Attorney General Rob McKenna on Wednesday announced a settlement agreement that calls for Wells Fargo Bank to provide home loan modifications to customers in eight states who hold Pick-a-Pay subprime loans from Wachovia Bank and Golden West Corp., which did business as World Savings Bank.
About 400 Washington residents are now eligible for loan modifications worth $29 million, under the agreement. Of the total, borrowers will see $12 million completely forgiven.
The number of Clark County residents affected by the announcement is not known, according to the attorney general.
The settlement also includes $1.6 million for the Washington Attorney General’s Office for a foreclosure relief fund to help borrowers who lost their homes. Other state foreclosure assistance programs will also receive a share of the settlement. The bank will also pay $200,000 to reimburse the attorney general’s legal costs.
Attorneys general in eight states sued Wells Fargo, arguing that the Pick-a-Pay loans violated consumer protection laws because the lender tricked borrowers into signing negative-amortization loans that increased the loan balance over time, rather than paid it down.
Wells Fargo bought Wachovia and its subsidiary, Golden West, in 2008. Golden West, a large subprime lender, “was the poison pill that took Wachovia down,” McKenna said.
Golden West’s Pick-a-Pay loans offered borrowers four payment options, though most chose the lowest amount, which didn’t even cover the interest on the loan. As a result, the principal balance increased over time, putting borrowers deeper in debt. It then reset to a higher interest rate when either the unpaid balance reached a given percentage of the original loan (usually 110 percent or 125 percent), or after 10 years.
“In a world of questionable subprime loans, these stood out as particularly egregious,” McKenna said.
From Dec. 1 to June 30, 2013, Wells Fargo will offer loan modifications to borrowers with Pick-a-Pay loans who are at least 60 days late or facing imminent default. Borrowers will first be considered for the federal Home Affordable Modification Program.
Modifications will include principal forgiveness, loan extension, interest rate reduction and principal forbearance, or extra time to pay off the loan. Borrowers who stay current on their modified payments over three years can earn more principal forgiveness. Qualified borrowers may also convert into a fixed-rate loan.
Washington residents facing foreclosure can call the Washington State Homeownership Information Hotline at 1-877-894-4663 or visit the attorney general’s website at http://www.atg.wa.gov/foreclosure.aspx for more resources.