Wells Fargo Mortgage Forbearance Class Action Lawsuit Dropped

Wells Fargo has agreed not to enter homeowners into mortgage forbearance plans without their consent after facing a class action lawsuit over the practice.

Federal Judge Michael Urbanksi said in his order while the plaintiffs aren’t conceding their claims of unauthorized mortgage forbearance plans, Wells Fargo must get permission from the borrower beforehand. 

One of the named plaintiffs, Gerald Forsburg, filed the complaint in July after learning Wells Fargo entered his loan into mortgage forbearance without his knowing about it.

Forsburg alleged this practice by Wells Fargo was amplified by the COVID-19 outbreak and the subsequent passing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act by Congress. 

The now-nullified class action lawsuit over mortgage forbearance joins scores of legal challenges related to the coronavirus outbreak.  

Before the agreement, the initial class action lawsuit alleged “racketeering activity” with these mortgage forbearance plans. 

Forsburg described in the original complaint how Wells Fargo takes advantage of a CARES Act provision that allows a lender to forgo its obligation to make principal and interest payments on defaulted federally backed home loans.  

This obligation to pay for a defaulted federally backed FHA loan goes away after four months of payments, Forsburg alleged in the initial complaint. Wells Fargo is “limiting its exposure” to these requirements through these involuntary mortgage forbearance plans, Forsburg said.  

The plaintiffs specifically pointed to Wells Fargo buying $14 billion worth of Ginnie Mae loans in June and July and cited a financial report detailing the move. 

“Analysts speculated that Wells was likely proactive in offering forbearance plans to distressed borrowers when the pandemic hit in March,” according to an American Banker report published in July. 

Forsburg said in his original class action lawsuit Wells Fargo placed more borrowers into mortgage forbearance than any other service it offers, on average, during the month of April.  

In the initial claim, Forsburg also argued Wells Fargo profits from placing certain homeowners into mortgage forbearance by charging per-loan servicing and other related fees. 

Forsburg says Wells Fargo makes $500 to $1,000 for every Fannie Mae or Freddie Mac loan placed into mortgage forbearance. These so-called “incentive payments” are collected once the borrower accepts the plan to satisfy the loan, according to the initial lawsuit. 

Forsburg took out a Ginnie Mae home loan and says Wells Fargo collects similar incentive payments but the calculated amount is different. 

The plaintiffs further alleged Wells Fargo places borrowers in mortgage forbearance as a way to mitigate losses with loan defaults, but doing so leaves them with a damaged credit record. 

“Regardless of how the loan status is reported, lenders and other consumers of credit related information consider this a seriously delinquent status,” Forsburg said in the initial class action lawsuit. 

All of the named plaintiffs in the initial complaint reported problems applying for credit after their Wells Fargo loan was involuntarily placed into mortgage forbearance. 

By October, Wells Fargo filed to have the class action lawsuit dismissed on the grounds the bank technically doesn’t hold any contracts with the plaintiffs. Wells Fargo also argued the plaintiffs didn’t send a required notice their loans were erroneously placed into mortgage forbearance and did not establish cognizable damages.  

The move to place these loans into mortgage forbearance involuntarily caught the ire of at least one Congresswoman.

“Once again it seems that Wells Fargo’s sloppy service and shoddy management are hurting consumers,”  Ohio’s Sen. Sherrod Brown, who sits on the Senate Banking Committee, told NBC News, according to Banking Dive.  

This agreement is just one of several legal actions against Wells Fargo this year.  

In February, Wells Fargo was hit with a $3 billion fine from the Justice Department and the Securities and Exchange Commission over fraudulently opened fake accounts. 

Do you hold a Wells Fargo loan placed into a mortgage forbearance without your consent? Let us know in the comments below. 

Counsel representing the plaintiffs in this class action lawsuit are Malissa L. Giles, Tracy Giles of Giles & Lambert PC; Theodore O. Bartholow III, Karen L. Kellett, O. Max Gardner III of Kellett & Bartholow PLLC; and Abelardo Limon Jr. of Limon Law Office P.C.

The Mortgage Forbearance Class Action Lawsuit is Forsburg, et al. v. Wells Fargo & Co., et al., Case No. 5:20-cv-00046-MFU, in the U.S. District Court for the Western District Of Virginia, Harrisonburg Division.

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