Last week, mega-bank Wells Fargo was slapped with an $85 million fine by the Federal Reserve for strong-arming borrowers who qualified for prime loans into subprime loans. The fine is the largest consumer protection enforcement action ever.
But pushing borrowers (and particularly minorities) into riskier, more expensive loans is hardly the end of Wells Fargo’s ills. As Andrew Cohen laid out in the Atlantic, the bank (which received $25 billion in bailout funds) also foreclosed on a Massachusetts family for failing to make its mortgage payments, after explicitly telling the family that it should skip those payments:
They verbally agreed with their lender, Wells Fargo, to take certain steps toward such a modification. The bank told the Dixons to stop making their payments on the loan (funds that would later be added to the modified loan amount) and to provide loan officers with certain financial information. The Dixons complied and began to work with bank officials.
Eighteen months later, however, instead of modifying the loan, Wells Fargo told the Dixons that they had defaulted upon their payment obligations — because they hadn’t made their monthly payments. The bank told the family it intended to foreclose upon their house. The notice from Wells Fargo, which arrived 17 days before Christmas 2010, gave the family roughly 30 days notice.
This is not an isolated problem, and it arises principally because banks are allowed to “dual-track” borrowers, which means they can proceed with foreclosure proceedings even while examining whether a family is eligible for a mortgage modification. Bank employees, confused over the modification process, tell families to stop mortgage payments in order to qualify for a modification, and then the bank promptly forecloses.
At the moment, 20 percent of mortgages in the nation are underwater, meaning that the borrower owes more on the mortgage than the house is worth. Foreclosures will likely top 1 million, this year, and mortgage abuses, including robo-signing, are still ongoing. With all that, doing away with dual-tracking would do a world of good.