Homeowners struggling to repay adjustable-rate mortgages from Wachovia and World Savings Bank, subsidiaries of Wells Fargo (WFC), got some good news Wednesday. The company has agreed to pay $24 million to settle allegations of deceptive marketing about the risky loans from eight states and also to forgive more than $772 million in outstanding loan balances owed by more than 8,700 borrowers.
The states' probe was spurred by Wachovia's so-called "Pick-A-Payment" adjustable-rate mortgages. Arizona Attorney General Terry Goddard, who led the investigation, said in a statement that Wachovia -- which Wells Fargo acquired after the loans were granted -- failed to sufficiently inform borrowers of the risks involved in such loan programs. Wells Fargo said it had already forgiven $3.4 billion in loans as of August.
Colorado, Florida, Illinois, Nevada, New Jersey, Texas and Washington joined Arizona in investigating the company.
"In light of the unprecedented changes in our economy, Wells Fargo will continue to work with leaders across the nation on steps to help stabilize communities," said Mike Heid, co-president of Wells Fargo Home Mortgage, in the statement.
Many economists blame mortgage lenders such as Wells Fargo for the housing bubble that helped lead to the recession, saying that many riskier loans -- such as adjustable-rate and interest-only mortgages -- were granted to people who couldn't afford them and ultimately lost their homes.
Of the $772 million to be forgiven by Wells Fargo, about $400 million will be in the form of principal forgiveness, while the remaining amount will come from interest-rate cuts and term extensions, Wells Fargo said. The $24 million will be used to "enlist help in customer outreach, and to prevent or mitigate the impacts of foreclosures in these communities," according to the company.