Some Arizona Residents Win $154 Million in Mortgage Relief

Yesterday Arizona announced a big victory for 8,715 residents in eight states and residents will actually help to reduce the total amount they owe on their mortgages. Here is the official release.

Attorney General Terry Goddard yesterday announced a multi-state agreement with Wells Fargo Bank (“Wells Fargo”) over allegedly deceptive marketing of payment option adjustable rate mortgage loans (“POAs”) by two companies it acquired: Wachovia Corporation (“Wachovia”) and Golden West Corporation (“Golden West”).

At least 1,718 Arizona POA borrowers will be eligible for loan modifications that will provide almost $154 million in mortgage relief in Arizona, Goddard said. This sum includes more than $86 million in principal forgiveness for Arizona homeowners. The eligibility period for modifications to be made extends from April 1, 2010, to June 30, 2013. Wells Fargo will also pay $2.1 million to the Arizona Attorney General’s Office to assist the State’s efforts to prevent or mitigate foreclosures and prevent mortgage or loan modification fraud.

Arizona and seven other states investigated Wachovia’s and Golden West’s marketing of POAs. Wells Fargo will provide eligible, at-risk consumers with some combination of rate reductions, loan-term extensions and principal reductions. Overall, loan modifications will be offered to 8,715 of these borrowers in the eight states (Arizona, Florida, Colorado, New Jersey, Washington, Texas, Illinois and Nevada) with a total economic value (including interest rate reductions, term extensions and principal forgiveness) estimated to be more than $772 million. Based on projections as of April 1, 2010, around which the agreement was framed, the settlement will generate more than $402 million in overall principal forgiveness.

“This agreement is a major step forward in assisting struggling homeowners to stay in their homes,” Goddard said. “By restructuring these loans, we can minimize another wave of foreclosures in our State. The forgiveness of principal is especially important to help Arizona homeowners who are deeply underwater. I hope the agreement will set a new standard for other financial institutions.”

Arizona alleged that the Wachovia’s and Golden West’s marketing of POAs violated the Arizona Consumer Fraud Act because the companies did not fully explain that the minimum payment due in the first years of the loan did not cover the full amount of accrued interest, which in turn would increase the amount of the loan (sometimes referred to as negative amortization of the loan). Borrowers with POA loans could face higher monthly payments, as well as higher loan balances, when they begin making full monthly payments. Many Arizona POA borrowers have faced or will face higher payments in the years ahead. This agreement includes no admission of wrongdoing.

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The agreement provides that between December 12, 2010, and June 30, 2013, Wells Fargo will offer modifications to eligible, qualified residential POA borrowers who reside in their homes and who are either 60 days delinquent or facing imminent default. Borrowers will first be considered for the federal Home Affordable Modification Program (“HAMP”), and if the borrower cannot qualify under HAMP or elects not to accept a HAMP modification, Wells Fargo will consider the borrower for its new modification program, known as MAP2R (Mortgage Assistance Program 2).

Modified loan terms will vary according to the circumstances of the borrower but can include principal forgiveness, loan extension, interest rate reduction, and principal forbearance (which gives the borrower additional time to pay off the loan principal). Borrowers who remain current on their modified payments over three years may be able to earn additional principal forgiveness. Borrowers who qualify may also convert into a fixed rate loan.

Wells Fargo did not originate payment option ARMs. At the end of 2008, it purchased Wachovia, which had originated POAs, and had already acquired Golden West, a significant POA lender. After it acquired those portfolios of POAs, as a result of the current economic crisis, Wells Fargo began to offer loan modifications.

Goddard described payment option ARMs as “among the most dangerous loan products” because Arizona borrowers who are already underwater face both a higher monthly payment and an increase in the total amount of the loan.

“Keeping families in their homes and avoiding foreclosure is in the best interest of businesses, neighborhoods and the overall economy,” Goddard said.

“We agree with the Attorneys General that in light of the unprecedented changes in our economy, we must continue to take steps to stabilize communities through program enhancements such as we are announcing today,” said Mike Heid, co-president of Wells Fargo Home Mortgage.

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In August, Arizona ranked second in the nation for foreclosures. According to a report from Arizona State University’s W.P. Carey School of Business, about 4,000 foreclosures were recorded in Maricopa County in August, well above last August’s total of 3,100.

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Under the agreement announced today, Wells Fargo will make a number of substantial servicing commitments for its POA borrowers. These include:

  • Ensuring adequately staffed help lines to serve consumers, including Spanish-speaking consumers.
  • Providing a single, primary point of contact to assist borrowers seeking modifications under this Assurance.
  • Making decisions on modifications within 30 calendar days of receiving a complete application.
  • Establishing a formal second look or appeal process for borrowers who are turned down for a modification.
  • More clearly communicating with borrowers to avoid confusion during this process.

Wells Fargo also will offer other foreclosure alternatives, including short sale, deed-in-lieu, and relocation assistance, where warranted. The agreement provides for a compliance monitor and quarterly reporting to the eight Attorneys General.

Wells Fargo customers who originally took out mortgages through Wachovia or Golden West and are looking for information about the loan modification program can call 1-888-565-1422.

In late 2009, Wells Fargo hosted a home preservation event in Phoenix that 7,500 at-risk Arizona homeowners were invited to attend to get assistance with their home loans.

Goddard urged all homeowners who are in or are facing foreclosure to seek assistance as soon as possible. Homeowners can speak with a HUD-approved housing counselor by calling the Arizona Foreclosure Helpline, toll-free, at 1-877-448-1211. Borrowers who believe they have been the victim of mortgage fraud or other scams should contact the Attorney General’s Office at (602) 542-5763. Additional foreclosure prevention resources are available on the Attorney General’s Web site, www.azag.gov.

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