Wells Fargo & Co. has reached agreements with 10 states to make loan modifications. In just California, where the majority of impacted mortgages are located, more than $2 billion in concessions could be at stake.
A press release from California Attorney General Edmund G. Brown Jr. Monday indicated that the lender has agreed to more than $2 billion in modifications on loans originated by World Savings Bank and Wachovia Bank. Approximately 14,900 California borrowers are expected to be impacted.
In its own release, Wells Fargo said the program will run from Dec. 20 through June 30, 2013. The company reports loan modifications were extended to more than 50,000 Wachovia borrowers from January 2009 to November 2010 involving, among other things, more than $2.9 billion in principal forgiveness.
Wells estimates that the total amount of incremental relief from now until 2013 could be as much as $2.4 billion.
The agreement also calls for $32 million in restitution to 12,000 borrowers who have already had their homes repossessed, California said.
A copy of the agreement was signed by Wells Fargo Bank, N.A., Executive Vice President Michael J. Heid on Dec. 16.
While the state referred to the agreement as a “settlement,” Wells referred to it as “an assurance agreement.”
“In our case, the attorneys general wanted assurance that we would continue the modification programs we’ve been doing since the acquisition,” Wells Fargo Home Mortgage Chief Financial Officer Franklin Codel explained during a telephone interview with Mortgage Daily. “We agreed we would do that. We also made a small adjustment to the modification program we have, which allows for — in some cases — borrowers to have additional principal forgiveness.”
But Codel clarified that no lawsuits were involved, and the state agreed not to take any legal action.
Option adjustable-rate mortgages, or “pick-a-pay” loans, are at issue in the agreement.
“Customers were offered adjustable-rate loans with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford,” California’s attorney general, who last month was elected governor of the state, said in the statement. “Recognizing the harm caused by these loans, Wells Fargo accepted responsibility and entered into this settlement with my office.”
Unlike the Countrywide’s settlement with state attorneys general where parent Bank of America Corp. passed on the cost of loan modifications to mortgage-backed securities investors, Wells Fargo owns the loans impacted by the agreement.
“Any financial impacts are ours,” Codel said. “We have set up a lot of reserves at the time we did the acquisition; we wrote down a lot of these assets already.
“So any financial hit is ours to bear.”
Wachovia Corp. acquired World in 2006, while Wells acquired Wachovia in 2008.
Wells Fargo said it has entered similar agreements over pick-a-pay loans with the states of Arizona, Colorado, Florida, Illinois, Kansas, Nevada, New Jersey, Texas and Washington.
Last month, a lawsuit filed in U.S. District Court for the Northern District of California against Wells Fargo units alleged that borrowers seeking federal loan modifications were induced to default as the servicer attempted to collect “substantial” late charges, interest and penalties.
