California Attorney General reaches settlement with Wells Fargo estimated $2B to Californians with risky adjustable-rate mortgages

Wells Fargo certainly play it smart with the state Attorney Generals. Wells Fargo has been far aggressive unlike the other major banks to reach a mortgage settlement with the state Attorney Generals. In October, fifty state Attorney Generals announced a joint investigation into the foreclosure fraud, robo-signing, and whether the lenders misrepresented foreclosure claims. Now, Wells Fargo reaches a settlement with California.

According to state Attorney General Jerry Brown's website, Attorney General Brown has reached a settlement with Wells Fargo today that Wells Fargo is to provide loan modifications estimated at $2 billion to thousands of California homeowners with "pick-a-pay" loans and to pay an additional $32 million to thousands of borrowers who lost their homes through foreclosure. "Pick-a-pay" loans or pay option adjustable-rate are mortgage loans that allowed borrowers to make payments at various levels. According to state Attorney General website, "The highest level fully covered the monthly interest and principal due. Another level covered 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. Ultimately, the loans would reset, increasing the monthly payments dramatically." This type of loans have caused many homeowners to simply not afford the mortgage payments in the housing bubble. 

Here is a breakdown of the settlement:

Under the settlement, Wells Fargo will offer affordable loan modifications to an estimated 14,900 California borrowers with pick-a-pay loans made by World Savings or Wachovia. Many of the modifications will include significant principal forgiveness. The total value of the modifications mandated by the settlement is projected to be more than $2 billion.

Wells Fargo is also required to pay $32 million in restitution to more than 12,000 pick-a-pay borrowers in California who lost their homes through foreclosure, plus approximately $1.8 million in costs to the state. Payments to foreclosed homeowners are expected to average more than $2,650.

World Savings was eventually taken over by Wachovia in 2006. And Wells Fargo taken over Wachovia in October 2008. None of the loans were made by Wells Fargo. These "pick-a-pay" loans were from Wachovia and World Savings, the banks that Wells Fargo acquired.

According to the state Attorney General website, Wells Fargo will send notice to the Calfornia borrowers who are eligible for a loan modification within the next two months, and those borrowers who suffered foreclosures should be notified during the first six months of 2011.  Here is a copy of the settlement. Click here.

In addition to California, Wells Fargo has entered similar agreements with the following states: Arizona, Colorado, Kansas, Florida, Illinois, Nevada, New Jersey, Texas and Washington.