Wells Fargo & Co. agreed to pay $24 million to eight states and make more than $772 million in loan modifications to resolve allegations that companies it acquired deceptively marketed adjustable rate mortgage loans.
The states claimed Wachovia Corp., which bought World Savings Inc. and was then acquired by Wells Fargo’s home mortgage unit in 2009, left consumers with massive debt by failing to give proper warning of the effect “pick-a-payment” adjustable rate mortgages could have. The low payment options often didn’t cover monthly interest, leading to defaults and foreclosures, the states said.
“In many cases, those who seek out these ‘minimum payment’ option mortgages are the very people who have the most limited financial resources,” New Jersey Attorney General Paula T. Dow said in a statement. “Signing them up for loan terms that sound attractive without warning them of the potential pitfalls is wrong.”
Wells Fargo will forgive interest and late fees for eligible delinquent borrowers, the states said. Loan modifications will be offered to 8,715 borrowers, Arizona Attorney General Terry Goddard said in a statement today. The total economic value of these modifications, including reduced interest rates, term extensions and forgiveness of principal is more than $772 million, Goddard said.
The numbers and balance of mortgages that will be affected are unknown, Franklin Codel, the chief financial officer of Wells Fargo Home Mortgage, said in a phone interview today.
“We gave the states an estimate but if the economy does really well or really poorly the number could be larger or smaller,” Codel said. “We aren’t tied to that number.”
The agreement isn’t related to claims that lenders used false documents and signatures to justify hundreds of thousands of foreclosures.
The six other states covered settlement are Colorado, Florida, Illinois, Nevada, Texas and Washington.
San Francisco-based Wells Fargo said today the $24 million payment will be used to help the states with customer outreach and to prevent or mitigate the impacts of foreclosures in their communities.
“In light of the unprecedented changes in our economy, Wells Fargo will continue to work with leaders across the nation to help stabilize communities,” Mike Held, co-president of Wells Fargo Home Mortgage, said today in a statement.
The agreement expands on Wells Fargo’s existing home preservation efforts, the company said. It won’t affect third- quarter financial results, Wells Fargo said.
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