Academic

So Monday, the WSJ featured an article on second mortgages that lenders were trying to enforce after the first mortgage was released by foreclosure of the property.  Former homeowners then facing suits for home equity loans even after the collateral is gone.  This was an article sure to resonate with readers, even though we still pay the credit card bill for meals we've eaten, gifts we've given or even big-ticket items we've sold to pay other debts.  Perhaps the story resonates because we are skeptical of home equity loans -- perhaps we think that loan officers inflate the appraised value of your home, lending you money on phantom equity for their own purposes anyway.  Or perhaps the stories don't resonate with you.

Well, the story seemed to resonate with Wells Fargo.  The Monday article used as a compelling story the plight of Wells Fargo borrower Charissa Kolich, who lost her home to foreclosure but was being sued by Wells Fargo for the $72,000 balance on a second mortgage.  Ms. Kolich has been diagnosed with an inoperable brain tumor.  She also has a more compelling story than others because her second mortgage was not a typical home equity loan but part of her original loan package, meaning Ms. Kolich never took cash out for any kind of expenditure.  It also seems as if Wells Fargo was the owner of both the first and second mortgage, dispelling any sympathy we might feel for a separate junior lender not part of foreclosure proceedings.  In other words, if Wells Fargo foreclosed on the property, shouldn't both its loans be extinguished when the parties simply split the purchase money mortgage into two tranches for various reasons that may have benefitted Wells Fargo?

So today (Wednesday), the WSJ reports that Wells Fargo has dropped its suit against Ms. Kolich, citing the hardship facts given in the WSJ.  Wells Fargo isn't doing a great job on its PR move here, though, because it then blames Ms. Kolich's lawyers for filing cease-and-desist letters, which kept them from being able to call day and night to find out about Ms. Kolich's hardships.  (The legal defense team then of course cites to letters and messages made on Ms. Kolich's behalf citing those exact hardships that weren't answered by Wells Fargo.)  This article also reports that California has a statute that prevents mortgage lenders from filing suit to collect deficiencies after foreclosure, but that statute (Cal. Code Civ. Proc. 580b) may not apply to certain kinds of second mortgages.

I guess I'm just a cold-hearted person, but I don't find this story heart-warming.  Why is Wells Fargo forgiving the second mortgage?  Because of adverse publicity?  Because WF actually has a policy of forgiving loans for borrowers with financial hardship?  Because WF actually has a policy of forgiving loans for borrowers with live-threatening or life-shortening conditions?  Because WF just made a rational calculation that repayment was unlikely given the health condition and financial hardship?

However, I am disheartened that the only way to communicate with a mortgage lender that institutes litigation with you is through the WSJ.  We have been hearing stories for the past two years or so of distressed borrowers trying to get through to persons at mortgage firms with the power to modify their mortgage, and this tale just seems to confirm those stories.  Perhaps the real regulation we need is regulation for mortgage firms to pick up the phone.  Unless the WSJ wants to branch out of the waning industry of print publication into the growing industry of mortgage solution firm.