RISMEDIA, December 23, 2010—(MCT)—Wells Fargo & Co. has agreed to modify the mortgages of nearly 15,000 California homeowners who teeter on the brink of foreclosure under a $2 billion deal with state officials. San Francisco-based Wells Fargo and the California attorney general’s office announced the settlement in connection with “pick-a-pay” loans originated by Wachovia and Oakland-based World Savings. Wells Fargo didn’t originate the loans, but was saddled with the World Savings loan portfolio when Wells Fargo bought Wachovia in 2008.
“Customers were offered adjustable-rate loans with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford,” California Attorney General Jerry Brown said.
Under the “pick-a-pay” program, mortgage borrowers could pick the level of their monthly payment during the early years of their loans. As the loans matured, their payments sometimes would reach levels that outpaced the ability of borrowers to make the monthly mortgage.
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.
Some attorneys said the agreement between the bank and the state justice officials is a step in the right direction. “This settlement is helpful,” said Leslie Baxter, a partner with Pleasanton, Calif.-based law firm Randick O’Dea & Tooliatos. “Banks have been more responsive to loan modifications recently. But it’s helpful when the attorney general brings an action. That gets the banks’ attention.” Baxter and her firm have been involved in advising clients about loan modifications.
“We had a bunch of very bad loans that banks have made. They didn’t verify income, and you had borrowers who didn’t have income to pay,” said Jeffrey Allen, principal executive with Graves & Allen, an Oakland-based law firm. Allen offers advice connected with loan modifications.
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.
“Recognizing the harm caused by these loans, Wells Fargo accepted responsibility and entered into this settlement with my office,” Brown said.
Brown also obliged Wells Fargo to pay $32 million in restitution to more than 12,000 pick-a-pay borrowers in California who lost their homes through foreclosure. Payments to foreclosed homeowners are expected to average more than $2,650. Wells Fargo also agreed to provide $1.8 million to the state of California to cover unspecified costs.
To put the deal in perspective: In October of this year, Wells Fargo struck deals with the states of Colorado, Florida, Illinois, Nevada, New Jersey, Texas and Washington. That multi-state deal totaled $772 million and helped 9,000 homeowners.
Several months ago, numerous states struck a deal with Countrywide that pulled in more than $8 billion.
This deal places a huge portion of the pick-a-pay portfolio that Wells Fargo inherited into a formal agreement with California, Wells Fargo said. “This is our biggest deal so far,” said Franklin Codel, chief financial officer with Wells Fargo Home Mortgage, a unit of the bank.
About 60% of the pick-a-pay portfolio that Wells Fargo inherited is in California. “The agreement with California is an extension of the efforts we have underway,” said Teri Schrettenbrunner, a Wells Fargo spokeswoman. “We have hosted three large events. We also opened up 15 home-preservation centers across the state.”
Wells Fargo officials said they hope that homeowners who receive letters from the bank inviting them to begin a loan modification process will contact the financial firm.
“We are asking people to respond to our outreach,” Schrettenbrunner said. “We hope they open the letters. One of our biggest challenges is to get people to return our requests for outreach so we can engage them in home retention efforts.”
(c) 2010, Contra Costa Times (Walnut Creek, Calif.).
Distributed by McClatchy-Tribune Information Services.