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Hundreds of Arizonans with a type of adjustable-rate mortgages will be eligible for principal reductions and other relief under an agreement with Wells Fargo & Co., Arizona Attorney General Terry Goddard announced Wednesday.
The eight-state agreement covers 8,715 borrowers who got a type of adjustable rate mortgage allegedly deceptively marketed by two lenders, Wachovia Corp. and Golden State Corp., before those two companies were bought by San Francisco-based Wells Fargo, which made no admission of wrongdoing.
He said the Arizona-led investigation was made possible by a June 2009 U.S. Supreme Court decision. The ruling said states can apply some of their own laws to big national banks operating within their borders.
In its own announcement of the agreement, Wells Fargo said it was moving to help prevent foreclosures and help stabilize communities due to “unprecedented changes in our economy.”
Goddard said the loans were aggressively marketed in ways that misled borrowers by not making it clear that their mortgage amounts could increase if they took advantage of the loan’s option of making minimal payments.
“This type of exaggeration caused many homeowners in my opinion to take out these loans believing there were no risks and that negative amortization — if they knew about it all — was actually a benefit and not a liability,” Goddard said.
The relief program is important to Arizona’s struggling housing market because the interest rates on many of those loans will reset in the next two years, he said.
In Arizona, at least 1,718 borrowers with payment option adjustable-rate mortgages, also known as “pick a payment” loans, will be eligible for nearly $154 million of loan modifications, including $86 million in principal forgiveness, Goddard said.
Terms for participation in the relief program include living in the home and either being 60 days delinquent or facing imminent default.
Colorado, Florida, Illinois, Nevada, New Jersey, Texas and Washington also signed onto the agreement, which also calls for Wells Fargo to pay the states a total of $24 million for consumer outreach and prevention or mitigation of effects of foreclosures. Arizona will get $2 million of that amount, Goddard said.
