The lawsuit was filed in the United States District Court for the Northern District of California. The case alleges that ASC induced borrowers to default on their mortgages by telling them they would not be eligible for a loan modification if they were current on payments. Harwood Feffer claims ASC induced borrowers to default on their mortgages in order to charge penalty and fees associated with the late payments.
“As a loan servicer, ASC generates a significant portion of its revenue from fees, penalties, and interest collected on the non-performing loans it services,” said Harwood Feffer in a statement. The statement continued, “Consequently, it is in ASC’s financial interest to avoid, delay, and deny loan modifications and to pursue foreclosures because doing so will lead to increased revenue.” According to the Home Affordable Modification Program guidelines, a borrower who has not defaulted but is distressed and believed to be facing imminent default may be eligible for a loan modification if financial hardship can be demonstrated.
“By making loan default a prerequisite for modification, without regard to whether a borrower otherwise qualified for a modification due to financial hardship, ASC caused borrowers to unnecessarily suffer ruined credit and subjected them to significant fees, penalties and interest,” alleged Harwood Feffer. A spokesperson for Wells Fargo said he could not comment specifically on the lawsuit as it is currently under review, but said, “We believe, as we have from the beginning of this crisis, that it is in our customers’ and the country’s best interests to assist customers who can afford their homes – with some help – to remain in them. And, it is our goal to exhaust all options before moving a home to foreclosure sale.”