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."
