Wells Fargo has been accused of violating the terms of a multimillion-dollar legal settlement by allegedly denying loan modifications to eligible borrowers as stipulated in the settlement of a 2010 class action suit involving Pick-a-Payment mortgages, National Mortgage News reported Dec. 12.
Pick-a-Payment mortgages were offered by World Savings Bank from 2003-08; the bank was acquired by Wachovia in 2006, which itself was acquired by Wells Fargo in 2008.
The class action lawsuit that was settled in 2010 had alleged that homeowners who took out Pick-a-Payment mortgages were not properly informed that their total outstanding loan balance could increase if they chose a low monthly payment option. Additionally, the interest rates on those mortgages rose significantly after the initial “teaser” period.
Wells Fargo agreed to pay $50 million to the borrowers represented in the suit while also making a loan modification program available to those who still had Pick-a-Payment mortgages.
In the most recent action, plaintiffs accused Wells Fargo of breach of the 2010 settlement and alleged that the bank has been denying loan modification applications. The suit claimed that between April 2011 and September 2012, only three percent of class action members who applied for loan modifications received them. That amounted to only 1,746 borrowers, National Mortgage News reported.
Wells Fargo had claimed that it provided loan modifications to almost 110,000 borrowers with Pick-a-Payment mortgages.
Plaintiffs’ attorney Jeffrey K. Berns wrote in the filing, “Hundreds of thousands of homeowners were suffering the effects of undisclosed negative amortization for their Pick-a-Payment loans, while the declining U.S. housing market was sucking the remaining equity out of their homes.”