with letters saying they had paid unnecessary fees for their mortgages.

The unsolicited offers of thousands of dollars arrived with a catch – if the borrowers cash the checks, they can’t later sue the No. 1 U.S. home lender. The San Francisco bank said in the letters that borrowers were put into more expensive loans when they could have qualified for cheaper ones.

Analysts said the letters sent to potentially 10,000 Wells Fargo borrowers were a way for the bank to sidestep further litigation over “steering” customers into unfavorable loans – allegations that the government has made about certain Wells Fargo operations in the past.

It’s one in a long series of legal troubles for major mortgage lenders, the five largest of which agreed in February to a $25 billion settlement of accusations that they “robo-signed” foreclosure affidavits and otherwise abused distressed borrowers. Mortgage investors have barraged them with lawsuits over defaulted loans, and the government also recently filed separate complaints against banks including Wells Fargo, JPMorgan Chase & Co. and Bank of America Corp.

“It sounds like they either found some problems themselves or the regulators discovered them and told them to get things fixed,” said Paul J. Miller, an analyst who follows Wells Fargo for Friedman, Billings, Ramsey & Co.

Wells Fargo’s mailed refunds involve government-backed FHA mortgages made from 2009 through 2011. These loans are often made to borrowers with shaky credit or those who can’t come up with the 20 percent down payments required for conventional loans.

Although they require as little as 3.5 percent down, the FHA loans are also more expensive because they require borrowers to pay steep insurance payments to protect against a default.

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