Posted on Thursday, October 7, 2010
More than 4,000 Florida homeowners will be eligible for loan modifications and mortgage-balance forgiveness totaling nearly $388 million under an agreement Wells Fargo Bank reached with eight states, Florida Attorney General Bill McCollum said Wednesday.
The pact settles allegations of deceptive marketing of option adjustable rate loans. These "pick-a-payment" mortgages helped fuel the devastating housing downturn that began in 2006.
The loans were made by Wachovia Corp. and a California company it acquired, World Savings Bank.
San Francisco-based Wells Fargo agreed to take over Wachovia in October 2008.
Wells Fargo will offer loan modifications totaling about $770 million to 8,700 homeowners in Florida, Arizona, Colorado, Illinois, Nevada, New Jersey, Texas and Washington state. The bank also will pay $24 million to help states reach out to customers with the risky loans.
The agreement calls for more than $208 million in mortgage principal forgiveness for Florida borrowers, McCollum said in a news release.
Wells Fargo will offer loan modifications starting Dec. 1 until June 30, 2013, to borrowers who are either 60 days delinquent or facing default.
The homeowners will be considered for the Obama administration's Home Affordable Modification Program. If borrowers don't qualify or choose not to accept those modifications, Wells Fargo will consider the borrowers for its new program, called Mortgage Assistance Program 2, McCollum said.
Wells Fargo customers who received mortgages through Wachovia or World Savings should call 1-888-565-1422 for more information.
McCollum said the banks allegedly failed to explain that minimum payments due in the first years of the loans would not satisfy the full amount of accrued interest. Borrowers eventually were hit with sharply higher monthly payments and higher loan balances.
Analysts say mortgage-balance forgiveness is the most effective way to end the housing debacle. The federal government and Bank of America announced plans this year to reduce mortgage balances, but critics say the practice remains rare.
"It's like the Bermuda Triangle," Fort Lauderdale lawyer Joe Kohn said. "I hear about it, but I never see it."
In 2008, McCollum announced a similar agreement with Countrywide Financial Corp., now owned by Bank of America. The agreement called for loan modifications for 57,000 Florida homeowners and foreclosure relief payments of about $6,000 to 2,700 homeowners. But Kohn said his clients have yet to receive assistance.
When it was acquired by Wells Fargo, Wachovia was the biggest bank by market share in Florida. It had 158 offices, 3,100 employees and nearly $19 billion in deposits in Palm Beach and Broward counties.
The Associated Press contributed to this report.
Paul Owers Sun Sentinel