A computing miscalculation at Wells Fargo caused hundreds of people to miss out on loan modifications and, perhaps, ultimately lose their homes to foreclosure.
Update: On October 18, 2019, the U.S. District Court for the Eastern District of Washington decided that plaintiffs who lost their homes after Wells Fargo rejected their modification applications due to an error in the servicer's software had properly alleged a claim under the Washington Consumer Protection Act. If you lost your Washington home after Wells Fargo rejected your modification application during the time period discussed below, consider talking to an attorney to learn about your rights and whether you might want to join the class action suit.
On Friday, August 3, 2018, Wells Fargo admitted that it failed to give modifications to about 625 mortgage-loan borrowers—even though they qualified for relief—due to a computer glitch. The bank eventually carried out foreclosures on 400 of those homeowners. In November 2018, Wells Fargo increased these numbers to 870 and 545, respectively.
Read on to learn more about Wells Fargo's latest scandal, what it plans to do to compensate customers who were wrongfully denied modifications, and what you can do if you find yourself in a similar situation.
Wells Fargo Improperly Denied Modifications
An internal review at Wells Fargo revealed that an underwriting tool the company used to process loan modifications consistently made a calculation error that affected specific accounts between April 13, 2010, and October 20, 2015. Wells Fargo then revised its previous disclosure, stating that the errors actually continued until April 2018.
What was the error? The modification tool automatically miscalculated attorneys' fees when evaluating borrowers for a potential loan modification. As a result of the miscalculation, some borrowers were deemed ineligible for a HAMP modification or a modification under a government-sponsored enterprise program, like one from Fannie Mae or Freddie Mac.
How many people were affected? Initially, Wells Fargo said that around 600 customers were incorrectly denied a loan modification or were not offered a modification in cases where they would have otherwise qualified, and that in about 400 of these cases, the bank eventually foreclosed. In November 2018, Wells Fargo increased these numbers to 870 and 545.
Compensation for Borrowers
Wells Fargo has set aside $8 million to compensate borrowers who were affected by the miscalculation, which amounts to around $13,000 per victim. This dollar amount seems insultingly low—especially for borrowers who lost their homes considering that most properties have regained considerably more in value since 2010-2018. Also, the cost of a foreclosure to homeowners is more than just financial.
As of November 2018, Wells Fargo has been sending apology letters, along with compensation checks, to affected borrowers. The bank says that most of the customers affected have been contacted and offered no-cost, independent mediation if they think the compensation is inadequate. According to a Wells Fargo spokesperson, affected customers can ask for mediation even if they cash the checks that Wells sends to them. You can also consider pursuing other legal options, like filing a lawsuit.
Servicer Errors are Common
You might be surprised to learn that mistakes like this happen all the time in the mortgage-servicing industry, especially when it comes to processing loan modifications.
In recent years, state regulators and the Consumer Financial Protection Bureau have performed multiple examinations of various servicers and found serious issues of noncompliance with state and federal laws. Not only did these examinations reveal servicers' noncompliance with various laws, like federal mortgage servicing laws, along with other serious failings, the remedial actions servicers took to strengthen their internal processes often didn't meet the regulator's expectations. (Learn about common mistakes that servicers make when handling customers' loans.)
What to Do to Avoid Losing Your Home
If you're trying to save your home from foreclosure, here are some ways you can be proactive in the process:
- Stay in contact with your servicer. As soon as you think you're going to have trouble making your monthly payment (or shortly after you fall behind), call your servicer. Likewise, don't ignore phone calls or letters from your servicer. Calls and letters from your servicer will likely explain any options you have to avoid a foreclosure and how to apply for those options.
- Seek help. People who are facing foreclosure should seek help from a HUD-approved housing counselor and, in many cases, a foreclosure lawyer so they can learn about their rights under the law and about options for their particular circumstances.
- Participate in mediation. Many states offer borrowers the right to participate in mediation before a foreclosure can go forward. Often, borrowers are able to work out a modification or other alternative to foreclosure during mediation.
- If your servicer makes an error, dispute it. A federal law, the Real Estate Settlement Procedures Act (RESPA), provides a way for borrowers to dispute errors with their mortgage servicer or get information about their account. Under amendments to RESPA, you can send a letter—called a "notice of error" or a "request for information"—and the servicer must respond within specific time limits. Sending this kind of letter is a good way to try to resolve a servicer error, assuming the servicer hasn't already started the foreclosure. (Disputing an error with a letter to the servicer is unlikely to stop a foreclosure that's already in progress. If this situation applies to you, consider talking to an attorney to learn about your options.)
(Learn more do's and don'ts when you're in foreclosure.)
Getting Help
If you're facing an imminent foreclosure and you think it's due to a servicer error, you're having trouble dealing with your servicer, or you think Wells Fargo denied you a loan modification that you should've qualified for, contact a foreclosure attorney to get advice about what to do in your situation.
Effective date: August 3, 2018