Wells Fargo, in a settlement with California's attorney general announced Monday, agreed to provide $2 billion worth of loan modifications to nearly 15,000 homeowners. Under the deal, the bank is also paying a total of $32 million to borrowers who lost their homes to foreclosure, according to the AG. Attorney General Jerry Brown said Wells Fargo will offer modifications to 14,900 homeowners, who have so-called "pick-a-pay" loans. "Customers were offered adjustable-rate loans, with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford," said Brown, who takes over as California's governor next month. "Recognizing the harm caused by these loans -- Wells Fargo accepted responsibility and entered in this settlement with my office." Pick-a-pay loans, where the rate changes throughout the life of the loan, became notorious during the housing market crisis.
According to the AG's office, payments often started low -- at levels that were "insufficient to cover the monthly interest owed, and the unpaid interest was added to the loan balance." The loans would ultimately increase "dramatically," soaring to unaffordable heights for the homeowner and creating the risk of foreclosure. In addition to the loan modifications, Wells Fargo will pay $32 million in restitution to more than 12,000 pick-a-pay borrowers who lost their homes through foreclosure in California. The attorney general noted that the loans were not made by Wells Fargo, but by banks that it acquired: World Savings and Wachovia. Wells Fargo stated that so far it has already extended significant home payment relief options to more than 50,000 at-risk, pick-a-payment homeowners in California -- through interest rate reductions, term extensions, tax forgiveness, insurance advances and principal forgiveness. This adds to the list of pick-a-pay settlements that Wells Fargo has previously signed with attorney generals in Arizona, Colorado, Florida, Illinois, Nevada, New Jersey, Texas and Washington.
