SAN FRANCISCO (CN) - Wells Fargo cannot be stopped from foreclosing on troubled, Pick-a-Payment mortgage loans despite class allegations of breach of settlement, a federal judge ruled.
Jennifer Murphy and 30 other named plaintiffs sued Wells Fargo, Wachovia, World Savings Bank and Golden West Financial in 2012.
The class claimed Wells Fargo et al. approved fewer than 3 percent of loan modifications after acquiring "troubled" mortgage loans effectively "for nothing." They claim that the bank's "greed seems to have no bounds."
Murphy's federal claims were echoed by Richard D'Alessio and Paul McDermed, who separately cited the alleged breach, In re: Wachovia Corp. "Pick-A-Payment" Mortgage Marketing and Sales Practices Litigation, approved by U.S. District Judge Jeremy Fogel in 2010.
The multidistrict litigation represented a consolidation of assorted Pick-a-Payment class actions around the country, including the first-filed action in Northern California, Mandrigues v. World Savings, Inc., et al.
Murphy, D'Alessio and McDermed claimed Wells Fargo breached the settlement by applying an inaccurate definition of "imminent default" in denying loan modification applications (Murphy action); inflating home values, causing unwarranted loan modification denials (D'Alessio action); and improperly denying access to additional loan modifications (McDermed action).
Wells Fargo purchased Wachovia and its Pick-a-Payment loan portfolio for $15.1 billion, on the heels of IRS Notice 2008-83, issued Sept. 30, 2008.
"In a typical merger transaction, the acquiring company cannot use the acquired company's entire operating loss to offset its own profits, but instead, is limited to using $1 billion of those losses per year. The restriction exists to discourage companies from buying failing companies solely to avoid taxes and shelter their own profits," U.S. District Judge Susan Illston ruled in 2013. "IRS Notice 2008-83 removed that restriction for transactions involving financial institutions, thereby permitting an acquiring bank to take advantage of the acquired bank's losses in full at any time."
Wells Fargo bought Wachovia on Oct. 3, 2008.
"While Wachovia had substantial liabilities, and Wells Fargo knew that it would need to substantially write down Wachovia's Pick-a-Payment portfolio, the key to the deal for Wells Fargo was that it could use Wachovia's substantial losses to avoid paying taxes on its own profits, which could potentially save it $40 billion in taxes," Illston added, in dismissing Murphy, D'Alessio and McDermed's overlapping claims.
During the merger, a class sued Wachovia over the Pick-a-Payment portfolio, which allegedly left "hundreds of thousands of homeowners ... suffering the effects of undisclosed negative amortization."
Judge Fogel, in response, approved the unspecified settlement and created a new loan modification program - Mortgage Assistance Program (2MAP2R).
The program required Wells Fargo to provide principal forgiveness, "eliminating virtually all of the accrued negative amortization, by reducing a borrower's principal balance to the market value of the home in circumstances where the loan's principal balance exceeded the home's market value."
But the bank and program did little to provide relief to "struggling" homeowners, the plaintiffs said.
"According to Wells Fargo's records, for the period from April 1, 2011 to Sept. 30, 2012, there were 52,252 loan modification requests made by settlement class B members (borrowers who became in imminent threat of default after the parties agreed to the settlement). Of those requests, defendants have completed only 1,055 MAP2R modification (approximately 2 percent)," Murphy's complaint states. "In that same period, settlement class C members (borrowers who were in default at the time the parties agreed to the settlement) made 14,419 loan modification requests, but defendants completed on 691 MAP2R modifications (less than 5 percent)."
On Wednesday, U.S. District Judge Richard Seeborg rejected the plaintiff's latest request to halt Wells Fargo from "commencing or continuing" with foreclosures, pending an injunction hearing over the alleged settlement breach.
"While plaintiffs assert defendant has now initiated such proceedings, or provided notice of its intent to do so, against 'most' of the moving parties, they have not shown that foreclosures or evictions are so imminent that irreparable harm is likely to be suffered prior to the time a preliminary injunction could be heard," the single-paragraph ruling states. "Accordingly, the request for a temporary restraining order is denied."
The plaintiffs' application for a preliminary injunction is to be heard March 19.
Wells Fargo may oppose the request by March 12. The class must reply by March 16.