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Wells Fargo will spend $772M modifying loans

Wells Fargo has agreed to spend an estimated $772 million modifying loans for borrowers across the country after allegations that deceptive marketing was used to sell complex mortgages with adjustable rates.

The deal announced Wednesday covers 8,715 borrowers in eight states, including several that were hit hardest by the housing crisis. The states are Arizona, Colorado, Florida, Illinois, New Jersey, Nevada, Texas and Washington. Wells Fargo is spending an additional $24 million to help states get in touch with borrowers.

The investigation by the states focused on an exotic type of mortgage that came into vogue during the peak of the housing boom: the "pick a pay"
mortgage, which allowed borrowers to pay only a portion of the interest due on their mortgages. The rest would be added to the principal amount, resulting in the loan balance growing bigger as the borrower made payments.

The allegations are targeted at two companies that were acquired by Wells
Fargo: Wachovia and Golden West, which itself was bought by Wachovia in 2006. Wachovia retired the pick-a-pay product in 2008, before Wells Fargo bought the company. Wells Fargo does not offer that option to customers.

Arizona's attorney general, Terry Goddard, spearheaded the investigation into the banks' marketing practices.

"Wells is taking the lead by this agreement," Goddard said. "I believe it will be very hard for others not to follow."

He added that the agreement was notable because it compels Wells Fargo to not only reduce some borrowers' interest rates but forgive a portion of the principal, too. Out of the estimated $772 million the company will spend on modifications, $402 million will be used to reduce borrowers' principals. This goes further than the state's 2009 agreement with Countrywide that was also over allegations of misleading marketing.

Borrowers who qualify for the modifications have to occupy the properties in question. They also have to be 60 days delinquent on their loans or face imminent default.

Wells Fargo, which services one in six mortgage loans in the nation, said it welcomed the agreement.

"We think this is a far more productive way to work together to help borrowers than some other alternative," said Franklin Codel, chief financial officer of Wells Fargo Mortgage. "We think it's a win for the states and for the borrowers, and I'm very excited about the agreements and some of the changes we're making."

By Jia Lynn Yang  | October 6, 2010; 3:40 PM ET
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Next: Ohio sues Ally Financial alleging fraud in foreclosures


trying to outrun the horrendous publicity that came from screwing over homeowners on the front end (app fees and gouge interest rates) and on the back end (a seized house that the bank flips while also collecting mortg. insurance.)
everyone should boycott Wells and encourage your places of business and your investment funds to do the same.
vote with your pocketbook. these sleazebags do not deserve another cent of your hard-earned money.
boycott Wells Fargo. start today.

Posted by: Anonymous | October 6, 2010 4:36 PM | Report abuse

So, what does it mean for the affected borrowers? $5 off their next mortgage payment? A coupon for two free Happy Meals?

Posted by: Anonymous | October 6, 2010 4:53 PM | Report abuse

How Fannie and Freddie can Fix the Economy -- Quickly

Please forward this to every decision maker you know.

The issue: Housing is killing the Economy

The Insight: Short Sales are Artificially Increasing Supply (lowers prices) with no offsetting increase in demand (further lowering prices)

Why? Most short sellers DO NOT want to sell their home they want to stay (if the payments were affordable) thus they are not looking for a new home absent being forced to sell short. Under Fannie and Freddie rules when they do sell short they are FORBIDDEN from BUYING for 2-5 years. Thus in Florida alone perhaps 500,000 to 1 million homes are artificially on the market and that same 500,000 to 1 million buyers are NOT in the market

The solution: Fannie and Freddie fund the transaction costs of converting short sales into debt-for-equity swaps (please see which explains how).

What happens: The existing loan is converted to three pieces: a loan for 80% of current value (which will be current since the homeowner will pay) on the same terms as the original loan, a zero-interest loan for 20% of current value (essentially the current equity above the 80% loan), a PARTICIPATION interest in future appreciation

Liquidity: the participations can be pooled and sold as securities, the zero interest loans can be pooled and sold as securities, once the 80% loans have been current for 12 months they too can be pooled and sold as securities

Immediate benefits: perhaps 2,000,000 homes exit the marketplace, and on those homes the mortgages will become liquid and performing in 13 months which helps the banks which wrote the loans

This is a BUSINESS solution to a business problem which has been corrupted by politics.

Posted by: lissack | October 6, 2010 4:54 PM | Report abuse

"How Fannie and Freddie can Fix the Economy"


What a bunch of nonsense. What's killing the economy is the government interference in the housing market. The last thing we need is another Fannie/freddie scheme to prop up the housing bubble.

Homes are not selling because they're too expensive. It's just that simple. The foreclosure process is helping home prices revert to a more normal level. And that means much lower prices from here (sorry if you paid a bubble price for your home - you lose). And once homes are again affordable, the economy will improve. People will buy homes, refrigerators, stoves, carpet, furniture, etc. And since they'll be paying less of their disposable income on mortgage payments, they'll have more money to be good little consumers and spend spend spend.

Posted by: Anonymous | October 6, 2010 7:19 PM | Report abuse

These companies don't have any common sense. They think that instead of modifying loans so that folks can stay in their homes, its better go through the foreclosure process (which cost them money) take the house back and pay to get into sellable shape,(which cost more money), pay carrying costs, then find a buyer who is only going to pay the current reduced value, which doesn't make the bank whole on the original loan.

Doesn't make more sense (cents)to re-negotiate the loan terms with the current occupant?

Posted by: Anonymous | October 6, 2010 7:42 PM | Report abuse

Sometimes there are days when I feel proud to be a Well Fargo customer, ever since they acquired First Security Bank (in Utah).

Posted by: Anonymous | October 6, 2010 8:07 PM | Report abuse

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Posted by: 1561705755 | October 6, 2010 8:12 PM | Report abuse

of course the wachovia ceo who pushed this acquisition-which helped kill the bank and led to the wells fargo discount takeover-was paid 24 million to go away after doing such a magnificent job. ken thompson, one of americas biggest corporate welfare recipients.

Posted by: george32 | October 6, 2010 9:51 PM | Report abuse

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