Borrowers can sue Wells Fargo over mortgage modifications

Wells Fargo must face lawsuits by homeowners who claim the largest US mortgage lender refused to offer them permanent mortgage modifications for which they had qualified, a federal appeals court ruled on Thursday.

The 9th US Circuit Court of Appeals said Wells Fargo was required under the federal Home Affordable Modification Program to offer loan modifications to borrowers who demonstrated their eligibility during a trial period.

Reversing the dismissals by a San Francisco federal judge of two lawsuits seeking class-action status, the appeals court rejected the argument that Wells Fargo became bound only upon sending borrowers signed modification agreements.

The court said this would create “unfettered discretion” for the San Francisco-based bank to reject modifications “for any reason whatsoever - interest rates went up, the economy soured, (or) it just didn’t like the borrower.”

While a federal appeals court in Chicago reached a similar conclusion last year, the 9th Circuit decision applies in several western US states - among them California, Arizona and Nevada - that have been particularly hard-hit by foreclosures.

Wells Fargo said it had $352 million of loans under HAMP in a trial modification period as of June 30.

“The 9th Circuit did not rule on the merits of the underlying cases, and found only that the district court should consider the arguments put forth by the plaintiffs,” the bank said in a statement. “Wells Fargo has strong defences to those arguments, and is prepared to present its case.”