New York Blasts Wells Fargo's Sandy Stall

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Story updated with a comment from a Wells Fargo spokesperson.

NEW YORK (TheStreet) --New York Attorney General Eric Schneiderman warned Wells Fargo(WFC) Friday that its decision to suspend the review of mortgage relief applications from New York homeowners in the wake of Hurricane Sandy violated its obligation under the national mortgage settlement.

In a letter to CEO John Stumpf, Schneiderman said Wells Fargo's directive to suspend "all home preservation reviews and decisions" across the north east pending further instructions from FEMA was "unconscionable" as New Yorkers are struggling to recover from the disaster.

Under the national mortgage settlement signed earlier this year with the 49 states, Wells Fargo is obligated to adhere to strict timelines when evaluating a homeowner's request for a loan modification. A decision about a loan modification needs to be made within 30 days from the receipt of the application package.

"Please be advised that Wells Fargo is not excused from any of its obligations under the National Mortgage Settlement or under New York law as a result of Hurricane Sandy, and that my office will aggressively pursue any loan servicing company that uses this tragic event as an excuse to violate loss mitigation decision timelines," the attorney general wrote in his letter.

He goes on to demand that the bank rescind its policy and communicate the retraction to homeowners who have been denied assistance.

"Countless families in New York have suffered tremendously because of this natural disaster. As we work to help those affected rebuild their lives, my office expects Wells Fargo's full cooperation in ensuring that no additional and unwarranted damage is inflicted on those who were victims of this tragic event," he wrote.

Wells Fargo spokesperson Vickee Adams said in an email statement to TheStreet that the bank began suspension of all foreclosure sales in FEMA declared disaster areas "immediately after Sandy made landfall" two weeks ago. These suspensions and any foreclosure activity will last a minimum of 90 days for the loans Wells Fargo owns which the company also services. Loans serviced for others will follow specific investor guidelines.

All eviction actions in FEMA declared disaster areas were also suspended, the bank said. The policy will be reviewed again in January 2013.

-- Written by Shanthi Bharatwaj in New York.