Two class-action lawsuits against Wells Fargo are back on after a federal court ruled that the banking giant was obligated to offer permanent loan modifications to borrowers who met certain requirements.
The lawsuits accuse Wells Fargo of violating its contractual obligations under the Home Affordable Modification Program (HAMP). Created in 2009, HAMP was intended to help distressed homeowners avoid foreclosure. To apply for the program, borrowers submit proof of their finances and make trial payments for a time. If they don’t qualify for the program, lenders are supposed to notify them and work with them to find an alternative foreclosure prevention strategy.
The plaintiffs in the two lawsuits against Wells Fargo claim to have made all their payments during the trial period – but they allege that Wells Fargo never informed them whether they qualified for HAMP, according to a Court News report. Instead, the bank allegedly foreclosed on their homes and sold them.
A district court had dismissed the lawsuits, but a the 9th Circuit’s three-judge panel reversed the decision, saying that Wells Fargo was contractually obligated to offer permanent modifications to borrowers who met the right criteria.
“The district court should not have dismissed the plaintiffs' complaints when the record before it showed that the bank had accepted and retained the payments demanded by the TPP (trial period plan), but neither offered a permanent modification, nor notified plaintiffs they were not entitled to one, as required by the terms of the TPP,” the court stated. One judge also noted that HAMP “seems to have created more litigation than it has happy homeowners.”
The decision most likely means more expensive litigation for Wells Fargo’s already ailing mortgage operation, which on Wednesday announced the layoffs of 763 employees. The bank, which also eliminated 350 mortgage and retail lending positions last month, says that higher interest rates have lessened the demand for refinancing among homeowners, according to a Charlotte Observer report.