Wells Fargo settles with 8 states over pay-option ARM allegations
Wells Fargo (WFC) settled with eight state attorneys general offices after each alleged two of the bank's subsidiaries deceptively marketed payment-option adjustable-rate mortgages. Wells Fargo will offer eligible borrowers at risk of these loans with a combination of rate reduction, loan-term extensions, and principal reductions. Up to 8,715 borrowers across Arizona, Florida, Colorado, New Jersey, Washington, Texas, Illinois and Nevada will be offered a modification between December and June 2013. It estimated that the settlement will generate more than $402 million in overall principal forgiveness. According to the Arizona AG, the settlement will provide $772 million in "total economic value," which includes the modifications and money given directly to states. The states alleged Wachovia and Golden West marketed illegal pay-option ARMs that violated laws because the companies failed to explain that the minimum payment due in the first few years of the loan did not cover the full amount of accrued interest. Wells Fargo doesn't offer pay-option ARMs. It assumed the loans in question when it purchased Wachovia at the end of 2008 and acquired Golden West in May 2006. The settlement includes no admission of wrongdoing. More than 4,000 Florida borrowers will receive about $208 million in relief. At least 1,718 borrowers in Arizona will receive roughly $154 million and New Jersey homeowners stand to collect nearly $67 million. More than 500 homeowners in Washington state will get $29 million for the settlement. Roughly 200 Texas homeowners will receive $5 million and at least 531 Illinois homeowners will receive $39.5 million in relief. Colorado and Nevada did not release expected mortgage relief amounts. Write to Jon Prior. The author holds no relevant investments.