As reported in the OC Register, 12/20/10

Wells Fargo has agreed to provide loan modifications worth more than $2 billion to thousands of California homeowners who took out pay option, adjustable rates loans, Gov. Jerry Brown announced today.
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The bank also agreed to pay an additional $32 million to thousands of borrowers whose homes were foreclosed.

The loans, none of which were originated by Wells Fargo, were made by by World Savings and Wachovia, banks acquired by Wells Fargo.

Brown said:

“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 so called pick-a-pay loans gave borrowers the freedom to choose a pay back method, but at the minimum level, the payment was insufficient to cover the monthly interest, whcih would be added to the balance of the loan.

At some point, the loans reset, upping monthly payments beyond borrowers’ ability to meet them

From the news release:

“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. 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.

“Wells Fargo is also required to pay $32 million in restitution to more than 12,000 pick-a-pay borrowers in California who lost their homes through foreclosure, plus approximately $1.8 million in costs to the state. Payments to foreclosed homeowners are expected to average more than $2,650.

“Wells Fargo has reached settlements over pick-a-pay loans with attorneys general 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 more information, go to the Attorney General’s website .

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