Wells Fargo paying $24 million to end 8-state investigation into ‘pick-a-payment’ loansBy Alan Zibel, AP
Wednesday, October 6, 2010
Wells Fargo to pay $24M to end mortgage probe
WASHINGTON — Wells Fargo is paying $24 million to end an investigation by eight states probing whether lenders acquired by the company made risky mortgages to consumers without disclosing their perils.
The states said loans known as option adjustable rate loans, or “pick-a-payment” mortgages, were deceptive to borrowers. Those particularly toxic loans allowed borrowers to defer some of their interest payments and add them to the principal balance. Borrowers could make payments so low that loan debt actually increased every month.
San Francisco-based Wells Fargo & Co. announced the agreement Wednesday with attorneys general in Arizona, Colorado, Florida, Illinois, Nevada, New Jersey, Texas and Washington state.
The loans were made by Wachovia Corp. and a California company it acquired, World Savings Bank. Wells purchased Wachovia at the end of 2008. Wachovia had already stopped making those loans before the acquisition was complete.
As part of the agreement, Wells has agreed to offer loan assistance worth more than $770 million to more than 8,700 borrowers through June 2013, though that amount will depend on how the economy fares during that time. The $24 million will be used to help states reach out to customers who took out such loans.
The agreement includes no admission of wrongdoing by Wells Fargo. The states’ investigation centered on allegations that consumers were misled about the possibility that their mortgage amounts would increase.
Such “pick-a-payment” loans were made by many large lenders during the housing boom, but have defaulted in massive numbers after the market went bust.
Arizona Attorney General Terry Goddard, who led the investigation, said the loans were aggressively marketed in ways that misled borrowers by not making it clear that their mortgage amounts could increase.
This type of exaggeration caused many homeowners … (to) take out these loans believing there were no risks,” he said.
Wells said the program will have no impact on its third-quarter financial results. It said “pick-a-payment” customers already have received about $3.4 billion in principal forgiveness.
Borrowers who already have received a loan modification from Wells will not be eligible for the new program. For information, call Wells at 1-888-565-1422.
Associated Press Writer Paul Davenport contributed to this report from Phoenix.