Wells Fargo has reached an agreement with California's Attorney General in which it will provide $2 billion in loan modifications to California homeowners who had "pick-a-pay" loans originated by either Wells Fargo or Wachovia (which WF recently acquired). WF also agreed to pay $32 million to thousands of homeowners who already lost their homes through foreclosure, thanks to this questionable loan program.
The pick-a-pay, or pay option adjustable-rate mortgage (ARM) loans allowed borrowers the option to make payments at various levels, such as monthly interest and principal or interest only. At the minimum level, the payment was not enough to even cover the monthly interest owed. This unpaid interest would then be added to the loan balance. Then, when these loans reset, the monthly payments would increase significantly. Translation? A recipe for disaster.
Under the settlement, nearly 15,000 California borrowers with pick-a-pay loans will receive affordable loan modifications from Wells Fargo using combinations of interest rate reductions, term extensions and principal forgiveness. The value of the modifications is estimated at more than $2 billion.
Wells Fargo is supposed to send notices to California borrowers eligible for loan modifications within the next two months. The bank will also pay $32 million in restitution to more than 12,000 pick-a-pay California borrowers who already lost their homes through foreclosure as well as an estimated $1.8 million in costs to the state. Borrowers with foreclosures are supposed to receive notification during the first six months of 2011.
Now, are my math skills a little fuzzy or isn't $32 million divided by 12,000 roughly $2,667? So Wells Fargo has "generously" agreed to give each pick-a-pay borrower who has already lost their home a measly $2,667? That won't even cover first and last month's rent in most parts of California! Much less moving costs, the effects on their credit, the trauma of going through foreclosure (on a mortgage option that was set up for failure), the strain on possibly uprooting a family to live in a different area, attend different schools, etc. Come on, Wells Fargo, you can do better than that! And the fact that California Attorney General Edmund G. Brown, Jr. would even consider agreeing to that makes him look like just as much of a sell-out.
It would be great to see California media as well as real estate/mortgage-related media do the follow up to see if these people were contacted in the time parameters Wells Fargo has promised. And to fry these parties for such a small settlement for those who have already been so adversely affected with foreclosure. The big box banks have only looked completely overwhelmed since the recession started and have been playing catch-up for the last two years in just about every area. And that includes not having a clue about how to do the right thing and avoid continued bad publicity.
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