Wells Fargo customers are taking legal action against the bank regarding it’s alleged mishandling of mortgage insurance protection and associated payments.
Mortgage insurance protection, often called private mortgage insurance or PMI, is designed to protect banks when a homebuyer is unable to afford a 20% down payment on their home.
As a homeowner pays her mortgage payments over time, her equity in the home increases, and eventuallyreach and exceed 20%, at which point, PMI payments should stop. However, Wells Fargo and other big banks are accused of continuing to collect PMI payments, an act that is in violation of the Homeowners Protection Act (HPA), which requires termination of PMI on the date the principal balance of the mortgage loan is first scheduled to reach 78 percent of the Original Value of the home.
How Does This Mortgage Scam Occur?
Many homeowners become victims of the PMI scam when they do a mortgage modification (different from refinancing a mortgage). It is during this modification process that banks receive something called a brokers price opinion (BPO). According to information collected from homeowners participating in a modification, BPOs consistently show homeowners still above 80 percent loan value, requiring PMI payments to continue. Essentially, the bank and BPOs are accused of working together to create a false situation in which homeowners are never able to get above the 20 percent equity amount.
In one instance which is moving toward a class action lawsuit, a Miami, Florida homeowner alleges to have entered into a mortgage with Wells Fargo in 2007, at which time her mortgage loan was subject to PMI. In 2011, the homeowner entered into the Home Affordable Modification Agreement with Wells Fargo, which adjusted the principal balance of her loan, its interest rate, and the amount of each payment to be put toward interest and principal. The homeowner claimed that following the modification, the bank failed to follow through on her requests to cancel the PMI and continued to charge her.
Mortgage Lender Manipulating Home Values to Scam Customers
The Miami homeowner is one of many who allege to have experienced similar situations.
Wells Fargo is now accused of “continuously and systematically” misrepresenting to borrowers with modified loans that is it calculating Termination Dates in compliance with HPA and provides them with a letter informing them of the terms under which they can cancel PMI, but instead of using the Original Value to calculate the Termination Bank, the lender is using a lower home value assessed either at the time of the modification or on an ongoing basis to extend the date the bank is permitted to collect PMI. These extended PMI payments have resulted in homeowners paying increased PMI payments, taking longer to pay off their mortgage loans, slowing their rate of building equity, increasing interest and principal balance, and increasing tax liability.
If you are a homeowner with a mortgage through Wells Fargo bank or any other lending institution you believe has altered the termination date for PMI, you might have a right to take legal action. It’s important to speak to someone familiar with the mortgage scam and determine if you are eligible to participate in the upcoming class action.