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TRENTON
– Attorney General Paula T. Dow announced
today that Wells Fargo Home Mortgage has
agreed to provide New Jersey consumers with
nearly $67 million in loan modifications
and pay the state $3.98 million to resolve
allegations that companies it acquired –
Wachovia Corporation, Golden West and World
Savings -- deceptively marketed adjustable
rate mortgage loans.
Acquired
in 2008 by Wells Fargo, the companies sold
thousands of so-called “Pick-a-Payment”
adjustable rate mortgages in New Jersey
by touting the mortgages’ low monthly
payment options. However, the companies
failed to warn borrowers that choosing the
minimum-payment option could lead to a treadmill
of debt. Specifically, a borrower’s
“low” monthly payment option
often failed to cover the interest on his
or her loan. This resulted in an increase
in the loan’s principal balance, causing
the monthly payment to spike well beyond
what the consumer expected to pay. Some
borrowers became delinquent and faced the
prospect of foreclosure. Others ultimately
lost their homes.
“This
case is part of our on-going effort to protect
New Jersey consumers, and to assist homeowners
who may have fallen victim to misleading
or exploitative lending practices,”
said Attorney General Dow. “In many
cases, those who seek out these ‘minimum
payment’ option mortgages are the
very people who have the most limited financial
resources. Signing them up for loan terms
that sound attractive without warning them
of the potential financial pitfalls is wrong,
and we intend to hold companies that engage
in such conduct accountable.”
New Jersey homeowners accounted for about
5 percent of the “Pick-a-Payment”
loans acquired by Wells Fargo as part of
its acquisitions of Wachovia, Golden West
and World Savings in 2008.
In
2009, the State opened an investigation
into whether Wells Fargo and/or the three
predecessor companies had violated New Jersey’s
Consumer Fraud Act by failing to explain
to borrowers how “Pick-a-Payment”
worked. The agreement announced today resolves
the matter.
Under
terms of the settlement, Wells Fargo will
provide across-the-board forgiveness of
accrued interest and late fees for eligible
delinquent borrowers who live in the homes
on which they took out “Pick-a-Payment”
mortgages.
Starting
on December 18, 2010, the company also will
provide loan modification terms that enable
affordable payments and reduce principal
for some consumers. Modified loan terms
will vary according to the circumstances
of the borrower, but can include principal
forgiveness, loan extension, interest rate
reduction, and principal forbearance (which
gives the borrower additional time to pay
off the loan principal). Borrowers who remain
current on their modified payments over
three years will earn additional principal
forgiveness. Borrowers who qualify may also
convert into a fixed rate loan. All modification
fees and pre-payment penalties will be waived.
The modification program will extend until
June 30, 2013.
Under Wells Fargo’s projections, which
include certain modifications completed
during negotiations, the settlement will
result in modification of mortgage loans
for upwards of 900 eligible New Jersey consumers.
The value of those loan modifications will
total close to $67 million.
Under
the settlement, Wells Fargo also has agreed
to make a number of servicing commitments
to its “Pick-A-Payment” borrowers,
including:
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Ensuring adequately staffed help lines
to serve consumers, including Spanish-speaking
consumers.
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Providing a single, primary point of contact
to assist borrowers seeking modifications
under this assurance.
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Making decisions on modifications within
30 calendar days of receiving a complete
application.
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Establishing a formal “second look”
or appeal process for borrowers who are
turned down for a modification.
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More clearly communicating with borrowers
to avoid confusion during this process.
“This
settlement is an excellent example of the
state using its authority to help New Jersey
consumers who may have been financially
harmed, or placed in jeopardy of losing
their homes, by questionable business practices,”
said Division of Law Director Robert M.
Hanna.
“The
agreement provides real relief by forgiving
principal as part of a mortgage modification
program that is designed to place homeowners
in sustainable mortgages, and to keep them
in their homes,” said Acting Director
of the Division of Consumer Affairs Thomas
R. Calcagni.
In addition to the loan modifications, Wells
Fargo will pay the State $3.98 million.
Of that amount, up to $2 million will be
distributed as restitution to New Jersey
consumers who had a “Pick-a-Payment”
mortgage, became delinquent and were forced
to leave their homes due to foreclosure
or short sale between January 2, 2005 and
December 18, 2010. The remaining $1.98 million
will be used to support the state’s
on-going efforts to combat mortgage fraud
and loan modification fraud, and to prevent
foreclosures.
During
its investigation, New Jersey conducted
direct interviews with homeowners who complained
about the “Pick-a-Payment” mortgages,
and surveyed other consumers by mail. Most
borrowers said they did not understand what
they’d signed up for, and many were
dissatisfied after their loans underwent
“negative amortization” (where
the monthly payment fails to cover the interest
on the loan, leading to an increase in the
principal balance and, ultimately, greater
debt.)
New
Jersey was a lead state within a multi-state
group that investigated Wells Fargo and
the “Pick-a-Payment” mortgages,
and that ultimately reached settlement with
the company. New Jersey consumers who believe
they qualify for the restitution program
should submit their contact information
to the Division of Consumer Affairs’
Web site at www.state.nj.us/lps/ca/wellsfargo
.
Wells
Fargo customers who currently hold “Pick-a-Payment”
mortgages and who want information about
the loan modification program can call the
dedicated Wells Fargo toll-free number at
(888) 565-1422.
The
Division of Law’s Affirmative Litigation
Section investigated the Wells Fargo matter
in cooperation with the Division of Consumer
Affairs. Deputy Attorney General Janine
Matton led the investigation in consultation
with Deputy Attorney General Megan Lewis,
the Section Chief, and Deputy Attorney General
Samuel Cornish. From the Division of Consumer
Affairs, the investigation was handled by
Supervising Investigator Jennifer Micco
and Investigator Joseph Iasso. Assistant
Attorney General James Savage provided assistance
and support to the investigation.
Attorney
General Dow said the state continues to
be concerned about deceptive business practices
in the mortgage and foreclosure remediation
industries. She explained that the Division
of Consumer Affairs is aggressively pursuing
these matters whenever New Jersey borrowers
are believed to have been victimized by
unscrupulous lending, foreclosure or foreclosure
remediation practices.
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