Wells Fargo Forks Over $12 Million for Denied Mortgage Modifications
The lender agreed to settle a lawsuit, and some borrowers may be in for a windfall.
- Wells Fargo is settling a lawsuit that alleges it wrongfully denied loan modification requests.
- Over 1,800 mortgage borrowers will receive compensation as a result of the settlement.
When mortgage borrowers start struggling with their monthly payments, loan modification is often an option. With mortgage modification, you alter the terms of your home loan so it becomes more affordable to keep up with.
Loan modification can be good for both borrowers and mortgage lenders. For borrowers, it can mean more manageable monthly payments and avoiding the stress and consequences of foreclosure. For lenders, it can mean continuing to get paid, albeit at what's often a slower pace. It can also spare lenders the hassle of foreclosure.
Foreclosure actually isn't good for lenders, because the process can be costly and time consuming for them. And let's face it -- lenders want to make their money by collecting interest on mortgages, not by having to become property owners when their borrowers default on their loan payments.
But loan modification is by no means guaranteed. It's possible for a borrower to ask for it and be denied for good reason. Wells Fargo, however, may have denied some borrowers the option to modify their loans for a bad reason -- due to calculation errors in its system. And now, Wells Fargo is paying up as a result.
$12 million in compensation is headed borrowers' way
Wells Fargo has agreed to settle a lawsuit that will leave more than 1,800 borrowers with a windfall on their hands. The lawsuit claims Wells Fargo failed to detect errors in its software between 2010 and 2018 that determined whether borrowers in default would be eligible for loan modification.
As a result, many customers were denied that option, and 400 borrowers wound up having their homes foreclosed on. Now, Wells Fargo will spend $12 million to help make some of those customers whole.
Could loan modification help you?
If you're having trouble keeping up with your mortgage, you may want to look at having your loan modified. Often, this will involve your lender extending your repayment period to shrink your monthly payments.
Loan modification could spell the difference between getting to stay in your home versus having to sell it (willingly or not). And these days, it's an option more borrowers might look to pursue.
The CARES Act, which was signed into law early on in the pandemic to provide relief in the wake of the crisis, allowed mortgage borrowers to put their home loans into forbearance for up to 18 months. Those who took advantage of that option early on may now be at a point where forbearance has run out on their mortgages. And those who haven't yet recovered financially may be able to modify their loans to keep their payments manageable.
If you can't pay your mortgage, reach out to your lender and see what options you have, whether you put your loan into forbearance recently or not. If you're denied the option to modify your loan, be sure to dig around and find out why. The last thing you want is to get stuck in a tough situation due to something like a software error like so many Wells Fargo borrowers did.
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