Earlier this year, Wells Fargo revealed that a software error in its mortgage underwriting system led to hundreds of unnecessary foreclosures, but now it appears the problem is even bigger than the troubled bank first thought.
Initially, Wells Fargo disclosed that the software error led to approximately 625 customers being either incorrectly denied a mortgage modification or not being offered one in situations where they would have qualified for one.
And of those roughly 625 customers, approximately 400 of them lost their homes via foreclosure after the loan modification was incorrectly denied or not offered as a result of the underwriting software error.
But, the figures are actually higher than that.
Wells Fargo revealed Tuesday in a filing with the Securities and Exchange Commission that a further review of the situation showed that its software error actually led to 870 improperly denied mortgage modifications and 545 faulty foreclosures, instead of the 625 denials and 400 foreclosures the bank initially disclosed.
So, the review found that 245 more borrowers were falsely denied a modification, while an additional 145 borrowers lost their homes when they shouldn’t have.
Wells Fargo disclosed in the SEC filing that a review of its use of a mortgage modification underwriting tool found a “calculation error” that affected certain mortgages that were in the foreclosure process between April 13, 2010, and Oct. 20, 2015.
According to Wells Fargo, the error caused an automated miscalculation of attorneys’ fees that were used to then determine whether a borrower qualified for a loan modification with Fannie Mae or Freddie Mac, or under the terms of the government’s Home Affordable Modification Program.
In the SEC filing, Wells Fargo said that the borrowers were not actually charged the attorneys’ fees in question.
But the error led to more than 800 incorrect mortgage modification denials and 545 subsequent foreclosures.
In its initial disclosure, Wells Fargo said that it set aside $8 million during the second quarter to be used to remediate the customers whose modification decisions “may have been affected by the calculation error.” That meant that if the money was divided equally among the initially reported 625 borrowers who were affected by the error, each borrower will receive approximately $12,800.
The new filing does not make any mention of monetary relief for the newly revealed victims.
Rather, the company stated that it is working to contact all of the affected customers and provide remediation.
“The company has contacted a substantial majority of the approximately 870 affected customers to provide remediation and the option also to pursue no-cost mediation with an independent mediator,” Wells Fargo said in its filing. “Attempts to contact the remaining affected customers are ongoing. Also, the company’s review of these matters is ongoing, including a review of its mortgage loan modification tools.”
In a statement provided to HousingWire, Wells Fargo said that it is “very sorry” about this situation.
“We disclosed in August that an internal review determined that an automated calculation error regarding foreclosure attorneys’ fees may have affected the decision on whether or not to offer or approve some mortgage modifications and we’re very sorry those errors occurred,” the company said in a statement.
“Today, we disclosed that a subsequent, expanded review identified additional customers whose mortgage modification decisions were impacted by related foreclosure attorneys’ fee errors,” the company continued. “We’ve contacted a substantial majority of the affected customers to provide remediation as well as the option to pursue no-cost mediation with an independent mediator.”
(h/t Reuters)
[Update: This article is updated with a statement from Wells Fargo.]
