Just as calls for a nation-wide foreclosure moratorium peak, and on the heels of what looks to be certain Congressional investigation into the practices of “robo-signers” to aid in those foreclosures, Wells Fargo announced that it was paying nearly $25 million to settle investigations brought by eight states attorney generals concerning the practices of one of their subsidiaries.
The allegations involve California based Wachovia Corp, a group Wells Fargo purchased in 2008. According to investigations in Arizona, Colorado, Florida, Illinois, Nevada, New Jersey, Texas and Washington, Wachovia was in the practice of making risky loans to homeowners without disclosing all those risks. The loans involved were know as option adjustable rate loans, or “pick a payment” mortgages. Investigators charge the loans were deceptive to borrowers because they allowed borrowers to defer some of their interest payments and add them to the principal balance which means that borrowers could actually make payments on the loan yet their debt on that loan would increase every month despite making those payments.
While Wells Fargo insists that the practice at Wachovia ceased by the time it purchased the company, and as part of the settlement has refused to admit to any wrongdoing, it’s easy to see how such a product could be toxic to any consumer, but especially to an unsophisticated one.
In exchange for dropping the investigations, Wells has agreed to offer loan assistance worth more than $770 million to more than 8.700 borrowers through June 2013. The almost $25 million paid to states will be used to help those states reach out to customers who took out such loans. Borrowers who have already received a loan modification from Wells Fargo will not be eligible for the new program.
photo courtesy of Tracy O via Flickr