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Banks face litigation over FORBEARANCE WITHOUT CONSENT

You would think that if your mortgage lender decided to give you some payment relief while you were experiencing financial hardships that you would be delighted to learn about it, but not everyone appreciates forbearance from banks. In fact, Wells Fargo currently faces a proposed class-action lawsuit over the alleged automatic placement of some borrowers’ mortgages in forbearance without permission. According to the claim, the forbearance “has reflected poorly on their credit reports and prevented them from being able to obtain other financial services.” 

Wells Fargo has responded to the suit by telling several different media outlets that the customers “reached out and expressed financial hardship during the pandemic”. The bank said the move to put those customers in forbearance was an attempt to minimize delays in payment relief. However, some plaintiffs say the forbearance, which they did not ask for, has damaged their credit and prevented them from refinancing their homes. They say that if they did contact the bank, it was only to explore their options, not to request their mortgages be placed in forbearance. 

According to Tom Goyda, a spokesman for Wells Fargo, “For a short period during the early stages of the crisis, in an attempt to ensure that all customers received the payment relief they needed in the midst of unprecedented levels of customer calls, we made a decision to provide mortgage forbearances to certain customers who had made an inquiry or expressed hardship but had not explicitly requested a payment suspension.” The suit against the bank states, “Banks may not institute [forbearance] automatically, but that is exactly what Wells Fargo did.” 

Part of the problem with this automatic forbearance is that it prevented borrowers from making payments on time. One homeowner recounted exploring her options, then requesting information on financial-aid programs. When she logged in later in the month to make her mortgage payment, she received a message that she did not have active accounts and could not make the payment. Although that plaintiff says she still made mortgage payments, they were not credited to her account and she cannot get her mortgage refinanced because most lenders will not underwrite loans for borrowers with suspended payments. 

Mary Eshet, a spokeswoman for Wells Fargo, told NBC News, “In the spirit of providing assistance, we may have misinterpreted customers’ intentions in a small number of cases.” She said the bank is working directly with affected customers to remedy the situation. Borrowers say the “suspended” payments on their accounts could create a delay that will result in them missing historically low interest rates they would otherwise be able to use in a refinanced loan. Plaintiffs say they think Wells Fargo is trying to prevent them from taking their business elsewhere, but it is unclear whether the bank truly benefits from volunteering borrowers for forbearance. 

The bank has offered “sincere apologies” to affected customers and says it will take them out of forbearance if they ask. Many affected customers say removal from the program alone will not repair the damage. Wells Fargo has come under fire in the past for signing customers up for programs they did not request, including bank and credit card accounts and auto insurance. 

Would you have been upset about automatic forbearance?

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Sources: 

National Association of Realtors

NBC News

Law 360

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