Wells Fargo & Co., the fourth biggest American bank, has been accused of abusing and defrauding US government’s mortgage insurance program. Starting from 2001, the company has developed a mortgage program addressed to the borrowers that couldn’t normally classify for a loan. In order to bust the business’s growth, company’s employees were paid based on the number of approved loans, rather than the reviewed loans. This have led to a dramatic fall in the loan quality and “hundreds of millions of dollars” in loses, as reported by the Federal Housing Administration.
Many banks have committed similar mistakes prior to the current economic crisis that has started in 2006. The issue may be in the organizational culture of the companies like Wells Fargo. Only the best rewarding firms get the best talents and there is a fierce contest on the market. Nonetheless, the companies should analyze better risks stemming from this kind of motivation practices, as the price they may have to pay has proved to be higher that anybody might have expected.
To read more on Wells Fargo’s troubles: http://www.economist.com/blogs/schumpeter/2012/10/wells-fargo-and-mortgages