After eight states initiated investigations into deceptive mortgage lending practices by its subsidiaries, Wells Fargo has made a deal that could offer hope to distressed homeowners with adjustable rate mortgages (ARMs). Florida Attorney General Bill McCollum announced last week that the deal could result in $208 million in mortgage principal reductions for Florida borrowers facing foreclosure.
The affected loans were made through Wachovia Corporation and Golden West Corporation/World Savings Bank, both of which Wells Fargo acquired later. Wells Fargo itself is not accused of any wrongdoing.
The deceptive practices complaints were in regards to the marketing of ARMs. Borrowers were apparently not told that their minimum payments during the first years of the loans would not fully cover the interest on the loans. As a result, after several years of payments borrowers ended up owing more than they had originally borrowed. The second phase of the loans also resulted in sharply higher monthly payments that many borrowers could not afford.
More than 4,000 homeowners in Florida will likely qualify for assistance through the settlement. The agreement, potentially worth $388 or more in total, was made with the attorneys general of Florida, Arizona, Colorado, Illinois, Nevada, New Jersey, Texas and Washington state. Wells Fargo will also will pay $24 million to help states with foreclosure mitigation efforts.
Wells Fargo Deal Offers Loan Modifications, Some Principal Forgiveness
Under the deal, Wells Fargo agreed to offer loan modifications totaling approximately $770 million to 8,700 homeowners in the eight states, nearly half of whom are in Florida.
In order to qualify for the program, which starts December 1, homeowners must be at least 60 days delinquent on their mortgages or at immediate risk of foreclosure. Eligible homeowners will first be considered for the federal Home Affordable Modification Program (HAMP).
If borrowers don’t qualify for HAMP or can’t reach acceptable permanent loan modifications through the program, Wells Fargo will consider them for its new program, which is to be called the Mortgage Assistance Program 2.
Current Wells Fargo customers who took out mortgages through Wachovia or Golden West Corporation/World Savings Bank can call 888-565-1422 for further information.
Source: Orlando Sentinel, “Wells Fargo to offer mortgage relief to Florida borrowers,” Paul Owers, October 7, 2010