LOS ANGELES, Calif.--Wells Fargo will provide loan changes worth more than $2 billion to thousands of California homeowners and provide an additional $32 million to thousands of borrowers who lost their homes through foreclosure, the state Attorney General's Office announced today.
None of the loans were made by Wells Fargo. All were originated by World Savings and Wachovia --both banks that Wells Fargo acquired, according to the Attorney General's office.
"Customers were offered adjustable-rate loans with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford,'' said Attorney General Jerry Brown.
"Recognizing the harm caused by these loans, Wells Fargo accepted responsibility and entered into this settlement with my office.''
The adjustable-rate mortgage loans allowed borrowers to make payments at various levels. The highest level fully covered the monthly interest and principal due. Another level covered interest only.
Payment were insufficient to cover the monthly interest owed and the unpaid interest was added to the loan balance. Ultimately, the loans would reset, increasing the monthly payments dramatically, according to the Attorney General's Office.
Faced with unemployment, dramatic declines in home prices and the sharp escalation of monthly payments, thousands of borrowers were unable to meet their mortgage payments.
The settlement with Wells Fargo covers loans made by World Savings Bank, a subsidiary of Golden West Financial Corp., and Wachovia Bank. Wachovia purchased World Savings in 2006, and Wells Fargo then acquired Wachovia in 2008.
Under the settlement, Wells Fargo will offer affordable loan modifications to an estimated 14,900 California borrowers with the loans at issue made by World Savings or Wachovia. Many of the modifications will include significant principal forgiveness.
Eight other states, including Arizona. Nevada, Colorado and Washington, have reached similar settlements with Wells Fargo, according to Brown's office.
California borrowers eligible for loan changes will be notified by Wells Fargo within two months.
Borrowers whose homes were foreclosured upon will be contacted during the next six months.
Further information and updates are available from the Attorney General's website, ag.ca.gov.