Wells Fargo & Co. agreed to provide loan modifications worth more than $2 billion to California homeowners who have “pick-a-pay” loans, California Attorney General Jerry Brown said.
Wells Fargo, the largest U.S. home lender, also will pay $32 million to borrowers whose homes were lost in foreclosure, Brown said today in a statement.
Pick-a-pay, or pay option adjustable-rate mortgage loans, allowed borrowers to make payments at various levels, according to Brown. The highest level fully covered the monthly interest and principal due, while another level covered interest only. At the minimum level, payments were insufficient to cover the monthly interest owed, with unpaid interest added to the loan balance.
“Customers were offered adjustable-rate loans with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford,” Brown said in the statement. “Recognizing the harm caused by these loans, Wells Fargo accepted responsibility and entered into this settlement with my office.”
The mortgages at issue stem from the marketing and origination practices at World Savings Bank, a unit of Golden West Financial Corp. that was acquired by Wachovia Corp. before its 2008 merger with Wells Fargo, the bank said in an e-mailed statement.
“The majority of Wachovia’s Pick-a-Payment customers reside in California,” Mike Heid, co-president of Wells Fargo Home Mortgage, said in an e-mailed statement. “We’re pleased that going forward the attorney general’s office will assist with outreach, so that we can continue to work with as many customers as possible on the options available to them to prevent foreclosures.”
The bank, based in San Francisco, said in its statement that the amount of the agreement for homeowners whose homes were foreclosed was $33 million.
The $2 billion is total relief expected to be provided to California homeowners, which can include some combination of interest rate reduction, term extension, forgiveness on tax and insurance advances, as well as principal forgiveness, Teri Schrettenbrunner, a Wells Fargo spokeswoman, said in a phone interview.
From Jan 2009 to last November, Wells Fargo forgave $2.9 billion in principle on home loans in California, according to the bank’s statement.