Wells Fargo is sued over home equity lines of credit

A federal lawsuit filed against Wells Fargo & Co.'s banking unit Tuesday accuses the company of slashing borrowers' home equity lines of credit based on flawed automated software that exaggerated how much the value of their properties had fallen.

The suit says federal law requires a lender planning to reduce a line of credit to reappraise the underlying property or to have "another sound basis for reducing or suspending the credit line."

Instead, the Wells Fargo banking unit employed "unreliable computer models" that generated "artificially deflated" home values, according to the complaint brought by homeowner Michael Hickman of Westmont, Ill.

The suit, filed in U.S. District Court in Chicago, asks the court to certify it as a class action representing all borrowers nationwide whose situations are similar to Hickman's.

"In this economy, what Wells Fargo and other lenders are doing to everyday customers like Michael Hickman is simply unconscionable," plaintiff attorney Jay Edelson of Chicago said in a news release announcing the lawsuit.

Edelson's firm has similar suits pending against Citigroup Inc. and JPMorgan Chase & Co., including Washington Mutual Bank, which was acquired by JPMorgan last year.

Wells Fargo said it had not fully reviewed the lawsuit.

A statement released by Des Moines-based Wells Fargo Home Mortgage said: "We are confident in our fair and responsible lending practices, including how we determine home equity credit limits available to customers depending on the amount of equity in their home. Our controls are based on contractual and regulatory guidelines and include a fair appeals process."

The lawsuit "appears to mischaracterize credit controls designed to sustain homeownership," Wells Fargo said.

Home equity lines of credit are a type of second mortgage that can enable homeowners to draw against a property's increased value to pay for home improvements, college expenses, vacations or anything they wish. They typically carry lower interest rates than credit cards, and the interest may be tax deductible, making them an especially attractive alternative. link.....