Wells Fargo & Co. has reached an agreement with the state of Connecticut over payment-option adjustable-rate mortgages it inherited with its acquisition of Wachovia Corp. It’s the third recent settlement related to Wachovia mortgages.
The settlement was announced Wednesday by Connecticut Attorney General George Jepsen.
The loans at issue were originated by Golden West Financial and Wachovia Corp., which acquired Golden West in 2006. Wells Fargo acquired Wachovia in 2008.
The agreement resolves allegations of deceptive marketing on option ARMs. The state claims that Connecticut consumer protection laws were violated when the borrowers weren’t given a full explanation about how the principal balances on the option-ARMs increased when only minimum payments were made.
Wells agreed to consider around 1,535 Connecticut borrowers who are two months past due for loan modifications. Borrowers facing imminent default also qualify.
Borrowers will first be considered for the Home Affordable Modification Program, and those who aren’t HAMP-qualified will be considered for Wells’ propriety modification program, Mortgage Assistance Program 2.
Eligible borrowers have until June 30, 2013, to be considered for a loan modification.
“I want to stress that Wells Fargo inherited this problem when it acquired Wachovia and Golden West,” Jepsen said in the statement. “I am pleased that Wells Fargo is addressing this issue.”
Wells will also pay the state $741,465 to support foreclosure prevention efforts.
Wells Fargo Home Mortgage announced in October 2010 that it would offer at-risk borrowers with pick-a-payment mortgages a chance to earn principal forgiveness as part of an agreement with attorneys general in eight states.
The settlement announced today pales in comparison to a $590 million settlement with bondholders disclosed by Wells earlier this month. Bondholders alleged in that case that a Wachovia subsidiary misrepresented the quality of its residential mortgages from 2006 to 2008.
