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Wells Fargo Agrees to $2 Billion Worth of California Loan Modifications

""Wells Fargo"":http://www.wellsfargo.com reached an assurance agreement with ""California Attorney General"":http://www.ag.ca.gov Edmund G. Brown Jr., to provide loan modifications worth more than $2 billion[IMAGE]

to thousands of California homeowners with ""pick-a-pay"" loans originated by World Savings and Wachovia, banks Wells Fargo acquired. Wells Fargo will also pay an additional $32 million to thousands of borrowers who lost their homes through foreclosure.

Pick-a-pay, or pay option adjustable-rate mortgage (ARM) loans give borrowers the option to make payments at various levels, such as monthly interest and principal or interest only. At the minimum level, payment was insufficient to cover the monthly interest owed, and the unpaid interest was added to the loan balance. When these loans reset, the monthly payments significantly increase.

""Customers were offered adjustable-rate loans with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford,"" Brown said. ""Recognizing the harm caused by these loans, Wells Fargo

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accepted responsibility and entered into this settlement with my office.""

Under the settlement, an estimated 14,900 California borrowers with pick-a-pay loans made by World Savings or Wachovia will receive affordable loan modifications from Wells Fargo using combinations of interest rate reductions, term extensions, and principal forgiveness. The value of the modifications, many of which will include significant principal forgiveness, is estimated at more than $2 billion.

""The majority of Wachovia's Pick-a-Payment customers reside in California,"" said Mike Heid, co-president of Wells Fargo Home Mortgage. ""We're pleased that going forward the attorney general's office will assist with outreach, so we can continue to work with as many customers as possible on the options available to them to prevent foreclosures.""

Wells Fargo will send notices to California borrowers eligible for loan modifications within the next two months. Borrowers with foreclosures will receive notification during the first six months of 2011.

The bank will also pay $32 million in restitution to more than 12,000 pick-a-pay borrowers in California who lost their homes through foreclosure and approximately $1.8 million in costs to the state.

Arizona, Colorado, Kansas, Florida, Illinois, Nevada, New Jersey, Texas, and Washington have similar agreements with Wells Fargo.

Wells Fargo Home Mortgage, a division of Wells Fargo Bank, services one of every six mortgage loans in the nation. Wells Fargo acquired Wachovia in 2008, two years after Wachovia purchased World Savings Bank.

About Author: Heather Cernoch

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