Wells Fargo is accused of bogging down mortgage modifications

Wells Fargo & Co. subjects borrowers seeking mortgage modifications to “Kafkaesque delays and obstructions,” in violation of last year’s $25-billion national mortgage settlement, New York Atty. Gen Eric Schneiderman said in a federal lawsuit.

The suit, filed Wednesday, asks the federal court in Washington to force the bank to comply with the landmark agreement. It alleges that the bank on at least 210 occasions violated timelines imposed by the settlement.

At a news conference at his Manhattan offices, Schneiderman mocked a Wells Fargo letter to a homeowner. Brandishing a copy, he read excerpts riddled with unclear writing, typos and stray characters not from any recognizable alphabet.

“I appreciate their efforts at honoring the diversity of New York and the fact that they are looking out for the Martian-speaking population,” Schneiderman said.

The national mortgage settlement grew out of investigations into complaints that foreclosure documents were “robo-signed” en masse by bank employees with no review of the facts. The banks agreed to the settlement to avoid further enforcement action by 49 state attorneys general and the federal departments of housing and justice.

The settlement timelines gave banks three business days to acknowledge in writing that they had received modification applications and five business days to notify borrowers of missing documents. The banks also promised to give borrowers 30 days to submit missing documentation or correct a deficiency. They agreed to make a decision on a completed modification application within 30 days.

Attached to Schneiderman’s lawsuit were complaints by 97 borrowers describing how Wells Fargo had missed deadlines and failed to keep other pledges. The suit described how one borrower had supplied information for seven months to no avail, submitting the same tax return several times. Wells Fargo at one point demanded an explanation of a $2 amount listed on one pay stub, according to the suit.

The lawsuit described “a pattern of obstructive practices designed to avoid reasonable modifications to loan terms by burying homeowners in paperwork and besieging them with bureaucratic delays and dead ends.”

Wells Fargo, the nation’s largest mortgage lender, issued a statement expressing disappointment that Schneiderman had chosen to sue instead of negotiate a solution. “We are doing everything we can to help our customers remain in their homes,” it said.

Wells said it had completed more than 26,000 loan modifications for borrowers in New York over the last four years — six modifications for every foreclosure sale in the state.

“We believe that a collaborative approach — not protracted litigation or continued threats — offers the best path toward continuing to improve services to borrowers,” Wells said.

Schneiderman in May had threatened to sue Wells Fargo and Bank of America Corp. over alleged violations of the agreement. He said they had generated far more complaints than the other banks in the settlement — JPMorgan Chase & Co., Citigroup Inc. and Ally Financial.

The Wells Fargo lawsuit was announced along with a parallel agreement with BofA, the Charlotte, N.C., bank whose 2008 acquisition of Countrywide Financial Corp. in Calabasas — once the nation’s largest subprime mortgage company — has proved disastrous.

BofA settled with Schneiderman by agreeing to improve its customer-assistance centers in New York. The bank promised to establish procedures to better review and resolve complaints with the attorney general’s office. It also agreed to designate high-level staff to work with housing counselors and legal-services agencies on modification requests.

The complaints described by Schneiderman echo those reported for months by nonprofit advocacy groups, other attorneys general and appointed monitors for the settlement.

In a separate action Wednesday, national settlement monitor Joseph A. Smith imposed four new testing standards for the banks. The standards were based on recommendations from a settlement monitoring committee made up of representatives from 11 state attorneys general, including California Atty. Gen. Kamala D. Harris, and federal regulators.

The chief new test is designed to force the banks to do a better job of telling borrowers exactly what information they must provide to complete a modification application, said Katherine Porter, the California settlement monitor and a UC Irvine law professor.

Other new rules aim to provide borrowers with clearer explanations of denied modifications and to improve communication between borrowers and the “single point of contact” banks are required to assign to each case.

Schneiderman’s suit said he had notified the monitoring committee of his intent to sue Wells Fargo. He invited its members to join him in the lawsuit, but they declined.

He said Wells Fargo sent a letter to the committee offering to voluntarily take steps, but the bank refused to acknowledge its shortcomings.

Wells Fargo’s “communication with customers is terrible,” Schneiderman told reporters. “They’re not providing the right folks with the ability to close a deal.”

The news conference was followed by an appearance by Mirza Baig of Staten Island, a 70-year-old Pakistani immigrant. He said he sought a loan modification from Wells Fargo.

The bank instead started foreclosure proceedings in 2010 and has sent him “harassing material” in the mail, threatening him with loss of his home, Baig said. He has remained in his home but has endured stressful uncertainty ever since.

“They just keep on confusing me. Their policy is never clear,” Baig said. “I don’t know what’s going to happen tomorrow.”

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