Wells Fargo & Company WFC is set to pay $81.6 million to resolve charges of repeatedly failing to provide timely required notices to homeowners in bankruptcy. The agreement entered with the Department of Justice’s U.S. Trustee Program was filed in the U.S. Bankruptcy Court for the District of Maryland and awaits court approval.
The Department of Justice mentioned in its release that by failing to notify homeowners, Wells Fargo denied the homeowners a chance to challenge the correctness of mortgage payment increases imposed by the bank. Consequently, Wells Fargo violated federal bankruptcy rules, which went effective in December 2011. Such rules are designed to ensure appropriate accounting of fees and charges on homeowners in bankruptcy.
According to a rule, mortgage creditors are required to give borrowers who have filed for Chapter 13 bankruptcy, a notice of 21 days before adjusting to their monthly mortgage payment. Wells Fargo acknowledged that it failed to file more than 100,000 payment change notices in a timely manner. Also, the bank failed in conducting over 18,000 escrow analyses in cases involving almost 68,000 accounts of homeowners in bankruptcy in the period between Dec 1, 2011 and Mar 31, 2015.
A large part of the monetary settlement – around $53.6 million – will be paid to over 42,000 homeowners whose mortgage payments increased without proper notification. An amount of $10 million will be credited to accounts of homeowners at the end of their bankruptcy cases, in the event it is determined that such homeowners were not compensated fully through the initial crediting process.
As part of the settlement, the bank is also required to make changes to the internal procedures in order to prevent further violations.
Director Cliff White of the U.S. Trustee Program pressed on transparency as of key importance. He stated, “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. Homeowners in bankruptcy have the right to proper and timely notices, particularly when they are being asked to pay more.”
Executive vice president for Wells Fargo Home Mortgage, Michael DeVito mentioned, “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.”
As the California based-banking giant has reserved for the settlement amount, the agreement is not likely to impact the financials. Also, it brings some relief to the company amid several of its legal woes.
Wells Fargo currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the finance space include E*TRADE Financial Corp. ETFC, Republic First Bancorp Inc. FRBK and Enterprise Financial Services Corp. EFSC. All three stocks sport a Zacks Rank #1 (Strong Buy).
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