Under an agreement announced Thursday by the Maryland attorney general's office,Wells Fargo has agreed to make loan modifications and pay nearly $1 million in restitution to customers of two lenders acquired by the bank.
The office's Consumer Protection Division, which reached the agreement with Wells Fargo, said lenders Wachovia and Golden West Financial used deceptive marketing in offering consumers adjustable-rate home loans.
Wells Fargo will pay $940,056 to borrowers with "Pick-a-Payment" mortgages written by Wachovia and Golden West who lost their homes in foreclosure, the agreement says. Wells Fargo acquired the two lenders in 2008.
So far, about 250 borrowers in Maryland with "Pick-a-Payment" mortgages are known to have lost their homes to foreclosure, but that number could grow, said David Paulson, a spokesman for the attorney general's office.
In addition to the agreement in Maryland, Wells Fargo has signed similar pacts with attorneys general in 11 states.
"Wells Fargo is further helping at-risk Wachovia 'Pick-a-Payment' customers who may be eligible to earn principal forgiveness by making on-time mortgage payments," saidTom Goyda, a vice president and spokesman for Wells Fargo Home Mortgage.
The agreement says Wachovia and Golden West offered borrowers a choice of several types of mortgages, including 30-year fixed-rate loans.
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But one option allowed borrowers to make payments for less than the interest actually due, according to the agreement. The Consumer Protection Division said the lenders did not fully explain to borrowers who chose those loans that their minimum payments would not cover the full interest and that their principal debt would increase.
Wells Fargo also has agreed to consider modifying loans for borrowers with "Pick-a-Payment" contracts, using the federal Home Affordable Modification Program or Wells Fargo's own loan modification program.
The bank is not providing any estimates about the number of borrowers who might be eligible, Goyda said.
He said Wells Fargo has attempted to help at-risk Wachovia "Pick-a-Payment" customers since acquiring the lender. The bank has modified loans by reducing interest rates, extending loan terms and forgiving principal amounts, he said.
The Consumer Protection Division will contact consumers who might be eligible for loan modifications.