Wells Fargo announced it will pay $24 million to eight states including New Jersey to end investigations into whether the company deceived homeowners when it offered them risky mortgages.
The mortgages, known as "Pick-a-Payment" loans, allowed borrowers to choose how much they paid each month. One option allowed homeowners to pay less than the interest due and then add the remainder to the principal balance.
The attorneys general of the various states were concerned that the bank failed to adequately disclose the risks inherent in these mortgages.
Wells Fargo says it has been in talks with the states for several months before reaching Wednesday’s agreement. As part of the terms, Wells Fargo customers with these loans could be eligible for forgiveness of accrued interest and late fees, as well as possible loan modifications to keep payments affordable.
The $24 million will be apportioned between Arizona, Colorado, Florida, Illinois, Nevada, Texas, Washington and New Jersey.
New Jersey will receive nearly $4 million, and of that, up to $2 million will be distributed to New Jersey homeowners who received “Pick-A-Payment” loans and lost their homes to foreclosures or short sales between January 2005 and December 2010.
The remaining funds will be used by the state to prevent mortgage and loan modification fraud and prevent foreclosures.
“This 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,” says Thomas Calcagni, acting director of the New Jersey division of consumer affairs, in a statement.
In addition, nearly 900 homeowners throughout the state will receive mortgage loan modifications totaling near $67 million.
The “Pick-a-Payment” mortgages covered in the agreement were offered by companies that Wells Fargo acquired when it purchased Wachovia two years ago at the height of the financial crisis. Those banks included Wachovia, Golden West and World Savings. Wells Fargo did not offer these loans.
Borrowers looking for more information can call Wells Fargo at 888-565-1422.