When the economy tanked in the Great Recession a decade ago, Diana Johnson and her husband struggled to make payments on a Wells Fargo mortgage for her home in upstate New York that she ultimately lost.
After Wells announced last week it wrongly withheld mortgage modifications from homeowners because of a software problem, Johnson was among many around the country wondering whether they are among the roughly 625 people the bank says were harmed. Wells has said about 400 people lost their homes after its error.
Although Wells has announced plans for $8 million in relief for the victims, it said it hasn’t contacted them yet or said when it will do so.
Johnson, who now lives in Charlotte, and other customers described the wait to learn if they qualify for compensation as frustrating and upsetting. In addition, the disclosure of Wells’ error has dredged up memories from a painful time in their lives, they said.
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“We lost a lot when we lost that house,” said Johnson, 51. “It was tough enough when you had to go through it the first time, and now we’re going through it a second time.”
In its latest admission of wrongdoing to customers, Wells Fargo said faulty computer software that the bank developed caused it to deny, or not offer, lower mortgage payments to customers who should have qualified for the adjustments. The bank disclosed the error last Friday afternoon in a 173-page quarterly securities filing generally read by investors, in a section titled “Additional Efforts to Rebuild Trust.”
Wells apologized for the modification mistake. The bank said the problem affected homes in the foreclosure process from 2010 to 2015, when many people were still staggering from the soured economy.
More than 300 people contacted the Observer after Wells revealed the modification problem, wanting to know if they qualify for any compensation — and many wondering if the Wells Fargo error had cost them their house.
In a mortgage modification, a bank agrees to lower the monthly payment as a way to help a struggling borrower avoid losing their home.
Some described the modification process as nightmarish, saying it involved submitting large amounts of paperwork that the bank would lose and later ask for again. One former customer said he faxed documents for months to a machine that he eventually learned had long been out of paper.
Others said they were often given conflicting information by bank representatives.
In announcing the mistake, Wells noted that it corrected the problem in 2015. That prompted customers to question why the error wasn’t disclosed sooner.
“They should have immediately come out and said we made a mistake and correct it, not three years later,” said Phillip Jackson, who said he had Wells Fargo mortgages on his home in California and rental property in Massachusetts that were in foreclosure during the affected time period. Wells Fargo repeatedly denied his requests for loan modifications, he said.
“They knew they made this error in 2015,” said Jackson, 66, who had to sell his home and lost the rental in a foreclosure sale. “How many people lost their homes after that error was discovered? That ain’t even wrong. That’s evil.”
The Observer told Wells Fargo about the hundreds of responses to the bank’s disclosure. The bank said it could not comment on individual cases.
Wells spokesman Kurt Schroeder said the bank is in the process of completing a “very thorough” review to ensure it has identified every customer impacted by the modification error.
Customers and consumer advocates have also criticized Wells for the amount of compensation, which works out to less than $13,000 per person on average.
Wells hasn’t disclosed individual awards or how it determined the amounts. Customers are receiving what the bank believes is appropriate given the circumstances, Wells has said.
Critics say the compensation is not nearly enough to reimburse people for the financial, physical and emotional turmoil of losing a home to foreclosure — one of the most devastating events a family can face.
The effects can haunt a person for years.
In some cases, homeowners will file for bankruptcy to stop a foreclosure. Bankruptcies and foreclosures can lower a person’s credit score, which affects everything from the ability to rent an apartment to being approved for loans. According to consumer advocates, a foreclosure can also have generational impacts, increasingly the likelihood that children will do poorly in school during the foreclosure process then later if they relocate to a new school after the home is lost.
“It wouldn’t be enough for me to buy another house,” said Jackson, noting it could cost $100,000 just for a down payment on a home in California. “You’re never going to get back what you had.”
’Left a bad taste’
William Warner was elated in 2004 when he could move his growing family from their townhome near Baltimore to a four-bedroom house in a subdivision there. Now somebody else owns the house, which went into foreclosure, and Warner blames Wells Fargo for years of frustration in trying to keep it.
Warner, 50, who sells life insurance and does retirement planning, saw his income fall in 2008. By 2010, he said the family had fallen behind on their payments. But he said they were able to modify their mortgage, stretching the $477,000 balance to a 40-year repayment term.
By the following year they couldn’t make their mortgage payments and in 2012, Warner said, asked Wells Fargo to modify the loan. Warner said the bank denied modifications two or three times, saying his household earned too little money to make it feasible.
A last attempt at modification, Warner said, came after his wife had returned to work at the Department of Defense, boosting their household income. This time the couple was turned down, he said, because they made too much money.
