Wells Fargo Breached 2010 Mortgage Settlement, Must Work To Provide Homeowner Assistance

Some homeowners who were wrongly denied mortgage assistance from Wells Fargo will soon receive the help they needed years ago after a federal judge ruled this week that the bank’s denial of modifications were in breach of a 2010 settlement involving adjustable-payment mortgages.

Reuters reports that the U.S. District Court judge’s finding that the bank was in breach of the settlement is just the last development in a long-running dispute over the 2010 deal regarding the “pick-a-payment” loans that Wells inherited as part of its 2008 acquisition of Wachovia.

The loans gave borrowers the choice of initially paying less than the interest due on the mortgage. However, the resulting payment escalation made most mortgages actually grow, and proved to be a contributing factor in the foreclosure crisis of the late 2000s.

Plaintiffs argued that the bank had not complied with the 2010 agreement to grant loan modifications to homeowners who had taken out the pick-a-payment loans.

Lawyers contended that thousands of borrowers were denied mortgage assistance because Wells Fargo was not using proper methods to determine whether homeowners were at imminent risk of default, an issue that would qualify them for the assistance, Reuters reports.

The judge found that Wells Fargo had indeed breached the settlement by using “evolving and perhaps ill-defined standards” to determine assistance needs.

As part of Wednesday’s ruling, the judge ordered Wells Fargo to find a way to remedy its violations and take steps to allow some homeowners to reapply for assistance. Both the bank and the plaintiffs must provide the court with proposals on correcting the breach in two weeks.

U.S. judge finds Wells Fargo breached 2010 mortgage settlement [Reuters]