Wells Fargo & Company
) was sued by New York State owing to the bank's violation of the
provisions of $25 billion mortgage-servicing settlement, which
was reached in February last year. The settlement was primarily
intended for homeowners to avoid foreclosure.
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However, Eric Schneiderman, the New York Attorney General (AG) -
who had played a major part in the settlement - accused Wells
Bank of America Corporation
) of breaching the conditions of the settlement. The AG accused
these banking giants of continuing to enforce holdups on
borrowers seeking to amend the provisions of their loans.
While BofA has agreed to make certain modifications to satisfy
the servicing standards, it seems that Wells Fargo is still stuck
in a stalemate. Therefore, Schneiderman filed the lawsuit - in
the form of a motion - in a federal court in Washington.
Schneiderman also charged Wells Fargo for violating foreclosure
laws and found discrepancies in the letters that Wells Fargo sent
to distressed borrowers. Moreover, the AG claimed that the
banking major refused to sign any agreement intending to improve
its customer services for homeowners at risk of default.
The Background Story
Last year, the AGs of 49 states and federal agencies such as the
Department of Justice (DoJ) and the Department of Housing and
Urban Development (HUD) made a settlement with five major U.S.
banks. This was arguably the largest joint federal-state
settlement ever and included
JPMorgan Chase & Co.
), BofA and Ally Financial Inc.
As per the agreement, these banks were required to lower the loan
amount for about 1 million homeowners, who were at a risk of
foreclosure. Further, approximately 750,000 borrowers who lost
their homes due to foreclosure over the last four years were
supposed to receive almost $2,000 in cash. The banks could
fulfill the terms of the deal till 2014.
Further, the settlement money of $25 billion received from the
five accused banks will expectedly be divided between the
regulatory authorities and distresses borrowers. Wells Fargo was
supposed to pay $1.01 billion to regulators and $4.34 billion in
Additionally, according to the deal, the banks needed to meet new
foreclosure servicing standards such as stricter oversight of
foreclosure processing, no foreclosure before the consideration
of loan modification and a single-point-of-contact for borrowers,
The $25 million foreclosure deal was a relief for the major U.S.
banks who were plagued with litigation hassles ever since the
financial crisis began. However, Wells Fargo's failure to conform
to the terms of the settlement will likely raise the bank's legal
expenses. Wells Fargo currently carries a Zacks Rank #3