What happened

A software error in Wells Fargo’s mortgage modification underwriting tool led to an automated miscalculation of attorneys’ fees, which were used to determine borrower eligibility for loan modifications under US federal programs like those from Fannie Mae, Freddie Mac, and the Home Affordable Modification Program. 

The error resulted in at least 870 borrowers being wrongly denied mortgage modifications, with 545 of them losing their homes to foreclosure when they otherwise would have qualified for assistance.

In addition to losing their homes, the victims suffered from significant financial loss and emotional trauma.

The bank set aside USD 8 million for remediation.

Why it happened

The incident was caused by a calculation error embedded in Wells Fargo’s automated underwriting software, specifically miscalculating attorneys’ fees that were factored into loan modification eligibility. 

The error went undetected for more than five years, impacting borrowers during a period of heightened foreclosure risk following the financial crisis. 

Though the error was corrected late 2015, Wells Fargo failed to disclose the full extent of the problem until years later, raising questions about internal controls, transparency and accountability.