Wells Fargo Settles State AG Investigations Into "Risky Mortgages" Made By Acquired Lenders

Wells Fargo Settles State AG Investigations Into “Risky Mortgages” Made By Acquired Lenders

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October 7, 2010 –  The New York Times reports that Wells Fargo agreed to pay $24 million to resolve investigations by eight state attorneys general into whether lenders acquired by the bank made risky mortgages to consumers without disclosing the risks.   Wells reached the agreement was with attorneys general in Arizona, Colorado, Florida, Illinois, Nevada, New Jersey, Texas and Washington.  The AGs were investigating the lending practices of Wachovia Corporation and a California company it acquired, World Savings Bank. Wells bought Wachovia in late 2008, after Wachovia had already stopped making the loans under investigation.

The AGs were investigating whether the lenders had engaged in deceptive practices in connection with option adjustable-rate loans, or “pick-a-payment” mortgages as marketed by Wachovia. Those controversial loan products allowed borrowers to defer some interest payments and add them to the principal balance.  Many contend that the option adjustable-rate mortgages were one of the most toxic mortgage products available in the marketplace.  The balance and interest reset caused by deferring interest payments often causes a significant jump in the loan’s monthly payments and can result in a mortgage that is underwater.

As part of the settlement, Wells agreed to offer loan assistance potentially worth more than $770 million to more than 8,700 borrowers. The $24 million will be used to help states reach out to customers who may benefit from the loan assistance program.  The agreement includes no admission of wrongdoing by Wells.

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