Trending
Wells Fargo sued over software ‘error’ that led to hundreds of loan modification denials
Bank allegedly foreclosed on hundreds of borrowers who were eligible for modifications.
Add a class-action lawsuit to Wells Fargo’s long list of legal entanglements.
The nation’s fourth-largest bank faces a court case over its use of a software tool that led to the improper denial of home loan modifications for hundreds of borrowers. The case, filed in the Northern District of California, relates to the Home Affordable Modification Program, a 2009 law that was meant to help homeowners avoid foreclosure.
According to the complaint, Wells Fargo chose to use proprietary software from Black Knight to assess the eligibility of borrowers for modifications under the HAMP program. The suit claims that the “calculation error” in the software affected 874 borrowers who qualified for changes under HAMP. Of that, the bank foreclosed on 545 borrowers.
The complaint said that the error related to a net present value metric that represents whether it’s more profitable to modify a loan or initiate a foreclosure. The Black Knight tool assigned outsized value to attorney’s fees, leading to improper denials, according to the suit.
The case isn’t the first for Wells Fargo linked to HAMP. In 2013, a San Francisco federal judge denied two lawsuits that were seeking class-action status.
The case comes just months after the Manhattan U.S. Attorney settled a civil fraud lawsuit against the bank. That case, which related to violations of the Financial Institutions Reform Recovery and Enforcement Act, accused the bank of overcharging hundreds of foreign exchange service customers.
A statement from the Manhattan U.S. Attorney said the bank’s FX sales specialists defrauded 771 customers by charging higher markups on transactions between 2010 to 2017. The bank was said to have then concealed the overcharges through misrepresentations and deceptive practices. Wells Fargo settled the lawsuit with a $72.6 million payout.
The lead plaintiff in the case, Kurt L. Hudson from Illinois, and other claimants are seeking damages and the return of the bank’s “wrongfully obtained” profits.
Wells Fargo said the claims are nothing new.
“This new lawsuit attempts to bring claims related to two separate and unrelated issues that already have been addressed on behalf of qualified class members through previous settlements,” the bank said in an email. “Mr. Hudson opted out of one of the settlements in which he was a class member and pursued the same claims in his own foreclosure, and is not a member of the class certified in the other settlement.”
UPDATE: This story has been updated to include comments from Wells Fargo.