Wells Fargo & Co. agreed to offer hundreds of millions of dollars in mortgage relief to borrowers in eight states as part of a pact over allegedly deceptive marketing of payment-option adjustable rate mortgage loans offered by companies it acquired.
The giant bank entered into an agreement in response to state investigations of Wachovia Corp. and Golden West Corp.'s marketing of the loans. Overall, loan modifications will be offered to 8,715 eligible borrowers in eight states with a total economic value estimated to be more than $772 million.
A company spokesman wasn't immediately available to comment on the agreement.
At least 694 Nevada borrowers will be eligible for the loan modifications, according to Attorney General Catherine Cortez Masto. Nevada is eligible for almost $78 million in relief, a sum that includes more than $45 million in principal forgiveness for homeowners in that state.
The other states are Arizona, Florida, Colorado, New Jersey, Washington, Texas and Illinois.
Wells Fargo didn't originate the payment-option ARMs. At the end of 2008, it purchased Wachovia, which had originated the POAs. Wachovia in 2006 bought Golden West, a significant payment-option ARM lender, according to Nevada.
Nevada alleged that Wachovia's and Golden West's marketing of POAs violated the Nevada Deceptive Trade Practices Act because the companies did not fully explain that the minimum payment, due in the first years of the loan, did not cover the full amount of accrued interest. This in turn would increase the amount of the loan, or negatively amortize the loan.
The agreement in Nevada provides that between Dec. 1, 2010, and June 30, 2013, Wells Fargo will offer modifications to eligible qualified residential POA borrowers 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 cannot qualify under HAMP or elects not to accept a HAMP modification, Wells Fargo will consider the borrower for its new modification program.
Wells Fargo will also pay $1.1 million to Nevada to assist with the state's efforts to prevent or mitigate foreclosures and prevent mortgage or loan modification fraud.
Customers who originally took out mortgages through Wachovia or Golden West who are looking for information about the loan modification program can call 1-888-565-1422. Borrowers whose loans are serviced by Wells Fargo, but who do not have POAs, will not be eligible for modifications under this settlement.
Wells Fargo's shares were recently up 2 cents to $26.27.