Wells Fargo has had its hands slapped in the recent past for doing things to its customers without their knowledge or consent. In that case they were signing customers up for credit cards and then taking them away – ostensibly to meet sales quotas. Apparently a Virtual sale is as good as a real one when it comes to meeting short term quota goals. They were fined $185 million for that. The CEO lost his position.
Now they have been accused of making changes to the mortgage terms of some customers without asking their permission. It’s laid out in this New York Times article.
The customers in question all have on thing in common: they are facing bankruptcy.
The rejigging always works the same way: The term of the mortgage is extended to something like 40 years which brings the monthly payment down. It also increases the total interest owed over the term of the mortgage by tens of thousands of dollars.
The bank is contending it did nothing wrong, that it notified the customers of the change. Customers are saying no notice was given.
Some might thing that having the monthly payment drop from just over $1000 to the mid $600s sounds like a good deal. Especially when you’re facing bankruptcy.
There are problems with that though. When you go into the process you have to disclose all your financial incomes and outgoings to the court. If you begin making these new, lower, payments without the court’s permission you could come out of the bankruptcy owing the difference between the payments. The added interest of extending your mortgage term from 10 years to 40 years amounts to tens of thousands of dollars. That would put you into an arrears situation and the bank could immediately begin foreclosure proceedings against your house.
When I initially read this last night (different article on different news site) that last part wasn’t mentioned. I theorized another possible reason for this behaviour.
When you do finally go bankrupt the court looks at who you owe money to in order to determine who gets what. These entities are divided into two categories: the secured and the unsecured creditors.
The secured creditors get paid out first and then, if anything is left over, the unsecured get paid.
So when it comes to the secured creditors how would the court / trustee decide who gets what portion of your financial carcass? Well they would likely add up the financial commitments owed and take the ratio of that amount represented by an individual vulture, er – creditor, and assign them that amount.
Imagine someone had a house, car or two, RV, boat, cabin in the woods that they owed on. If you’re Wells Fargo and the house is your stake in this then by boosting the total amount owed on that property you would also boost the ratio of the total debt and give you a bigger piece of the carcass.
Now I’m not a banker and have never worked for a bank. Nor a credit institution or a court. Haven’t gone through bankruptcy myself. So I cannot honestly say that this would be the case. I just have a Cassandra somewhere in my head that comes up with these worst case scenarios without prompting.
This recently exposed activity happened in the 2015/2016 period. It might have gone on a bit before but the class action suit lists only 25 customers so far. So it could be argued that this all happened under the tenure of the previous administrative regime.
I’ve heard that Wells Fargo is a $270 Billion entity. Their last fine was less than 1/10th of one percent of that amount. I would imagine that it does cause some painful consternation to some degree . . . but was that enough pain to cause the bank to change its practices?
Only time will tell.
The image used comes not from WF but from http://www.occupy.com/
They don’t think too highly of Wells Fargo at occupy.com and with good reason. Just type Wells Fargo into their search box to find articles like this one.