Wells Fargo & Co. has settled with eight state attorneys general over the allegedly deceptive marketing of payment option adjustable-rate mortgages (POAs) by Wachovia Corp. and Golden West Corp., whose portfolios Wells Fargo took on as part its acquisition of Wachovia in 2008. As part of the settlement, at-risk Wachovia Pick-a-Payment customers may soon be eligible to earn principal forgiveness by making on-time mortgage payments.
Wells Fargo will also contribute about $24 million to the eight states to enlist help in customer outreach and to prevent or mitigate the impacts of foreclosures in these communities.
Attorneys general in Arizona, Florida, Colorado, New Jersey, Washington, Texas, Illinois and Nevada allege that in marketing the POA loan products, Wachovia and Golden West did not fully explain that the minimum payment due in the first years of the loan did not cover the full amount of accrued interest, which, in turn, would increase the amount of the loan.
Wells Fargo did not originate POAs. At the end of 2008, it purchased Wachovia, which had originated POAs, and had already acquired Golden West, a significant POA lender under the name World Savings Bank.
Overall, loan modifications will be offered to 8,715 POA borrowers in the eight states, with a total economic value (including interest rate reductions, term extensions and principal forgiveness) estimated to be more than $772 million. Based on projections as of April 1, 2010, around which the agreement was framed, the settlement will generate more than $402 million in overall principal forgiveness.
Through August, at-risk Wachovia Pick-a-Payment customers already had been given almost $3.4 billion in principal forgiveness, Wells Fargo says.
"We are pleased that Wells Fargo has stepped forward and agreed to work with us in avoiding another wave of foreclosures in our states," says Arizona Attorney General Terry Goddard, the attorney general who led the eight-state effort. "Their willingness to add to their existing principal-forgiveness program is important to help consumers facing hardships who are deeply underwater in their homes."
By Dec. 18, the company will contact customers who are likely to be eligible for the new program via letters, and will maintain a dedicated help line – including Spanish-speaking specialists – to assist borrowers. Borrowers who already have received a modification will not be eligible for the new program.
SOURCES: Wells Fargo, Office of Arizona Attorney General Terry Goddard
