Accusing Wells Fargo & Co. of reneging on a sweeping mortgage-modification deal, a lawyer for troubled homeowners is trying to reopen a case involving risky “pick-a-pay” loans written during the housing bubble.
Legal filings last week claimed Wells Fargo failed to provide wide-ranging reductions of loan balances to delinquent borrowers as it had promised two years ago when it settled a combined national class-action suit. A bank spokeswoman strongly disputed the claim, saying it was riddled with errors.
The litigation illustrates how lawsuits continue to dog major home lenders more than five years after the mortgage industry imploded, including recent challenges to certain cases the banks thought had been put to rest.
The original lawsuits over pick-a-pay, or pay-option, mortgages contended that the loans were issued with inadequate notice to borrowers that the amount owed would rise if they chose the lowest payment among four options. The loans were made by banks later acquired by Wells Fargo.
“Hundreds of thousands of homeowners were suffering the effects of undisclosed negative amortization for their Pick-a-Payment loans, while the declining U.S. housing market was sucking the remaining equity out of their homes,” plaintiffs attorney Jeffrey K. Berns said in a filing Friday.
The settlement was reached in December 2010 before U.S. District Judge Jeremy Fogel in San Jose. At the time, the San Francisco-based bank said it would provide at least $50 million and as much as $600 million in modification benefits to troubled borrowers with the pay-option loans, the Reuters news service reported.
Berns, of Woodland Hills, had calculated the number might reach $2 billion.
Of the 66,000 requests for loan modifications made in the 18 months ending Sept. 30, Wells Fargo granted 1,746, or 2.6%, Berns alleged.
“Thousands of people have been denied loan modifications — people who, in our opinion, should not have been denied,” Berns said in an interview Monday.