New Wells Fargo scandal over modifying mortgages without authorization – CNNMoney

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Warren Buffett: The three mistakes Wells Fargo made

Christopher and Allison Cotton had 16 years remaining on their mortgage when family medical expenses forced them into bankruptcy in 2014.

Wells Fargo went ahead and modified the North Carolina couple’s mortgage several times without their authorization, according to a class action lawsuit. The bank extended the term of the mortgage by nearly 26 years, documents say.

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If the “stealth” modifications hadn’t been caught, the Cotton family’s total interest payments would have nearly tripled to more than $140,000, the lawsuit said.

“I anticipate Wells Fargo has done this to thousands of customers,” said Theodore Bartholow III, a lawyer who represents the Cottons and last week launched the class action.

News of the latest legal trouble facing Wells Fargo (WFC) was first reported by The New York Times. It comes as Wells Fargo continues to dig out of a scandal over unauthorized account openings and alleged worker retaliation.

Bartholow described an “insidious” process where Wells Fargo uses a routine, but little-noticed form to “sneak through” mortgage modifications on unsuspecting homeowners.

The form is usually used to alert homeowners and the bankruptcy court about subtle shifts in real estate taxes or insurance costs. However, Wells Fargo has been accused of using these documents to make unauthorized and substantial changes to the structure of mortgages.

In the case of the Cotton family, their monthly mortgage payments were reduced from $1,404 to $1,251. But the life of the mortgage soared to 40 years.

A judge has strongly criticized Wells Fargo for the practice, calling it “beyond the pale of due process,” according to the lawsuit.

Related: Philly accuses Wells Fargo of targeting minorities

It’s not clear how widespread the problem may be. Wells Fargo has admitted to at least 100 times it engaged in this practice in one district outside of Charlotte alone, according to the lawsuit. The lawyers said they are aware of other instances in Louisiana, New Jersey, Pennsylvania and Texas.

Banks generally have a financial incentive to push through mortgage modifications, like this. One obvious benefit would be the extra interest income generated by a longer home loan.

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