Wednesday, October 6, 2010
Attorney General Abbott Signs Agreement With Wells Fargo Resulting In Mortgage ReliefEL PASO – Texas Attorney General Greg Abbott today reached an agreement with Wells Fargo & Co. that will provide $5 million in relief to more than 200 Texas homeowners who had “payment option” adjustable rate mortgage loans with the bank.
Today’s multi-state agreement, which included Texas and seven other states, applies to so-called POA loans that originated with Wachovia Corp. and Golden West Corp. Wells Fargo acquired both companies and their loan portfolios. As a result, Wells Fargo is legally responsible for the lenders’ conduct and thus worked with the states to develop a modification plan for negatively impacted homeowners.
“Under today’s agreement, 200 struggling Texas homeowners will get relief from mortgage payments that unexpectedly spiked,” Attorney General Abbott said. “Eligible homeowners will benefit both from modified loans and debt reduction. These concessions – which are warranted because the lender failed to properly disclose the potential for payment increases to homeowners – are intended to help affected Texas families keep their homes.”
POA loans were unique mortgages that appeared to allow borrowers to choose their payment amount each month. However, state investigators revealed that Golden West and Wachovia failed to properly explain to borrowers the consequences of underpayments. For example, customers who remitted payments that did not cover the interest were not told that their unpaid interest would be added to the principal of the loan. As a result, the total value of the loan increased and thereby negatively amortized the loan. Consequently, homeowners who later converted their mortgages to a fully amortizing structure – and were not adequately informed about the implications of their POA loans – unexpectedly faced higher monthly payments.
Under the agreement reached today, between December 1, 2010, and June 30, 2013, Wells Fargo will offer modifications to eligible residential borrowers who are either 60 days delinquent or facing imminent default. Eligible homeowners will first be considered under the federal Home Affordable Modification Program, and if ineligible, then Wells Fargo will consider borrowers for its new modification program. Loan modifications will be offered to almost 9,000 eligible borrowers in the eight participating states. The estimated total value of the loan modifications announced today total $772 million.
Besides Texas, the states included in today’s agreement are Arizona, Colorado, Florida, Illinois, Nevada, New Jersey and Washington.