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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Nov 1, 2012

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Stephanie Watson from Chicago is suing Wells Fargo by alleging that the bank misrepresented requirements for the federal government’s Home Affordable Modification Program (HAMP), which can adjust monthly payments due to financial hardship.

The Chicago Tribune announced that Watson’s lawsuit claims that Wells Fargo willfully told borrowers that they must miss mortgage loan payments in order to qualify for debt modification. Customers, trusting in Wells Fargo, were charged fees and penalties when they missed payments. On top of that the bank reported delinquencies to credit-reporting agencies before refusing to modify existing mortgage loans.

Watson’s troubles first began in 2010, when she applied for the mortgage loan modification program. After speaking to Wells Fargo, she followed their instructions and missed her first payment in November of 2010. She was shocked when she incurred late fees and penalties. The bank told her that if she didn’t get her account current then she would be foreclosed upon. It took a few months for Watson to get her balance back to normal but then she was told she wouldn’t receive modification.

According to the Treasury Department, HAMP requires that applicants be facing “financial hardship and are either delinquent or in danger of falling behind on your mortgage payments.”

Watson’s lawsuit also alleges that Wells Fargo violated its own mortgage loan contract. According to the contract, the bank may hold a partial payment until a borrower pays the loan to bring it current. However, Wells Fargo must pay interest to the borrower on the partial payment unless the bank applies the funds to the home loan on the due date.

The monthly payment on Watson’s mortgage was over $2,300. However, on January 6, 2011, she accidentally made a payment of only $2,000. The bank put that payment into an account which did not apply to any principal, interest or fees of the mortgage loan.

Weeks later on Jan. 27, Watson brought her account current with a payment but Wells Fargo still refused to pay interest on the $2,000 it had been holding.

Wells Fargo, one of the largest banks in the country, says that it is “currently researching this case to better understand the nature of the lawsuit,” according to the Chicago Tribune.

The bank vowed to explore the situation and allegations as stated by spokesman Jim Hines.

“In general, we work hard to keep our customers in their homes when they encounter difficulties. Since January 2009 through the end of August 2012, more than 800,000 of the loans we service were in active trial or completed mortgage loan modifications. We can provide additional context when we have more information about the facts of the filing,” said Hines in a statement for the Chicago Tribune.