Yet another proposed class action lawsuit alleges Wells Fargo Bank, N.A. automatically placed consumers’ mortgage loans into temporary forbearance amid the COVID-19 pandemic without consent to do so, an apparent misstep the plaintiff says ended up hurting the very people the CARES Act was intended to help.
The 20-page case out of California federal court, which mirrors a suit filed against Wells Fargo on July 23, claims the bank’s looseness in placing mortgages into forbearance without authorization came at the worst possible time for many borrowers already weathering economic strain caused by the global health crisis.
According to the case, Wells Fargo automatically placed into forbearance the mortgages of customers who called or emailed the bank merely to inquire about their options.
“Regardless of whether a borrower needs the help or not, or is fully informed of the consequences, lenders may not put a loan in forbearance without a customer requesting it,” the lawsuit asserts.
Per the complaint, a borrower is allowed to suspend or reduce their mortgage payment for a limited time once the loan is placed into forbearance. Importantly, payments for mortgages in forbearance are not forgiven, just delayed, the suit stresses, meaning a borrower must eventually repay any missed payments down the road, often by adding them onto the back end of a loan. Additionally, interest continues to accrue on a mortgage loan placed into forbearance even if monthly payments have been temporarily halted, the case notes.
With the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, borrowers with mortgages backed by the government—i.e. Freddie Mac or Fannie Mae—were allowed to temporarily suspend monthly payments for up to 180 days and possibly another 180 if granted an extension, according to the lawsuit. The case adds that borrowers were given by the CARES Act the option to shorten the forbearance period and resume mortgage payments at any time.
The complaint says mortgage servicers such as Wells Fargo were advised by the government to make sure borrowers were fully informed of the downsides to forbearance. In an August 2020 frequently-asked-questions directive to servicers, Fannie Mae, according to the suit, relayed that “[i]t is important that the borrower go into the forbearance plan understanding that at the end of the forbearance period the forborne payments must be accounted for. Borrowers should not be left with the impression that the missed payments are forgiven.”
Moreover, Fannie May reminded servicers in a July 15 letter that borrowers must be informed of their responsibility to repay forborne monthly payments once their forbearance plan is complete, the suit continues.
Despite the preponderance of materials making clear servicers’ responsibilities prior to placing a mortgage into forbearance, however, Wells Fargo automatically did so without consent for borrowers who contacted the bank by phone or email “merely to inquire about their options,” the lawsuit alleges.
One consumer told the Consumer Financial Protection Bureau that a Wells Fargo employee admitted “the system is like a ‘hair trigger,’” automatically placing mortgage loans into forbearance, “even though I did nothing to start a forbearance,” the suit claims, stating Wells Fargo has conceded in a statement to the media that it “may have misinterpreted customers’ intentions.”
The complaint rounds out by stressing Wells Fargo’s “blunder” is no mere administrative glitch given forbearance can have a longstanding impact on a borrower’s credit history or access to credit. As the suit tells it, Wells Fargo may have been incentivized to place borrowers into forbearance because after a forbearance period ends, a borrower might be placed into a payment deferral program. As part of the federal COVID-19 relief efforts, servicers of government-backed mortgages such as Wells Fargo could receive up to $1,000 per mortgage for borrowers placed in repayment or deferral plans, the case says.
The lawsuit looks to cover all residential mortgage borrowers with a government sponsored enterprise-backed loan for whom Wells Fargo Bank, N.A. placed a residential mortgage into forbearance under the CARES Act without receiving the borrower’s request for a forbearance and affirmance that the borrower is experiencing a financial hardship due to COVID-19.
ClassAction.org’s coverage of COVID-19 litigation can be found here and over on our Newswire.