Update: “Pick-a-Payment” Class Members Seek TRO to Compel Wells Fargo’s Compliance with Settlement

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Contending that Wells Fargo has only offered the loan modification negotiated as part of the 2010 “Pick-a-Payment” class settlement (resolving claims related to Wells Fargo’s home mortgage practices) to a small fraction of the consumers intended to benefit from it, the settling class members have invoked the continuing jurisdiction provision and asked the federal court that presided over the case to audit and, if necessary, enforce Wells Fargo’s compliance with the settlement. See Pls’ Supp. Mem. P. & A. for Prelim Injunction, In re: Wachovia Corp. “Pick-a-Payment” Mortgage Marketing and Sales Practices Litigation, No. 09-02015 (N.D. Cal. Jan. 11, 2013). The class members allege that Wells Fargo has breached the parties’ settlement agreement by denying agreed-to and judicially approved loan modifications, taking inconsistent positions as to class members’ loan modification eligibility, and presenting inaccurate loan modification data to the court. Id. at 1.

The parties agreed to settle claims growing directly out of the 2008 home mortgage crisis and based on allegations that Wachovia Bank (acquired by Wells Fargo) failed to disclose that borrowers opting for artificially low monthly payments under the so-called “Pick-a-Payment” program could realize a net increase in their loan principal, and an eventual balloon payment far in excess of the initial monthly payments (and well beyond most borrowers’ means). A key provision of the settlement, therefore, was the establishment of a loan modification program, which was intended to align the class members’ loan repayment obligations with their ability to pay.

Class members now claim that Wells Fargo has been imposing onerous loan modification requirements and rejecting the vast majority of loan modification applications submitted. See id. at 3-5. Among other impediments, the class members allege that Wells Fargo erected hard-to-satisfy criteria for the “imminent default” prerequisite to loan modification, while expressly not considering obvious measures of borrowers’ financial hardship such as a recent bankruptcy filing. Id. at 6. Additionally, the class members contend that Wells Fargo made deliberately unrealistic assessments of how much money the class members would need to pay for necessities such as food and child health care, and used those assessments as a basis for denying the settlement’s agreed-to injunctive relief. Id. at 7-8.

The challenge to Wells Fargo’s compliance with the settlement’s core terms has been accompanied by unusually extensive post-settlement discovery, consisting of document requests and depositions intended to expose how Wells Fargo’s administration of the loan modification applications resulted in only a small proportion of class members actually getting their loans meaningfully modified.

Given that the parties are engaged in a discovery skirmish attendant to the motion to enforce the settlement, it is likely to be some time yet before Northern District Judge Jeremy Fogel issues a decision. When that decision is issued, however, it is expected to be widely influential both in conditioning settling defendants’ compliance with settlement terms and in defining the range of vigilance undertaken by class counsel in ensuring such compliance.