Wells Fargo (WFC) and a lot of other American banks got in trouble by being more liberal than they should have been in their loan practices. Financial firms made to many risky mortgage loans, too many LBO loans, and too many loans to owners of commercial real estate.
Wells Fargo is now being taken to court for not offering someone who wanted money enough money.
According to Reuters, “In a federal lawsuit filed in Chicago on Wednesday that seeks class-action status, homeowner Michael Hickman accused the bank of using “dubious” computer models that systematically undervalue homes, depriving customers of credit.” Put another way, the banks does not have the right to set limits on home equity loans based on its own judgment of their values.
The legal principle behind the suit must be a perverse one. The notion would have to be that Mr. Hickman believed that he should be able to unilaterally set the value of his house and use that value to get him access to more capital from Wells Fargo. The trouble is what if he is wrong and the bank has to write off the loan?
Douglas A. McIntyre
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