Inside Wells Fargo Loss Mitigation After the 2008 Crisis

After Lehman Brothers collapsed in 2008, I found myself working in Wells Fargo’s loss mitigation department. The office building was located in an obscure part of town… and it happened to be right beside Wells Fargo’s foreclosure building.

It’s funny – the bank had this gleaming office tower downtown. That’s where I thought I would be working.

But as I’m navigating into work on my first day using those old Garmin GPS devices, I quickly learned that I was mistaken. They had these two buildings out in this old industrial center where nobody would see them. I’d never been to that part of town before… because there’s no reason to go there.

I was 25 years old at the time, and my job was to manage a portfolio of mortgage loans that were never going to be repaid. Roughly $100 billion worth, if my memory serves.

I remember it vividly – customer default letters would pour in by the cartload. There was one guy whose entire job was to haul in the cart full of letters every day. Then another guy’s job was to sit there and scan every single one of them into the computer system.

And keep in mind, the floor was a massive cubicle farm. In each row you had two computers to a cubicle, back-to-back, and then a crappy cardboard divider, and then two more computers.

I think there were six rows… and that setup stretched out for at least 100 yards. It was like a football field full of worker bees.

We would be assigned new delinquent accounts each day. And we had a quota. We were required to “resolve” at least seven accounts a day. Resolve meant that we had worked through our entire process and either modified the mortgage (which is what the government wanted us to do), or we determined that the loan did not qualify for a modification.

They made it sound like we were doing real underwriting there. And since most of us were young and had no real experience, we didn’t know any better.

But here’s the thing – we were operating based on stated financials. Meaning, we weren’t verifying a customer’s income or expenses (other than the mortgage payment).

Of course, the fact that the banks were approving massive mortgages without verifying people’s financials was one of the core problems that caused the mess. Rather than learn that lesson, we were doing the same thing on the back end. And then I started to notice something…

The same accounts seemed to pop back up over and over again. You would disqualify a mortgage for a modification on Monday, and by Wednesday of the next week, it would be right back in the queue.

It turns out that whenever we determined that a mortgage was not eligible for a modification, Wells Fargo sent the customer a letter notifying them of that decision… but that same letter invited them to re-apply at any time if their financial situation changed.

So whenever somebody would get that letter, they just sent in different numbers for their financials until they finally figured out what they needed to say to get approved.

I started to realize – it was all just a matter of gaming the system. And that’s when I learned that you need to always pay attention to incentives.

Because the US government paid Wells Fargo a flat fee for every modification we did, the bank wanted to modify every single delinquent mortgage. I assume that was their ticket to save their fat bonuses in the wake of the 2008 crisis.

That’s when it became clear to me that the conventional financial system is designed to protect itself. They’ll try to make it sound arcane and complicated to confuse and misdirect people… but it’s a giant self-licking ice cream cone.

At the exact same time as I came to that realization, a gentleman by the name of Ron Paul was running for president. He caught my attention in a big way… and what I learned from him caused me to walk away from corporate banking forever.