Wells Fargo NA had no contractual obligation to shield homeowners from higher payments by tying adjustable mortgage rates to a more affordable benchmark, a California federal judge ruled Wednesday in wiping out a proposed class action against the lender.
U.S. District Judge Charles R. Breyer's decision rejected an argument from borrowers Charles and Gina Haggarty th.at the bank was required to abandon a cost index that spiked dramatically in 2009, saying the couple's loan left the bank sole discretion to decide if such action was warranted.
In addition, the assertion that Wells Fargo breached implied duties is blocked under the federal Home Owners' Loan Act, which protects lenders from being held to standards that vary under each state's particular rules on implicit fair dealing responsibilities, the judge said. In some states, Judge Breyer said, implied covenant violations must contain an element of bad faith - which is defined differently from place to place - and in other areas, there merely has to be a showing that one party acted in a commercially unreasonable manner.
"We are pleased with the court's decision," a Wells Fargo spokeswoman said.