Judge Rules Wells Fargo Failed to Comply with 2010 Settlement – Many homes lost unnecessarily.

Well, surprise, surprise, surprise… a District Court judge has ruled that Wells Fargo failed to comply with the terms of a national settlement reached back in 2010… I believe that’s five years ago now.  The settlement affected adjustable payment mortgages, often called “pick-a-pay loans.”  And the plaintiffs say that Wells was supposed to provide loan modifications worth $2.7 billion… but didn’t.

The plaintiffs are alleging that “thousands of homeowners were denied mortgage assistance because Wells used the wrong methods to gauge their financial hardships,” according to Reuters on April 18th.

The U.S. District Court judge said that Wells Fargo, ”seems to have almost no idea what, exactly, they agreed to more than four years ago.”  And he agreed with the plaintiffs that Wells has used, ”evolving and perhaps ill-defined standards” when reviewing homeowners for loan modifications.

Yeah, well I guess that’s one way to phrase it. 

The case is: In Re: Wachovia Corp Pick-A-Payment Mortgage Litigation, U.S. District Court, Northern District of California (No 09-md-2015).  And the recent ruling by Judge Seeborg has instructed both sides to present joint or competing proposals for correcting the settlement violations within two weeks.

And that’s all the time Wells gets to propose a way to fix things… five years and two weeks, unless they need more time, of course, and in that case I have the feeling they’ll either get it… or just take it.

I don’t know what to say about this sort of thing anymore.  It’s like the courts are completely unaware that the result of Wells not complying with the 2010 settlement is that people lose homes that shouldn’t.  It’s not like Wells failed to mail out checks for $50… they caused thousands of people to lose their homes when they shouldn’t have lost them.

Oh my God.  Two weeks to submit a proposal to fix that sort of problem?  How in the world do you fix improperly foreclosing on homes for five years?  Are you going to buy people houses… provide downpayment assistance… apologize?  Not a chance in the world.  Allowing some people to reapply is hardly “fixing” anything.

If Wells Fargo were doing something wrong that was setting people’s homes on fire, would we still be waiting for five years to get into court and would the judge be giving anyone two weeks to do anything?  I seriously doubt it. 

In the Reuters article it said:

”We’re quite pleased,” said Jeffrey Berns, lead counsel for homeowners. “I don’t know whether this is going to prevent foreclosures but it is certainly going to open (Wells) up to claims for damages from class members.”

Oh, goodie!  Another class action that ends with homeowners each picking up checks for less money that it takes to rent a hotel room for a few days, let alone compensates someone for losing a home when they shouldn’t have lost it.  And he doesn’t know if it will prevent foreclosures?  Why doesn’t he know that?  What the heck is going on in this country… for the last seven years.  I guess this is what they mean by the “new normal.”

And it’s frightening to me because had I been asked at any time before 2008, whether I thought it was possible for Americans to lose homes when they shouldn’t, without hesitation I would have said no… not possible… not here.  I would have been willing to bet just about anything on that being true, and just look at how wrong I would have been… it’s mind-boggling.

Wells Fargo is #29 on the Fortune 500 list of US companies.  Boeing is #30.

In this country, according to AirlineReporter.com, the Boeing Corporation builds a 777 in 49 days, from the very first part… to out-the-door at the plant in Everett, Washington.  Once built, that plane can fly 301 souls all over the globe at 35,000 feet while meals and alcohol are served, with passengers from newborns to ninety-something year-olds.  Two underpaid union members fly that plane while behind a door that no one can get through… but even so it’s way safer than driving your car around the block.  You can get from LA to London in 10 hours for under a grand, and if you buy a ticket, you’ll arrive at your destination ten out of ten times, 365 days a year and 24 hours a day.

But, apparently for Wells Fargo to figure out how to comply with a legal settlement that it agreed to in 2010, requiring the bank to assess homeowners for loan modifications… even after five years of supposedly trying… and well… as the court said, Wells ”seems to have almost no idea what, exactly, they agreed to more than four years ago.”  And that Wells has used, ”evolving and perhaps ill-defined standards” when reviewing homeowners for loan modifications.

In other words, were Wells Fargo in the business of making airplanes, they’d be falling out of the sky or never taking off all the time.  I suppose we should all be grateful that Wells is only in the banking business, and therefore only responsible for our homes as opposed to our lives or safe travel.  How would you like to fly in a plane built using “evolving and perhaps ill-defined standards?”

And it’s not like you can say that Wells Fargo hasn’t had the resources to get the job done.  According to Fortune Magazine’s listing of the largest corporations in America…

“Strong loan and deposit growth led to increased profits for Wells Fargo in 2013 — to the tune of $21.9 billion, up 16% from $18.9 billion the previous year. The banking behemoth had nearly $826 billion in loans on the books at the end of the year, compared with nearly $800 billion at the end of 2012. In 2014, the company is looking to strengthen its dominant mortgage lending business by lowering the minimum credit score for residential mortgages.”

