Wells Fargo & Co. on Monday agreed to modify more than $2 billion of risky payment option ARMs from two lenders that the mega bank bought during the last years of the decade: World Savings of Oakland, and Wachovia Corp. of Charlotte.
In a settlement brokered through California governor-elect Edmund "Jerry" Brown, Wells will modify roughly 14,900 California borrowers, granting what the state called "significant principal forgiveness."
Brown, who soon will step down as Attorney General, stressed in his statement that, "None of the loans were made by Wells Fargo. All were originated by World Savings and Wachovia." (Wachovia was bought by Wells in 2008.)
World Savings, controlled by the husband wife team of Herb and Marion Sandler, was sold to Wachovia in 2006. As the co-CEOs of World, the Sandlers championed the POA loan (which some called 'pick-a-pay') for many years.
POA loans began to default in high numbers in 2008. The mortgage has been criticized by many consumer advocates because it allows the borrower to pick multiple payment plans, one of which is negative amortization. Very few of the loans are being originated today.
Besides modifying $2 billion in mortgages, Wells will pay $32 million to thousands of borrowers who lost their homes through foreclosure.
"Customers were offered adjustable-rate loans with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford," Brown said. "Recognizing the harm caused by these loans, Wells Fargo accepted responsibility and entered into this settlement with my office."
In other Wells Fargo news, Well, which is one of six lenders named as plaintiffs in a New Jersey court’s order to demonstrate why foreclosures scheduled in the state should move forward in the wake of industry “robosigning” concerns, has said it and its outside counsel intend to comply with the order.
“We recognize and respect the need to ensure we always comply with respective state laws,” Wells said in a statement sent to this publication.
A spokesman for JPMorgan Chase, one of the other six plaintiffs named in the New Jersey Supreme Court order, said the company had no comment. Calls for comment made to press contacts for the others: Ally Financial, Bank of America, OneWest Bank and Citibank had not been returned as of press time late Tuesday morning.
The court said in a court order filed late Monday that it would direct the aforementioned plaintiffs to show cause at a hearing scheduled for Jan. 19, 2011 why it should not suspend the processing of all foreclosure matters involving them. Plaintiffs are asked to respond in writing to the order.
The order refers to deposition testimony provided by employees of the plaintiffs taken in various states, in addition to national foreclosure practices provided to Congress, as raising questions about the accuracy and reliability of documents submitted to courts in support of foreclosure complaints.