In a settlement with the Attorney General of New Jersey “Wells Fargo Home Mortgage has agreed to provide New Jersey consumers with nearly $67 million in loan modifications and pay the state $3.98 million to resolve allegations that companies it acquired – Wachovia Corporation, Golden West and World Savings – deceptively marketed adjustable rate mortgage loans. **
Acquired in 2008 by Wells Fargo, the companies sold thousands of so-called “Pick-a-Payment” adjustable rate mortgages in New Jersey by touting the mortgages’ low monthly payment options. However, the companies failed to warn borrowers that choosing the minimum-payment option could lead to a treadmill of debt. Specifically, a borrower’s “low” monthly payment option often failed to cover the interest on his or her loan. This resulted in an increase in the loan’s principal balance, causing the monthly payment to spike well beyond what the consumer expected to pay. Some borrowers became delinquent and faced the prospect of foreclosure. Others ultimately lost their homes.
New Jersey homeowners accounted for about 5 percent of the “Pick-a-Payment” loans acquired by Wells Fargo as part of its acquisitions of Wachovia, Golden West and World Savings in 2008.
In 2009, the Attorney General of New Jersey opened an investigation into whether Wells Fargo and/or the three predecessor companies had violated New Jersey’s Consumer Fraud Act by failing to explain to borrowers how “Pick-a-Payment” worked. The agreement announced today resolves the matter.
Under terms of the settlement, Wells Fargo will provide across-the-board forgiveness of accrued interest and late fees for eligible delinquent borrowers who live in the homes on which they took out “Pick-a-Payment” mortgages.
Starting on December 18, 2010, the company also will provide loan modification terms that enable affordable payments and reduce principal for some consumers. Modified loan terms will vary according to the circumstances of the borrower, but can include principal forgiveness, loan extension, interest rate reduction, and principal forbearance (which gives the borrower additional time to pay off the loan principal). Borrowers who remain current on their modified payments over three years will earn additional principal forgiveness. Borrowers who qualify may also convert into a fixed rate loan. All modification fees and pre-payment penalties will be waived. The modification program will extend until June 30, 2013.
Under Wells Fargo’s projections, which include certain modifications completed during negotiations, the settlement will result in modification of mortgage loans for upwards of 900 eligible New Jersey consumers. The value of those loan modifications will total close to $67 million.
Under the settlement, Wells Fargo also has agreed to make a number of servicing commitments to its “Pick-A-Payment” borrowers, including:
In addition to the loan modifications, Wells Fargo will pay the State $3.98 million. Of that amount, up to $2 million will be distributed as restitution to New Jersey consumers who had a “Pick-a-Payment” mortgage, became delinquent and were forced to leave their homes due to foreclosure or short sale between January 2, 2005 and December 18, 2010. The remaining $1.98 million will be used to support the state’s on-going efforts to combat mortgage fraud and loan modification fraud, and to prevent foreclosures.
During its investigation, New Jersey conducted direct interviews with homeowners who complained about the “Pick-a-Payment” mortgages, and surveyed other consumers by mail. Most borrowers said they did not understand what they’d signed up for, and many were dissatisfied after their loans underwent “negative amortization” (where the monthly payment fails to cover the interest on the loan, leading to an increase in the principal balance and, ultimately, greater debt.)
New Jersey was a lead state within a multi-state group that investigated Wells Fargo and the “Pick-a-Payment” mortgages, and that ultimately reached settlement with the company. New Jersey consumers who believe they qualify for the restitution program should submit their contact information to the Division of Consumer Affairs’ Web site at www.state.nj.us/lps/ca/wellsfargo.
Wells Fargo customers who currently hold “Pick-a-Payment” mortgages and who want information about the loan modification program can call the dedicated Wells Fargo toll-free number at (888) 565-1422.
Attorney General Dow said the state continues to be concerned about deceptive business practices in the mortgage and foreclosure remediation industries. She explained that the Division of Consumer Affairs is aggressively pursuing these matters whenever New Jersey borrowers are believed to have been victimized by unscrupulous lending, foreclosure or foreclosure remediation practices.” ** Abridged from October 6, 2010, announcement of the NJ Division of Consumer Affairs