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Wells Fargo will modify loans and will reimburse

Wachovia and World Savings borrowers



On Monday, 12/20/2010, California Attorney General and Governor-elect, Jerry Brown, announced that Wells Fargo has agreed to provide loan modifications worth more than   $2 billion 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.   
Under the deal, the bank is also paying a total of $32 million restitution to more than 12,000 California pick-a-pay borrowers who lost their homes to foreclosure,   plus approximately $1.8 million in costs to the state.  Payments to foreclosed homeowners are expected to average more than $2,650 each.

The Attorney General noted that the loans were not made by Wells Fargo, but by banks that it acquired: World Savings and Wachovia.  World Savings was a large portfolio lender that was acquired by Wachovia in 2006, and, Wachovia was acquired by Wells Fargo in 2008.

Wells Fargo stated that so far it has already extended significant home payment relief 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 settlement will provide modifications to pick-a-pay, or pay option adjustable-rate loans with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford.

The pick-a-pay loans allowed borrowers to pick a payment at either of the following levels:

  • Monthly  mortgage payment to include principal and interest
  • Monthly mortgage payment  to include 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.
As a result of high unemployment, the declines in home values, and the sharp escalation of the monthly payments, thousands of borrowers were unable to meet their mortgage payments and thousands were not eligible to refinance at more favorable terms.
Attorney General Brown stated:

"Customers were offered adjustable-rate loans with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford. Recognizing the harm caused by these loans, Wells Fargo accepted responsibility and entered into this settlement with my office."
The loans were called pick-a-pay, and they allowed borrowers to choose how much they would pay each month. However, the lowest payment amount actually created negative amortization which would add to the principal balance of the loan.
Nothing last forever and these loans eventually reset and the revised higher payment amounts were unaffordable for many of the borrowers.”

Wells Fargo has reached settlements over pick-a-pay loans with Attorneys Generals of several other states, including Arizona, Colorado, Florida, Illinois, Nevada, New Jersey, Texas and Washington.
California borrowers eligible for loan modifications should get a notice from Wells Fargo within the next two months.  Borrowers who suffered foreclosures should be notified during the first six months of 2011.

For further information and updates, check the California Attorney General's website: