Wells Fargo has reached a nearly $800 million settlement with Attorneys General in eight states where the company — more precisely, Wachovia, which was acquired by Wells Fargo after it failed — was under investigation for allegedly deceiving some borrowers into taking out loans they could never pay back.
The largest chunk of the settlement is the $772 million in adjustments Wells Fargo will make in mortgages to a total of 8,715 borrowers in Arizona, Colorado, Florida, Illinois, Nevada, New Jersey, Texas and Washington.
From the Washington Post:
The investigation, led by Arizona Attorney General Terry Goddard, centered on an exotic type of loan that came into vogue during the peak of the housing boom: the “pick a pay” mortgage, which allowed borrowers to pay only a portion of the interest due. The rest would be added to the principal amount, resulting in a situation where the loan balance would actually get bigger as the borrower made payments.
According to the Arizona AG, about half of the adjustment money is being used to forgive a portion of borrowers’ principals. This is important, since most — if not all — of the mortgages involved are “underwater” loans, where the value of the mortgage is significantly higher than the actual value of the property.
In addition to the $772 million in adjustments, Wells Fargo, which services about 17% of the mortgages in the U.S., has agreed to pay $24 million to the eight states involved in the investigation.
Says the CFO for Wells Fargo:
We think this is a far more productive way to work together to help borrowers than some other alternative… We think it’s a win for the states and for the borrowers
Wells Fargo agrees to modify mortgages [Washington Post]