Wells Fargo (WFC) will return $81.6 million to homeowners after reaching a settlement with the Department of Justice’s U.S. Trustee Program over the bank’s “repeated failures” to provide bankrupt homeowners with legally required notices of mortgage payment increases.
According to the DOJ, Wells Fargo’s failure to provide the proper legal notices denied homeowners the opportunity to challenge the accuracy of mortgage payment increases.
By failing to properly notify homeowners, Wells Fargo violated federal bankruptcy rules that took effect in December 2011 that imposed more detailed disclosure requirements to ensure proper accounting of fees and charges on homeowners in bankruptcy, the DOJ said.
According to the DOJ, Bankruptcy Rule 3002.1 requires mortgage creditors to file and serve a notice 21 days before adjusting a Chapter 13 debtor’s monthly mortgage payment.
“Wells Fargo acknowledges that it failed to timely file more than 100,000 payment change notices and failed to timely perform more than 18,000 escrow analyses in cases involving nearly 68,000 accounts of homeowners in bankruptcy between Dec. 1, 2011, and March 31, 2015,” the DOJ said.
As part of the settlement, Wells Fargo will change its internal operations and submit to oversight by an independent compliance reviewer.
Wells Fargo will pay a total of $81.6 million to homeowners who were in bankruptcy between Dec. 1, 2011, and March 31, 2015, and who were affected by Wells Fargo’s failure to timely file PCNs and escrow statements, the DOJ said.
The $81.6 million repayment will be made to several different groups of borrowers, including:
- $53.6 million will be paid to more than 42,000 homeowners whose payments increased as to which Wells Fargo failed to timely file a PCN with the court. The payment will be in the form of a credit to the homeowner’s mortgage account in a lump sum amount, which averages $1,254 per homeowner and varies depending on the homeowner’s mortgage balance. More than 70% of the total payments will go to homeowners who have mortgage balances under $300,000. These payments will be made regardless of whether homeowners actually paid the increased amount.
- An estimated $10 million will be paid by crediting homeowners’ accounts at the end of their bankruptcy cases if, upon a detailed review of the accounts, it is determined the homeowners were not fully compensated through the initial crediting process described above. Wells Fargo estimates that 15 to 20% of homeowners who receive the initial payments will be due additional amounts at case closing.
- $1.5 million will be refunded in cash to about 3,000 homeowners where notices of decreases in monthly payments were not timely provided and the homeowners paid more than the actual amount due.
- $1 million will be refunded in cash to about 2,400 homeowners who satisfied escrow shortages by making a lump sum payment, but whose monthly payments did not decrease to account for the lump sum payment.
- $4.5 million will be paid by crediting the mortgage escrow accounts of about 6,000 homeowners who did not receive timely escrow statements. Wells Fargo will credit the amount of any increase in escrow shortage that was incurred between the time Wells Fargo should have performed the analysis and the time it actually did perform the analysis. As a result, homeowners will not be responsible for any increase in the escrow shortage stemming from Wells Fargo’s failure to timely perform the escrow analysis.
- $4 million will be paid to about 12,000 homeowners by crediting mortgage accounts in the amount of $333, where Wells Fargo failed to timely perform an escrow analysis that would have resulted in a PCN being filed and the homeowner is not already receiving remediation for a missed or untimely PCN.
- $4 million will be refunded in cash to about 6,000 homeowners who did not receive timely escrow statements and whose escrow accounts contained surpluses that Wells Fargo had not refunded or credited toward the next year’s escrow payment.
- $3 million in remediation to about 8,000 homeowners has already been completed by Wells Fargo for certain violations.
“I am pleased that Wells Fargo has acted responsibly by accepting accountability for its deficient bankruptcy practices, agreed to compensate affected homeowners for those deficiencies and committed to making necessary improvements in its bankruptcy operations,” said Director Cliff White of the U.S. Trustee Program.
“When creditors fail to comply with the bankruptcy laws and rules, they compromise the integrity of the bankruptcy system and must be held accountable. Transparency in the process is of paramount importance,” White said.
“Homeowners in bankruptcy have the right to proper and timely notices, particularly when they are being asked to pay more,” White continued. “The U.S. Trustee Program remains diligent in its effort to hold financial institutions that disregard the law accountable for their actions.”
In addition to the monetary remediation, Wells Fargo will make changes to internal procedures to prevent recurrence of the violations, the DOJ said. These changes include improvements to its computer platform, improvements to employee training and oversight and implementation of quality control processes to ensure the accuracy and timeliness of PCNs and escrow statements.
Michael DeVito, executive vice president for Wells Fargo Home Mortgage, said that the company has already made changes to its systems to ensure it won’t violate bankruptcy rules moving forward.
“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,” DeVito said. “We will work with the U.S. Trustee’s office and an independent reviewer to demonstrate the effectiveness of our improvements and to provide payments to customers, as required.”