HARTFORD, Conn. (Legal Newsline) - Connecticut Attorney General George Jepsen announced an agreement on Wednesday with Wells Fargo Bank for alleged deceptive marketing of adjustable rate mortgage loans.
Jepsen alleged that two corporations Wells Fargo acquired in 2008, Wachovia and Golden West Financial, deceptively marketed payment option, adjustable rate mortgage loans. Under the agreement, Wells Fargo will consider close to 1,535 eligible Connecticut homeowners for loan modifications.
Additionally, the bank will provide Connecticut with $741,465 to support the state's foreclosure prevention efforts.
The agreement resolves allegations that Golden West and Wachovia violated state consumer protection laws by failing to fully explain to borrowers that the minimum payment on their "pick-a-payment" loans did not cover the full amount of accrued interest. The choice to make the minimum payment would allegedly increase the amount of the loan.
Jepsen said that some borrowers in Connecticut eventually faced higher loan balances and unaffordable monthly payments when they had to begin making full interest and principal payments.
"I want to stress that Wells Fargo inherited this problem when it acquired Wachovia and Golden West," Jepsen said. "I am pleased that Wells Fargo is addressing this issue. Connecticut homeowners struggling with these risky, 'pick-a-payment' loans will have a fair opportunity to achieve a loan modification or other relief."
Under terms of the agreement, Wells Fargo will offer modifications to qualified, eligible borrowers who reside in their homes and who are either 60 days delinquent or facing imminent default.
Borrowers will first be considered for the federal Home Affordable Modification Program and, if the borrower does not qualify or elects not to accept a modification loan under the program, Wells Fargo will consider the borrower for its own modification program, known as Mortgage Assistance Program 2.
The modified loan terms will vary depending on the borrower's circumstances, but can include loan extension, principal forgiveness, interest rate reduction and principal forbearance. Borrowers who remain for three years on their current modified payments may be able to earn additional principal forgiveness.
The borrowers who qualify may also convert into a fixed rate loan. In addition, Wells Fargo will offer other foreclosure alternatives where warranted including deed-in-lieu, relocation assistance and short sale.