Some homeowners who were wrongly denied mortgage modifications or other assistance from Wells Fargo should get relief soon after a federal judge ruled this week that the bank was in breach of a 2010 settlement involving adjustable-payment mortgages, also known in this case as “pick-a-payment loans.”
Reuters reports that U.S. District Court Judge Richard Seeborg in northern California told Wells Fargo to meet with plaintiffs and find a way to deliver consumer relief and make good on a 2010 deal regarding the “pick-a-payment” loans that the bank inherited as part of its 2008 acquisition of Wachovia.
The loans gave borrowers the choice of paying less than the interest due on the mortgage initially. However, there was a resulting payment escalation that put the affordability out of reach for many homeowners. Eventually, these loans became a contributing factor in the foreclosure crisis of the late 2000s.
Plaintiffs argued that Wells Fargo, the top mortgage lender in the nation, had not complied with the 2010 agreement to grant loan modifications to homeowners who had taken out these pick-a-payment loans.
Lawyers for the borrowers specifically argued that thousands 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.
Under Wednesday’s ruling, the judge ordered Wells Fargo to find a method of allowing 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.