As portions of New York and New Jersey begin to rebuild following the path of destruction cut by Hurricane Sandy, there are a number of area homeowners whose loan modifications have become collateral damage, with Wells Fargo suspending decisions on these requests until further notice.

On Friday, New York Attorney General Eric Schneiderman fired off a letter to Wells Fargo CEO John Stumpf warning the bank that its policy may be in violation of the $25 billion settlement agreed to by the nation’s largest mortgage servicers.

Schneiderman cites a letter from a law firm representing Wells Fargo that claims the bank is suspending “all Home Preservation reviews and decisions” and that it will not respond to requests for mortgage relief until it receives further information from FEMA.

“I am certain that you are aware that under the National Mortgage Settlement, as well as under pre-existing NY State law, Wells Fargo is required to adhere to strict timelines when evaluating a homeowner’s request for a loan modification,” writes the AG. “Specifically, Wells Fargo is required to make a decision about a homeowner’s loan modification request within 30 days of receiving a completed application package. Wells Fargo’s decision to delay review will likely result in multiple violations of the National Mortgage Settlement.

“Please be advised that Wells Fargo is not excused from any of its obligations under the National Mortgage Settlement or under New York law as a result of Hurricane Sandy, and that my office will aggressively pursue any loan servicing company that uses this tragic event as an excuse to violate loss mitigation decision timelines.”

In response to the letter, Wells Fargo issued the following statement to Consumerist, claiming that the halt in modification rulings is being done in the interest of customers and pointing out the the bank has also temporarily stopped foreclosures in affected areas:

Every effort we’ve taken in the wake of the devastation of Sandy has been with the best interests of our customers in mind. We know our customers are reeling from this tragedy and we’re working with them at every turn to provide them with options that will help them.

It is extremely unfortunate that Wells Fargo’s actions would be interpreted in any way other than our sincere interest and concern for customers impacted by the storm and our effort to be certain that they get the full relief available to them.

Wells Fargo chose to initiate contact with customers in advance of completing modification decisions in markets impacted by Sandy to be certain we fully understood the customer’s needs and were offering the best available assistance.

Just as we paused modification decisions, Wells Fargo began suspending all foreclosure sales in FEMA declared disaster areas immediately after Sandy made landfall, over two weeks ago. We also stopped new foreclosure referrals and suspended evictions immediately. These suspensions and any foreclosure activity will last a minimum of 90 days for the loans Wells Fargo owns which the company also services. And, we’ll review our policy again in January of 2013.

Loans serviced for others including FNMA/FRE and GNMA will follow specific investor guidelines.

We are actively working to do what’s right for every customer. We want our customers to talk with us, call us and help us learn their circumstances so that we can work with them to reach the best options.

The bank tells Reuters that it has scheduled a meeting with Schneiderman’s office for this week.

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