Wells Fargo Sued Over Missing Info in ARM Reset Notices

Wells Fargo's disclosure documents notifying borrowers of pending adjustable-rate mortgage resets are defective because they do not include information for a single point of contact at the bank, a lawsuit filed in California claims.

The lawsuit — Linda Marovec Varga v. Wells Fargo Home Mortgage Inc., filed in California Superior Court in Los Angeles — argues the bank received increased payments that it was not legally entitled to because its payment increase notices did not include the name and title of a person to contact with any questions.

Varga and her husband took out a $733,000 ARM loan from Wells Fargo for a home in San Gabriel, Calif., in 2003. The loan documents include a "fixed/adjustable rate rider" — a standard Fannie Mae form — that states Wells Fargo would provide "the title and telephone number of a person who will answer any question" about the adjustment notice, the lawsuit claims.

But when Varga received a rate adjustment notice, Wells Fargo only provided a general phone number to contact, according to the lawsuit and loan documents accompanying the court filing. The suit claims more than 1 million borrowers were potentially affected by the error and is seeking class action certification.

For the bank's ARM customers, the problem is that without a single point of contact, a borrower who can't afford increased payments due to a rate hike has difficulty reaching someone at the bank who is accountable and knowledgeable about the loan, said Keith Fromm, one of Varga's attorneys.

"You end up getting one knucklehead after another who doesn't know anything about anything," he said. "The bank only benefits by its [contract] breaches; the people only suffer by the breaches."

Wells Fargo declined comment. "We've only just begun to review this lawsuit and are assessing our legal strategy, but don't have any specific comment on the claims at this point," said Tom Goyda, Wells Fargo spokesman, in an email.

A Fannie Mae spokesperson confirmed that its ARM "notice of changes" riders have required servicers to include the title and telephone number of a person to answer questions since the 1990s. The "title and telephone number of a person" language is present in the current version of the rider, also known as Form 3182, which was revised in June 2017 and is posted on Fannie Mae's website.

The Consumer Financial Protection Bureau's suggested format for ARM adjustment forms does not require the name and title of a contact person, nor is that information required for other equally important payment adjustments, such as escrow analysis payment changes, private mortgage insurance deletions affecting payments and forced-placed insurance, said Dan Gitzlaff, manager of subservicing and interim servicing at Waterstone Mortgage Corp. Typically, a servicer would provide a customer service phone number for questions in those situations, he said.

Varga's attorneys also point to the single point of contact requirements for mortgage servicers dealing with delinquent borrowers under the California Homeowners' Bill of Rights and under federal Regulation X and Regulation Z.

An attorney with expertise in mortgage litigation who is not involved in the case, and who asked not to be named because the attorney's firm does business with Wells Fargo, said the federal and state single point of contact rules apply only to borrowers in default and potential foreclosure situations.

The attorney pointed out that in the appendices for Regulation Z, a sample form for interest rate adjustment notices includes company name and phone number, without a person's name and title. And a CFPB compliance guide on Regulation X and Regulation Z for mortgage servicers states that an ARM rate adjustment notice must include a phone number, but the guide doesn't mention including a name and title of a contact person.

The outcome of the case may come down to whether the failure to list a single point of contact is considered a material breach of contract.

Fromm, the plaintiff's attorney, said that about 20% of the 8.9 million home loans at Wells Fargo are ARMs, though he doesn't know yet how many customers had the same mortgage rider at issue. The Varga complaint seeks damages including rate increases, fees, refinancing costs, losses from distressed home sales and foreclosures, credit rating damage and other costs incurred by borrowers after they received the ARM rate increase notices. The lawsuit also seeks treble damages under California law.

The lead attorney on the case, Thomas Girardi, successfully sued Pacific Gas & Electric in the case depicted in the movie Erin Brockovich.