Wells Fargo to pay $81.6 million to homeowners in bankruptcy
Wells Fargo will pay $81.6 million to tens of thousands of homeowners whose mortgage accounts were mishandled over the last four years.
The agreement, announced Thursday by the Department of Justice, settles allegations that the San Francisco banking giant failed to notify homeowners in bankruptcy of changes to their monthly mortgage payments.
The department said the lender’s failure to give borrowers timely notice of payment increases or reductions violated a federal bankruptcy rule aimed at ensuing proper accounting of consumers’ costs in bankruptcy. The new rule took effect in 2011.
While a homeowner is in Chapter 13 bankruptcy — under which debtors make a plan to repay some or all of their debts — mortgage lenders are required to give the homeowner at least three weeks’ notice of any change in their monthly mortgage payment.
In more than 100,000 cases between late 2011 and March of this year, Wells Fargo failed to send notices within that time frame, the bank acknowledged in the settlement. The agreement specifically cites the case of a Maryland borrower whose payment was changed several times without proper notice.
The bank also said that, because of problems with its mortgage servicing system, it did not perform required annual reviews of more than 18,000 escrow accounts. Those accounts are used to pay property taxes and other costs, and the amount of money homeowners pay into the accounts can change year by year as costs increase or decrease.
Because accounts weren’t reviewed annually, some homeowners were paying either too much or too little into their escrow accounts.
In all, the bank will pay $81.6 million in refunds and credits to 67,800 homeowners who either received late notice of payment increases or who paid incorrect amounts into their escrow accounts.
The bulk of the payout, nearly $54 million, will go to the more than 42,000 homeowners whose monthly payments were increased without proper notice. On average, homeowners will get $1,254 each, though payments will vary depending on the size of borrowers’ loans.
Homeowners whose payments actually decreased, but who were not informed of lower payments in a timely fashion, will get refunds for overpayments.
“When creditors fail to comply with the bankruptcy laws and rules, they compromise the integrity of the bankruptcy system and must be held accountable,” said Cliff White, director of a Justice Department program that enforces bankruptcy laws.
In a statement, Michael DeVito, executive vice president of Wells Fargo’s home mortgage division, said the bank has improved its systems and would work with the Justice Department and an independent analyst to show it has corrected problems.
“We believe we have made the necessary investments and improvements in our systems and processes to ensure that payment change notices for the bankruptcy court and escrow analyses for customers in bankruptcy are properly prepared and delivered in a timely fashion,” he said.
Shares of Wells Fargo closed up 28 cents to $54.86.
The Associated Press contributed to this report.