A federal judge ruled this week that Wells Fargo breached a nationwide 2010 settlement involving adjustable-rate mortgages, saying that the bank denied assistance to borrowers who were seeking loss mitigation solutions, according to multiplemedia reports.
The lawyers representing the homeowners were contending that Wells Fargo failed to properly evaluate thousands of borrowers who were at imminent risk of default for loan modifications or other type of assistance to prevent foreclosure, and that the bank used the wrong methods to determine financial hardship on the part of the borrowers. The San Francisco-based bank had agreed to grant loan modifications potentially worth up to $2.7 billion, according to the 2010 settlement. The original settlement also called for the bank to pay class members a total of $50 million.
Judge Richard Seeborg, in the U.S. District Court of Northern California, ruled that Wells Fargo had breached the terms of the settlement by using “evolving and perhaps ill-defined standards” when determining borrowers’ eligibility for a loan modification, according to one report. At the same time, however, Seeborg told both sides they had had “almost no idea” what they agreed to in the settlement.
“We’re very pleased,” Jeffrey Berns, counsel for the plaintiffs, told DS News. “The court has found on three separate occasions that Wells Fargo breached the settlement agreement – in reporting, pre-screening, and now imminent threat of default. And it’s only the beginning. We’re hoping that Wells Fargo will do the right thing.”
Seeborg instructed representatives from Wells Fargo to meet with the homeowners and determine a way to correct the violations, which may include allowing some homeowners to reapply for loan modifications. The judge gave both sides two weeks to submit either joint or competing proposals, according to the report.
Wells Fargo spokesman Tom Goyda told DS News in an email that “we are reviewing the decision and will be working to provide the judge with the additional information he has requested.”
The original 2010 settlement resolved complaints over Wachovia’s portfolio of “pick-a-payment loans” which Wells Fargo inherited when it acquired Wachovia for $15.1 billion in 2008. The pick-a-payment loans originally provided borrowers with lower mortgage payments, but adjustable rates later caused payments to escalate, resulting in massive defaults that led to the nationwide financial crisis.
Berns, of the Woodland Hills, California-based firm Berns Weiss, said his firm planned to bring at least three more cases to the court in which they believe Wells Fargo is guilty of breaching the terms of the settlement.