Wells Fargo was sued for fraud today, as a class action lawsuit filed in the Northern District of Illinonis alleged that "Wells Fargo unlawfully failed to accurately assess the value of customers' homes before concluding there had been as significant decline in property value," according to a press release issued by the plaintiffs this morning.
In other words, Wells Fargo froze millions of dollars worth of home equity lines of credit after concluding that there was a substantial deline in home value across northen Illinois.
The class action lawsuit was filed on behalf of Michael Hickman, of Westmont, Ill., who was told that the credit limit on his HELOC account was reduced due to a supposed substantial decline in the value of his home. The plaintiffs allege that "Mr. Hickman's home and the homes of thousands of other class members did not substantially decline in value; rather, Wells Fargo used a variety of unreliable computer models to produce artificially deflated values."
It isn't just Wells Fargo. I've been hearing from customers of other big box lenders in Northern Illinois who have found their HELOC limits reduced or frozen as well.
A few years ago, anyone with a pulse could have walked into any bank on any corner in America and walked out with $30,000 or more in home equity line of credit cash to use any way they wanted.
But the dramatic decline in home prices has spelled disaster for second lien holders. They're getting zilch in foreclosures and short sales, and have taken losses in the billions. You can't blame banks for pulling in the HELOC welcome mat.
Not only that, but some HELOCs were offered at interest rates so low that banks are taking a bath on the business they still have. I'm paying in the 2 percent range on my HELOC, which is set at half a point below the prime rate. I know other folks who are paying a full percentage point below prime. Hard to make money at that interest rate. Any excuse to close these accounts will do - even telling people that their homes have crashed in value (whether or not they actually have).
As for offering to increase the limit on a high interest rate card, why not? If you can trade a debt at 2 percent for one that pays 18 percent, I'd take that business any day of the week.
I reached out to Wells Fargo for comment on the lawsuit. They're preparing one now. As soon as I get it, we'll publish it.