Wells Fargo & Co. has agreed to modify some 14,900 adjustable-rate loans made by banks it acquired, according to filings released Monday by state prosecutors who said the mortgages were harmful to borrowers.
The agreement with the state attorney general's office will result in more than $2 billion in principal write-downs, interest-rate reductions and other concessions through the end of June 2013, Wells Fargo Home Mortgage chief financial officer Franklin Codel said.
The deal applies to mortgages marketed as "Pick-a-Payment" loans by Charlotte, N.C.-based Wachovia Bank and World Savings Bank, a subsidiary of Oakland, Calif.-based Golden West Financial Corp.
Wachovia bought World Savings in 2006 and San Francisco-based Wells Fargo purchased Wachovia in 2008.
The mortgages were so named because their terms allowed borrowers to make payments at various levels each month, including a payment option that increased the loan's principal by covering less than the monthly interest owed.
The payments also ballooned to higher rates after a set period, leaving many borrowers unable to continue paying, Attorney General Jerry Brown said in a statement.
"Customers were offered adjustable-rate loans with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford," Brown said.
The California agreement, which also includes $32 million for thousands of borrowers who lost their homes to foreclosure, follows a deal reached in October with authorities in Arizona, Colorado, Florida and five other states to offer modifications worth $480 million to about 5,500 customers.
Codel said California borrowers made up some 60 percent of the Pick-a-Payment portfolio that it inherited from Wachovia.
He said Wells Fargo has been working to modify those loans since it bought the smaller bank and that it has been entering into agreements with state prosecutors to share details of their actions and assure them they will continue.
"This was the best way to get this behind us and move forward," he said.
