Wells Fargo Bank has agreed to pay $81.6 million to settle claims that it failed to notify homeowners in bankruptcy of changes in their mortgage payments.
The Department of Justice said Thursday that the lender’s failure to give borrowers timely notice of payment hikes or reductions violated a federal bankruptcy rule aimed at ensuring proper accounting of consumers’ costs in bankruptcy.
Under the rule, which took effect in December of 2011, mortgage lenders are required to give borrowers in Chapter 13 bankruptcy 21 days’ notice before making an adjustment to their monthly payment.
Wells Fargo acknowledged it failed to file more than 100,000 payment-change notices on a timely basis. It also failed to meet the deadline required in more than 18,000 escrow analyses. The violations involved nearly 68,000 accounts of homeowners in bankruptcy between Dec. 1, 2011 and March 31 of this year.
The biggest portion of the settlement payout, $53.6 million, will be paid to more than 42,000 homeowners whose mortgage payments went up without receiving a timely notice from Wells Fargo. Homeowners will receive the payments in the form of a lump-sum credit to their mortgage account, averaging $1,254, the Justice Department said.
More than 70 per cent of those payouts will go to borrowers with a home loan balance under $300,000.
About $10 million will be used to credit accounts for homeowners who are not fully compensated by the initial payout. Wells Fargo estimates that up to 20 per cent of borrowers who receive an initial settlement payout will be due for a second credit to their mortgage balance.
The rest of the settlement amount will go to homeowners who made higher mortgage payments than necessary or didn’t receive timely escrow statements, other consequences of Wells Fargo’s lapses.
In addition to the payout, Wells Fargo agreed to improve its computer system and beef up employee training and oversight.
Shares in San Francisco-based Wells Fargo & Co. were up 41 cents, or 0.8 per cent, to $55.01 in afternoon trading.