Wells Fargo to pay $94 million to settle mortgage forbearance lawsuit
Wells Fargo will pay $94 million to settle a class action lawsuit that argued it sent more than 200,000 mortgage borrowers into forbearance during the pandemic illegally and without their consent.
The plaintiffs argued that the San Francisco-based bank granted forbearances to customers who inquired about their mortgages or expressed difficulty, but did not explicitly request forbearance, Reuters reported this week.
Wells Fargo’s decision hurt borrowers’ credit scores, making it harder for them to refinance their mortgages when rates were at historic lows. Borrowers said Wells Fargo’s actions also violated the CARES Act.
Wells Fargo denied any wrongdoing in its Sept. 9 settlement, which was filed last week in federal court in Columbus, Ohio and requires a judge’s approval.
The lawsuit, which covers is known as “Echard v. Wells Fargo Bank” and includes more than 212,000 loans, likely played a role in Wells Fargo’s recent decision to pull out of mortgages.
On Tuesday, Chief Financial Officer Mike Santomassimo said the company was content to lose ground in mortgage originations and was “really focused on our consumer and wealthy customers.” He added that maintenance activity would decrease over time.
Earlier this year, CEO Charlie Scharf cited regulatory challenges and lending standards for loan compliance as a major reason for shrinking his mortgage footprint.
“We basically process applications according to the guidelines that the GSEs tell us we should,” Scharf said. “When these produce results, people like them, we get kudos for them. If they don’t like them, we’re accountable, even if we’re just following other people’s underwriting guidelines.
Scharf also argued that custodian banks are held to higher standards than non-bank mortgage lenders.
“It’s very different today to run a mortgage business inside the bank than it was 15 years ago, and I think it is that way,” he said. “It forces you to sit down and say, ‘What does this mean? What size do you want to be? Where is this located? »
Wells Fargo has also grappled with a series of controversies related to minority mortgages as well as its hiring practices. In March, Bloomberg reported that Wells Fargo in 2020 rejected more than half of refinancing applications from black homeowners. The bank’s 47% approval rating for black customers was the lowest among major lenders, according to data from the Home Mortgage Disclosure Act (HMDA). His approval rating of white candidates for refis was 72% in 2020.
Wells Fargo has denied any wrongdoing and said its underwriting practices are applied consistently regardless of a customer’s race or ethnicity.