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A glitch in Wells Fargo’s proprietary mortgage underwriting software led to hundreds of home foreclosures. An SEC filing disclosed in August revealed that a Wells Fargo “calculation error” unfairly barred 625 homeowners from mortgage modification.

“We determined that an automated calculation error may have affected the decision on whether or not to offer or approve some mortgage modifications between April 13, 2010 and Oct. 20, 2015,” said Senior Vice President of Wells Fargo Tom Goyda in a statement to Business Times. “We’re very sorry that this error occurred and are providing remediation to the approximately 625 customers who may have been impacted.”

This error miscalculated attorneys’ fees, which are used decide whether or not a borrower qualifies for a mortgage modification. As a result, 400 homeowners were forced to foreclose.

To understand the significance of this calculation blunder, we first need to highlight the purpose of mortgage modifications, and how this financial safeguard could have spared hundreds of homeowners from foreclosure.

What is mortgage modification?

Loan modification is an alteration to lender terms. The goal is to make repayment viable when in light of prolonged missed payments. This can take on several forms including any combination of the following:

  • Reduction in loan interest rate
  • Extended length loan maturity
  • Different type of loan

Usually, these loan features are determined at the outset of the mortgage and are, in large part, dependent on a borrower’s credit scores. A loan modification helps borrowers renew these terms and secure a more favorable loan in instances of financial hardship.

The most popular version of mortgage modification is the Home Affordable Modification Program — a facet of the Making Home Affordable federal program — but various modification options exist depending on the lender.

Lenders and borrowers strive for the same goal: repayment. Mortgage modification is a valuable renegotiation tool that can significantly reduce the likelihood of loan deferment. The Wells Fargo calculation error prevented mortgage owners from leveraging this financial aid, and this subsequently led to hundreds of unnecessary home foreclosures.

As a result, homeowners and members of congress are seeking retribution.

What’s next for affected homeowners?

Wells Fargo — the second largest mortgage lender in the United States — is no stranger to controversy. Last year, Wells Fargo faced a $125 million lawsuit over falsifying records in an effort to meet sales goals.

So, while this most recent error might seem insignificant compared to past Wells Fargo mistakes, the central issue remains: hundreds of people lost their homes.

Wells Fargo has allocated $8 million in remediate funds in order to repay homeowners. However, this sum divided among the 625 borrowers that were affected by the miscalculation only amounts to approximately $12,800 per borrower, which some say does not adequately cover damages.

Two senators have been vocal in their opposition of Wells Fargo’s deficient financial fix. Elizabeth Warren, D-Mass., and Brian Schatz, D-Hawaii, drafted a long list of questions for Wells Fargo following the miscalculation fall out, and are pushing the mortgage lender for more information on their underwriting practices and proposed solution.

Although this error occurred nearly a decade ago, it has only been made public in the past month. How this debacle will affect future underwriting practices, the homeowners in question, and Wells Fargo as a whole, remains to be seen.

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