Wells Fargo & Co. unexpected announcement that it would refile 55,000 foreclosure affidavits was met with a shoulder shrug, rather than shock, from analysts and investors.

The San Francisco-based bank’s disclosure on Wednesday came after weeks of public statements by senior executives that such errors did not exist, as they did at its main rivals. If the bank saw errors, however, it said it would correct them.

But analysts said yesterday the new admission was unsurprising, as other large mortgage servicers, like Bank of America Corp., had temporarily halted some foreclosures to examine their own filings. They said they had expected problems like Wells Fargo’s to surface.

"I think everyone’s going to have issues, most of the big issuers have reported problems, and the industry standard was sloppy," said Jefferson Harralson, bank analyst with Keefe, Bruyette & Woods Inc.

The disclosure by the second largest mortgage servicer in the nation quickly drew the attention of state attorneys general who are investigating the foreclosure document mess. Ohio Attorney General Richard Cordray — who has filed a lawsuit against Ally Financial Inc. over foreclosure affidavit problems — said Wells Fargo’s admission "made it hard to believe any of the big financial firms."

Foreclosure processes at the biggest banks are also under federal investigation and Federal Reserve Chairman Ben Bernanke said earlier this week that they expect to have the preliminary results of their review completed next month.

Worries about the depth of the latest foreclosure document crisis come less than three years after the largest of this nation’s lenders were slow to report enormous losses from subprime mortgage loans and securities.

Analysts said there are parallels to the prior crisis — like the unknown size of the potential problems — but investors once burned by the banks’ optimistic estimates are increasingly wary of banks’ recent promises of limited foreclosure mishaps.

The banks soft-pedaling losses or downplaying a mushrooming crisis would not be unprecedented.

Citigroup Inc. recently settled with the U.S. Securities and Exchange Commission, over allegations it misled investors about the depth of the bank’s subprime securities.
From July through October 2007, Citi said its exposure to subprime securities was $12 billion, only to increase that figure to $54 billion that November.

The soaring losses led to the federal government buying a one-third stake in Citi through a series of bailouts, and its share price fell from above $50 in July 2007 to less than $5 per share now.

In contrast, Wells Fargo’s shares rose nearly 1 percent in Thursday trading on the New York Stock Exchange, a day after it announced its more extensive foreclosure documentation problems.

Despite the latest round of worries, Wells’ disclosure that it is having some problems with its foreclosure paperwork should not get it in trouble with the Securities Exchange Commission, so long as there is no evidence that its earlier statements were misleading, said Jacob S. Frenkel, a lawyer with Shulman Rogers Gandal Pordy & Ecker who specializes in enforcement law.

As a publicly traded company, Wells is obligated to make investors and analysts aware of significant developments in their business.

Frenkel said Wells’ admission, which it officially filed with SEC on Thursday, is part of this obligation.

"This is about keeping information in the marketplace about an issue of time sensitivity and public interest and most importantly shareholder and analyst interest," he said. "The challenge is that once companies make a disclosure they have an obligation to keep it current."

The banks are under scrutiny on multiple levels for the foreclosure mess, including from all 50 state attorneys general, banking regulators and the Obama administration.
Each is eager to show they are top of an issue receiving a lot of attention.

Having come out early saying it did not believe it had any problems, Wells was wise to go public on Wednesday to keep its regulators happy, banking lawyers said.
"You don’t want to be crosswise with your regulator," said Kevin L. Petrasic, a lawyer with Paul, Hastings, Janofsky & Walker LLP. (Reuters)