SAN FRANCISCO–Wells Fargo is again the subject of another proposed class action lawsuit.
In the latest litigation, the proposed class action alleges Wells Fargo has placed certain customers’ mortgages into forbearance under the CARES Act without authorization to do so as a means to increase its mortgage servicing income.
According to the 39-page complaint, defendants Wells Fargo & Co. and Wells Fargo Bank, as reported by ClassAction.com, the bank failed to report the receipt and application of borrowers’ mortgage payments received during the forbearance period to credit reporting agencies, “even when a borrower remains current on their payment obligations before, during and after the loan is placed in forbearance status.”
The result of the defendants’ conduct is that unless Wells Fargo ultimately approves and the borrower accepts a loan retention workout option to cure the unauthorized forbearance, it is likely a third party would interpret the borrower’s loan as being in default, thereby harming the consumer’s credit, ClassAction.com reported the lawsuit as stating.
Goal to ‘Limit Exposure’
“At a minimum, when a borrower’s principal residence is reported as being in forbearance status, regardless of how the loan status is reported, lenders and other consumers of credit related information consider this a seriously delinquent status,” the suit claims, alleging Wells Fargo’s forbearance conduct has also served to limit the bank’s exposure to principal and interest advance obligations in the event borrowers default on mortgages in the future.
Any missed mortgage payments become immediately due and owing at the conclusion of a forbearance period unless a borrower makes alternative repayment arrangements with their mortgage servicer, the case says. In industry parlance, alternative payment arrangements are known as “loan workout options,” according to the suit.
ClassAction.com reported that the proposed lawsuit further claims that for every Fannie Mae and Freddie Mac mortgage placed into forbearance by Wells Fargo, the “bank stands to receive a minimum of $500 and up to $1,000 in incentive payments, depending on which workout option a Wells Fargo borrower accepts at the conclusion of the forbearance term, the lawsuit relays. Further, Wells Fargo stands to benefit from placing Fannie Mae, Freddie Mac and Ginnie Mae loans (backed by the Fair Housing Administration, Veterans’ Administration or U.S. Dept. of Agriculture) into CARES Act forbearance as a strategy to limit potential losses the defendants would otherwise incur in the event borrowers default on forborne loans in the future, according to the complaint.
ClassAction.com reported that for Ginnie Mae loans, such as the plaintiff’s Fair Housing Administration-backed loan, servicers are required to advance a borrower’s principal and interest payments to the investors holding certificates issued by the Ginnie Mae trust that owns the individual’s mortgage loan, the suit continues. Per the case, this obligation continues for the servicer each month whether or not the borrower actually makes a monthly principal and interest payment.
A ‘Sidestep’
The lawsuit states, however, that servicers like Wells Fargo can sidestep this obligation to advance principal and interest payments for borrowers’ loans that have been delinquent for 90 or more days by repurchasing such loans from the Ginnie Mae trusts. Ginnie Mae loans in CARES Act forbearance are treated as delinquent for the purposes of this rule, the suit explains.
“Therefore, regardless of whether a loan is backed by Ginnie Mae, Fannie Mae, or Freddie Mac, Wells Fargo benefits from placing loans into CARES Act forbearances by limiting its exposure to principal and interest advance obligations in the event of future defaults,” the suit reads.
The case looks to represent individuals in the U.S. whose loans were placed into forbearance by Wells Fargo without their consent, excluding those who have filed for bankruptcy protection under chapter 13 of the United States Bankruptcy Code.
A copy of the suit can be found here.