Again, that’s just under $22 billion in profits for 2013, and $26 billion more in loans that year, as compared with the prior year.  So, Wells Fargo managed to figure out how to originate an additional $26 billion in mortgages in just one year, but didn’t even come close to figuring out how to complete $2.7 billion… only 10 percent of that amount… in loan modifications over a five year period.

And based on that inexplicably poor performance, Wells planned to lower the minimum credit score in order to originate even more mortgages going forward?  Why would anyone be okay with that?  It would be like allowing Boeing, after demonstrating utter incompetence building airplanes, to increase their airplane production by reducing their production costs.

I know, it’s not really an analogy I’d use in a formal debate, but what is analogous is that both Wells Fargo and Boeing are giant corporations with tens of billions in annual revenues, tens of thousands of employees, and both have been around a long time.  Wells was founded in 1852 and Boeing in 1916… either way that’s plenty of time to have gotten day-to-day type operations under control.  Any company that’s been in business for 100 years or more, has worked out any kinks by now, one would think.

In the case of Wells Fargo, however, one would be wrong… apparently.  Or at least that’s what we’re being asked to believe, because the only other possibility would be that Wells Fargo ignored the settlement and improperly foreclosed on people’s homes ON PURPOSE, or that they didn’t care enough to handle things properly… and either way, it’s almost too horrible to consider.

What kind of company would intentionally allow homes to be lost to foreclosure when they shouldn’t be lost to foreclosure?  Any company that would do that would be evil, right?  And even worse, in Wells’ case, since they wanted to lower credit scores in order to originate more mortgages, that would mean that they were doing so knowing and not caring that more people would lose homes due to their intentional or unintentional negligence.

It would be like Boeing intentionally making defective airplanes that cost people their lives… it would be unthinkable and I would think criminal.

However, the fact is that, not only has Wells failed to comply with the settlement that’s the subject of this class action lawsuit, but Wells is very well known to have consistently been the worst at modifying loans for the last six years as compared with all other servicers. 

So, what are we to think about this situation as related to Wells Fargo?  Clearly the giant bank has had plenty of time to figure out how to modify loans, and they agreed to do so when they signed the legal settlement agreement back in 2010.  So does the fact that they’ve failed to do so indicate intentional or unintentional negligence? 

And either way, since either form of negligence is resulting in people losing homes they shouldn’t have lost, and since Wells Fargo must know this… shouldn’t their conduct be considered nothing less than shocking and inexcusable?

And yet, all the judge has asked for is a plan to correct the five year-old problem, and no headlines can be found expressing the sort of outrage one would expect when any giant corporation ignores the law and interests of its customers thus causing them irreparable harm, which is certainly the case when someone loses a home to foreclosure but shouldn’t have.

The plaintiff’s counsel admits that he doesn’t know whether this lawsuit will stop any foreclosures, so we’re left to see how much the damages are according to the court, and how much the homeowners who were harmed will receive as a result of Wells negligent behavior and abominable practices.

If those damages aren’t severe, and I fear they will not be anywhere near severe for Wells Fargo, then it’s clear why the bank hasn’t cared about fixing the problem for five years… it’s the same reason Ford Motor Company chose not to fix the exploding Pinto.  According to a paper from Wake Forrest University Law School describing Ford’s decision…

“Although Ford had access to a new design which would decrease the possibility of the Ford Pinto from exploding, the company chose not to implement the design, which would have cost $11 per car, even though it had done an analysis showing that the new design would result in 180 less deaths.  The company defended itself on the grounds that it used the accepted risk/benefit analysis to determine if the monetary costs of making the change were greater than the societal benefit.  Based on the numbers Ford used, the cost would have been $137 million versus the $49.5 million price tag put on the deaths, injuries, and car damages, and thus Ford felt justified not implementing the design change.”

Ford didn’t spend an additional $11 per car to prevent 180 people from dying when their cars exploded after being hit from behind.  Their price tag on the deaths of the people was less than the costs of fixing the problem, so as the paper states, the company felt justified in not spending the money. 

Did anyone at Ford bother to close their eyes and imagine what it’s like to burn to death when inside a car that explodes?  Let’s hope not, because if they did and made their decision anyway, then they were evil on a scale I don’t even want to think about.

Why wouldn’t every homeowner in the country demand that Wells Fargo be severely punished for their behavior… for disregarding a legal settlement they agreed to five years ago, and for allowing their negligence to result in people losing homes unnecessarily?  After all, Wells being negligent in such a way, could cause anyone to be harmed in such an unforgivable way.

Yet, I’m confident that no one will speak out or even say a word about this case or what it clearly implies… that the price tag will amount to pocket change for the financial behemoth… that it will have been worth it for Wells Fargo to act as it did… that homeowners will get little or nothing in terms of compensation… and that the decision won’t lead to any sort of meaningful change in the future.   

So, it’s both us as individuals and our system that’s broken.  As is often said in such situations, don’t hate the player, hate the game… but in this instance I think it’s okay to hate both.

Mandelman out.