PhotoBack during the housing bubble, Wachovia and Golden West Financial marketed “Pick-A-Payment” mortgages that turned out to be disasters for some homebuyers.

Now, Wells Fargo, which acquired the two companies, is settling charges brought by Maryland in connection with the marketing campaign. The bank has agreed to make loan modifications for certain consumers and provide nearly $1 billion in restitution to homeowners who eventually faced foreclosure.

"Especially in these difficult times, we focused this agreement on securing relief for vulnerable homeowners and those who have faced foreclosure," said Maryland Attorney General Douglas Gansler. "Wells Fargo is addressing these particularly troubling issues with mortgages issued by companies that Wells Fargo acquired."

According to the original complaint, Wachovia and Golden West offered borrowers a choice among several programs. Borrowers could choose a traditional, 30-year fixed rate, fully amortizing loan; a traditional, 15-year fixed rate, fully amortizing loan; a loan with payments of interest only; or a loan with payments that were less than the interest actually due.

Lack of information

According to the Gansler, Wachovia and Golden West did not fully explain to "Pick-a-Payment" borrowers who chose the fourth option that their minimum payments would not cover the full interest and that their principal debt would actually increase over time.

Under the terms of the agreement, Wells Fargo will consider loan modifications for homeowners who have "Pick-a-Payment" contracts, using the federal Home Affordable Modification Program. If the homeowner is not eligible for a HAMP modification, then Wells Fargo will use its own proprietary loan modification program.

The modifications may include principal forgiveness, loan extension, interest rate reduction and/or principal forbearance, depending upon the circumstances of the borrower.

Maryland officials will contact consumers who may be eligible for restitution funds under the settlement. In addition, the agreement will benefit homeowners who obtain loan modifications.

While federal agencies and prosecutors have taken little or no action in connection with the housing and financial crises, the states have consistently taken action on behalf of consumers. Prior to the Maryland settlement, 11 other states had reached similar agreements with Wells Fargo.

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