Some borrowers with pick-a-payment mortgages at Wells Fargo & Co. are being offered principal write-downs as part of an agreement with attorneys general in several states. The exotic loans, many with negative amortization, have a colored history. Some were originated under the supervision of the current Federal Housing Administration commissioner, while profits earned years ago off the loans are now being used to attack mortgage servicers — including Wells Fargo.
An announcement Wednesday indicated that Wells Fargo Home Mortgage would offer at-risk borrowers with pick-a-payment mortgages from Wachovia — which it acquired nearly two years ago — a chance to earn principal forgiveness. The Des Moines, Iowa-based mortgage servicer said borrowers will qualify as long as they make their payments on-time.
Borrowers already in a modification plan are ineligible for the program.
Borrowers will be sent letters about the program by the time it starts on Dec. 18. It runs through June 30, 2010.
“The program is part of an agreement with attorneys general in Arizona, Colorado, Florida, Illinois, Nevada, New Jersey, Texas and Washington who expressed concerns about the manner in which pay-option mortgages were originally marketed by World Savings Bank and Wachovia, who originated these loans prior to merging with Wells Fargo in late 2008,” the company explained.
As part of the agreement with the states, Wells said it will also contribute $24 million to eight states as part of a customer outreach campaign and for foreclosure mitigation efforts. So far, pick-a-payment borrowers have been given almost $3.4 billion in principal forgiveness, according to Wells.
Among executives who oversaw originations at World Savings was FHA Commissioner David H. Stevens — who spent 16 years at World Savings. Stevens was national sales manager over the mortgage division when he left. He was also “national wholesale manager responsible for all sales, operations, and finance at Wells Fargo Home Mortgage,” according to his prior employer Long & Foster.
World was a subsidiary of Golden West Financial Corp., which was acquired in October 2006 — just before the mortgage crisis began — by Wachovia. The option-ARM portfolio, much of it backed by properties in the worst markets such as California and Florida, helped sink Wachovia — which was bailed out by Wells Fargo in a Dec. 31, 2008, acquisition.
But it helped Herbert and Marion Sandler, the founders and former co-chiefs of Golden West, escape the financial crisis with an estimated $2.4 billion.
The Sandlers took some of that money and established ProPublica, “an independent, non-profit newsroom that produces investigative journalism in the public interest.”
ProPublica has been very busy lately targeting mortgage servicers with poor performance in granting loan modifications. The publication claims servicers are taking an average of 14 months to do loan modifications, and borrowers are having to send in the same documents an average of six times.
“Although about 1.3 million homeowners have begun trial modifications through the [HAMP] program, fewer than 400,000 homeowners have received permanent modifications,” ProPublica stated in one report. “Despite violations of the program guidelines such as the extended trials, the Treasury Department has not penalized any servicers.”
An August statement from ProPublica highlighted how borrower Suzanna Wertheim, who found out she had breast cancer, said she “spent hours making phone calls, writing letters and submitting financial statements in an effort to get Wells Fargo to modify her mortgage, but to no avail.”
A Google search reveals 165 pages at ProPublica.org that refer to Wells Fargo — most in a disparaging manner.
When asked by Mortgage Daily about how much money the Sandlers have personally contributed toward the modification of negatively amortizing loans to World Savings borrowers, a ProPublica spokesman declined to comment and suggested that the Sandler Foundation should be contacted.
Mortgage Daily was unable to reach the Sandler Foundation.