John Rebchook is a former Rocky Mountain News reporter with more than 30 years of experience in writing and communications... Colorado will receive $900,000 from Wells Fargo as part of a $23.7 multi-state settlement, Attorney General John Suthers announced today.
Colorado and seven other states will receive $23.7 million from Wells Fargo to settle allegations surrounding deceptive advertising and problematic lending practices of Wachovia and World Savings when offering an option ARM loan known as a “Pick-a-Pay loan.” Wells Fargo acquired both banks in late 2008.
“Reckless lending practices and deceptive advertising of variable-rate loans played a role in our country’s foreclosure crisis,” Suthers said. “Although we cannot turn the clock back on the foreclosure crisis, this settlement will at least allow us to repair some of the damage cased by irresponsible and illegal lending practices in Colorado.”
Pick-a-Pay loans
The multi-state assurance settles allegations that World Savings and then Wachovia misrepresented and failed to disclosure material terms to consumers who received Pick-a-Pay loans. In particular, the banks emphasized the low teaser rate, which ranged from 1.5 percent to 2.95 percent. This rate was good for only one month. The actual interest rate was in the range of 5 percent to 6.75 percent and it adjusted each month. The banks also failed to inform borrowers that any unpaid interest would be added to the loan’s principal balance and that the loan came with a prepayment penalty.
The funds Colorado recovers under the settlement will be used to pay restitution to borrowers with the Pick-a-Pay loans who have gone through foreclosure. The funds also will be used for foreclosure-relief efforts. With the assistance of Wells Fargo, the Attorney General’s staff will be identifying these borrowers and reaching out to them to provide restitution. These borrowers will be identified between now and the end of the year. Eligible borrowers will be contacted after the first of the year.
In addition to paying damages and fees to the eight participating states, Wells Fargo has agreed to provide loan modifications to borrowers that are 60 days or more delinquent or in danger of imminent default prior to June 30, 2013. Wells Fargo will be handling the modifications directly for Pick-a-Pay borrowers that are behind on their mortgages. Wells Fargo has established a hotline for these customers to call: 1-888-565 1422.
Wells Fargo, which is not alleged to have engaged in deceptive advertising or lending practices in connection with these loans, is responsible for the conduct of the two companies whose assets it owns. Arizona, Florida, Illinois, Nevada, New Jersey, Texas and Washington also participated in the settlement with Wells Fargo.
This multi-state settlement is the latest enforcement action the Office of the Attorney General has pursued against mortgage originators and foreclosure rescue businesses since 2006, when the foreclosure crisis began in Colorado.
