Class Action Alleges Wells Fargo Placed Mortgages into CARES Act Forbearance Without Borrowers’ Consent [UPDATE]

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A proposed class action alleges Wells Fargo has placed certain customers’ mortgages into forbearance under the CARES Act without authorization to do so as a means to increase its mortgage servicing income.

According to the 39-page complaint, defendants Wells Fargo & Co. and Wells Fargo Bank, N.A. fail to report the receipt and application of borrowers’ mortgage payments received during the forbearance period to credit reporting agencies, even when a borrower remains current on their payment obligations before, during and after the loan is placed in forbearance status. 

The result of the defendants’ conduct is that unless Wells Fargo ultimately approves and the borrower accepts a loan retention workout option to cure the unauthorized forbearance, it is likely a third party would interpret the borrower’s loan as being in default, thereby harming the consumer’s credit, the lawsuit says. 

“At a minimum, when a borrower’s principal residence is reported as being in forbearance status, regardless of how the loan status is reported, lenders and other consumers of credit related information consider this a seriously delinquent status,” the suit claims, alleging Wells Fargo’s forbearance conduct has also served to limit the bank’s exposure to principal and interest advance obligations in the event borrowers default on mortgages in the future.

Any missed mortgage payments become immediately due and owing at the conclusion of a forbearance period unless a borrower makes alternative repayment arrangements with their mortgage servicer, the case says. In industry parlance, alternative payment arrangements are known as “loan workout options,” according to the suit.

For every Fannie Mae and Freddie Mac mortgage placed into forbearance by Wells Fargo, the bank stands to receive a minimum of $500 and up to $1,000 in incentive payments, depending on which workout option a Wells Fargo borrower accepts at the conclusion of the forbearance term, the lawsuit relays. Further, Wells Fargo stands to benefit from placing Fannie Mae, Freddie Mac and Ginnie Mae loans (backed by the Fair Housing Administration, Veterans’ Administration or U.S. Dept. of Agriculture) into CARES Act forbearance as a strategy to limit potential losses the defendants would otherwise incur in the event borrowers default on forborne loans in the future, according to the complaint. 

For Ginnie Mae loans, such as the plaintiff’s Fair Housing Administration-backed loan, servicers are required to advance a borrower’s principal and interest payments to the investors holding certificates issued by the Ginnie Mae trust that owns the individual’s mortgage loan, the suit continues. Per the case, this obligation continues for the servicer each month whether or not the borrower actually makes a monthly principal and interest payment.

The lawsuit says, however, that servicers like Wells Fargo can sidestep this obligation to advance principal and interest payments for borrowers’ loans that have been delinquent for 90 or more days by repurchasing such loans from the Ginnie Mae trusts. Ginnie Mae loans in CARES Act forbearance are treated as delinquent for the purposes of this rule, the suit explains.

The difference when it comes to Fannie Mae and Freddie Mac mortgages in CARES Act forbearance is that Wells Fargo’s principal and interest advance obligations terminate after the bank makes four advances of a borrower’s missed principal and interest payments, the lawsuit says. In general, as long as a Fannie Mae or Freddie Mac loan is placed into a CARES Act forbearance, Wells Fargo is not required to repurchase the loan in order to be allowed to stop making principal and interest advances, according to the complaint.

“Therefore, regardless of whether a loan is backed by Ginnie Mae, Fannie Mae, or Freddie Mac, Wells Fargo benefits from placing loans into CARES Act forbearances by limiting its exposure to principal and interest advance obligations in the event of future defaults,” the suit reads.

The lawsuit, citing an NBCNews report, says borrowers in at least 14 states have had their mortgages placed in forbearance by Wells Fargo despite never wanting or requesting such. 

“Nothing in the CARES Act or any other law or agreement between Plaintiff (including the putative members of the class) and Wells Fargo authorizes Wells Fargo to unilaterally place borrowers’ mortgage loan accounts into forbearance without their consent,” the complaint reads.

The case looks to represent individuals in the U.S. whose loans were placed into forbearance by Wells Fargo without their consent, excluding those who have filed for bankruptcy protection under chapter 13 of the United States Bankruptcy Code. 

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