Wells Fargo & Co. (WFC) agreed Thursday to pay $1 million in restitution and offer loan modifications to distressed borrowers who purchased “pick-a-payment” loan products offered by Wachovia and Golden West Financial, according to Maryland Attorney General Douglas Gansler.

Wells Fargo acquired the two lenders in 2008, pulling their legacy mortgage assets under its umbrella.

The settlement is the result of the state’s consumer protection division investigating the marketing of adjustable-rate mortgages offered by Wachovia and Golden West Financial. The restitution will be available for “pick-a-payment” borrowers who lost homes to foreclosure, the AG said.

Wells Fargo said it would try to put impacted borrowers who lost homes into the federal Home Affordable Modification Program. In circumstances where they do not qualify, Wells plans to use its own loan modification program.

Gansler’s office claims the lenders offered a few pick-a-payment options when borrowers initially acquired their loans. They could obtain a traditional, 30-year, fixed-rate mortgage; a fully amortizing loan; a 15-year, fixed-rate; a loan with payments of interest only; or a loan with payments that were less than the interest actually due.

The AG claims borrowers who secured the final option did so without understanding the minimum payments would not cover the full interest and the principal debt would increase over time.

Write to Kerri Panchuk.