Wells foreclosed on the house in the subdivision in April 2015, records show. Warner said he and his wife have separated, in part because of financial pressures from their struggle to keep their home.
“It’s nice that (Wells) is coming out and apologizing to people,” Warner said. “But if they really wanted to make amends they should go back to those people and make it right.” One way to do that, he said, would be for the bank to offer people it has harmed mortgages at reduced interest rates.
‘Trying to work with them’
Joe Ferris, 62, is also wondering if he’s one of the 625 victims after he and his wife, Cheryl, lost their home of 18 years in Lawrenceville, Ga.
When the recession hit in 2007 and 2008, Ferris’ income from a car business and building barns dropped, he said. In 2009, he asked Wells to modify his loan. Ferris said he sent documents to bank offices in Roanoke, Va.; Philadelphia; Portland, Ore.; Houston; and California and South Dakota.
The bank denied his applications twice, Ferris said.
In 2011, he said, he filed bankruptcy on an attorney’s advice in an effort to delay foreclosure by a few months. In late 2011 or early 2012, he said, Wells sent him a letter informing he had to move out of the house.
Four months later, he said, after he and his wife had moved away, the bank approved his latest loan modification.
“We wanted our home, and I was trying to work with them to get it done,” Ferris said. “It’s like the right doesn’t know the left, and the left didn’t know the right.”
The mortgage modification error is the latest disclosure of problems that have hurt customers at the San Francisco-based bank, which maintains its largest employment hub in Charlotte.
The revelation also comes nearly two years after authorities fined Wells $185 million over allegations it opened millions of customer accounts without authorization.
Since then, Wells has acknowledged other practices that have harmed customers in auto lending, wealth management and other areas. In February, the Federal Reserve, in an unprecedented step, announced it was restricting Wells’ growth and accused the bank’s board of failing to properly oversee the company.
Such problems have taken their toll on the bank, whose share price is down about 4 percent for the year, compared to a 2.4 percent rise in the KBW Bank Index, which tracks shares of large U.S. banks.
To improve its image with customers, Wells rolled out a new marketing campaign this spring: “Re-established 2018.”
In its securities filing, Wells did not rule out uncovering “other areas of potential concern” in its review.
“We are very sorry and will be reaching out proactively as quickly as possible to each impacted customer to make it right,” Schroeder, the Wells spokesman, said. “If customers have concerns or questions, we urge them to contact us” at (877) 645-1641. .
Since disclosing the modification error, Wells has pointed out that it has completed more than 1 million modifications since the beginning of 2009.
Schroeder also noted that from 2009 to 2015, Wells participated in 1,775 home-preservation outreach events, including 318 workshops where the company met individually with more than 50,000 customers to seek options for avoiding foreclosure.
It’s unclear whether homeowners would have been able to hold onto their properties even if Wells gave them modifications. Further reductions in income during the recession could have ultimately cost people their homes, if they were unable to pay even a modified mortgage.
But it’s not the first time Wells has come under scrutiny for how it’s handled mortgage modifications.
In a pending class-action case filed in federal court in Charlotte last year, two Gaston County homeowners allege Wells made “stealth” mortgage modifications that could vastly increase homeowners’ borrowing costs. Wells has denied the claims in the case, which has generated national attention.
Also, in 2016, the Office of the Comptroller of the Currency, a federal banking regulator, fined Wells $70 million and accused it, among other things, of making escrow calculation errors that in some cases led to incorrect loan modification denials and constituted unsafe or unsound banking practices.
‘It’s happening all over’
For Johnson, the former New Yorker, it became difficult for her family to make mortgage payments after her husband, who owned a computer business, lost about half of his business when the economy soured.
Johnson said she applied for the federal government’s Home Affordable Modification Program, or HAMP. The Treasury Department launched the program in 2009 to help homeowners avoid foreclosure.
She described the process as a “paper shuffle” — 18 months of sending and re-sending the same paperwork.
She said Wells Fargo rejected multiple modification attempts, telling her the family would not be able to afford a modified mortgage. The home went into foreclosure when it became impossible to afford the notes, she said.
The ordeal created a lot of stress in her marriage, and she had to seek therapy, Johnson said. The family filed for bankruptcy, wrecking their credit, which had been impeccable, she said.
“We took a lot of pride in our home, our finances and stuff. We worked very hard to get what we had,” she said. “We wound up losing everything that we worked for.”
Hearing Wells Fargo admit to its error all these years later is like re-living those dark days, Johnson said.
“It’s happening all over again,” she said. “It’s like: add some more salt, you know?”