Wells Fargo, Arizona homeowners settle mortgage-loan case

Mortgage relief is on the way for Arizona homeowners who took out "pick-a-pay" loans from two companies that since have been acquired by Wells Fargo.

Wells Fargo has agreed to provide more than $150 million in mortgage relief to homeowners who obtained the adjustable-rate loans through Wachovia Corp. and Golden West Corp. The move will come about as part of a settlement announced by Attorney General Terry Goddard, who alleged that the loans were marketed deceptively.

About 1,700 Arizonans obtained the loans through one of the two companies.

Under the terms of the settlement, Wells Fargo admitted no wrongdoing. But Mike Heid, co-president of Wells Fargo Mortgage, said that mortgage relief would benefit the community.

"We agree with the attorney general that in light of the unprecedented changes in our economy, we must continue to take steps to stabilize communities through the program enhancements such as we are announcing today," he said.

The agreement includes $86 million in loan-principal forgiveness for Arizona homeowners. To be eligible, borrowers must be living in the home and either at least 60 days delinquent on their mortgages or facing imminent default.

Goddard said marketing materials from Wachovia and Golden West violated the Arizona Consumer Fraud Act. The companies did not fully explain that borrowers who made minimum payments in the first years of their loans were not paying all the accrued interest and that unpaid interest was then added on to their loans as principal, he said.

When borrowers started to face full monthly payments, they often found much higher loan balances than they expected.

"These pick-a-pay loans were marketed in a way that downplayed the risks," Goddard said. "We believe a great many Arizonans were deceived, defrauded or fooled into taking out a loan that ultimately was a trap."

Arizona led the investigation and was joined by Colorado, Florida, Illinois, Nevada, New Jersey, Texas and Washington. The settlement includes $772 million in total mortgage relief for those states, affecting nearly 9,000 borrowers.

Goddard said the loans contributed to Arizona's housing crisis. Half of all Arizona mortgages are "underwater" - owners owe more than their homes are worth - and more than 41,000 Arizona homes are in foreclosure, the Joint Legislative Budget Committee says.

The number of pick-a-pay borrowers who face ballooning payments will increase sharply next year, Goddard said, adding further instability to the housing market.

Wells Fargo customers who had mortgages through Wachovia or Golden West can get information about the program by calling 1-888-565-1422.

by Casey Newton The Arizona Republic Oct. 7, 2010 12:00 AM




Wells Fargo, Arizona homeowners settle mortgage-loan case