Wells Fargo & Co. (NYSE: WFC) has an agreed to spend up to $772 million to modify mortgages for borrowers in eight states in order to settle claims that the San Francisco-based bank made use of deceptive marketing tactics to sell loans which were too complicated to understand and left borrowers in untenable levels of debt.
The settlement between Wells Fargo and the group of eight state attorneys general covers almost 9,000 borrowers that are underwater on their home mortgages. Homeowners effected by the settlement primarily live in states which have been hardest-hit by the housing crisis, including Arizona, Florida and Nevada.
The investigation centered upon an exotic type of mortgage called a “pick a payment” mortgage which was popular during the height of the housing boom, which allows borrowers to only pay a fraction of the interest that was due on the loan. The rest of the interest that the borrower did not pay was added to their principal balance, leaving a situation where a borrower’s mortgage balance would rise overtime as the borrower made payments.
Under the settlement, Wells Fargo will reduce borrower’s principal balance and reduce interest rates on the loans.
“We think this is a far more productive way to work together to help borrowers than some other alternative,” said Franklin Codel, Wells Fargo Mortgage CFO in a statement. “We think it’s a win for the states and for the borrowers.”
Wells Fargo & Company is a diversified financial services company. The Company provides retail, commercial and corporate banking services through banking stores located in 39 states and the District of Columbia. It provides other financial services, through subsidiaries engaged in various businesses, principally wholesale banking, mortgage banking, consumer finance, equipment leasing, agricultural finance, commercial finance, securities brokerage and investment banking, insurance agency and brokerage services, computer and data processing services, trust services, investment advisory services, mortgage-backed securities servicing and venture capital investment. The Company operates in three segments: Community Banking, Wholesale Banking, and Wealth, Brokerage and Retirement. As of December 31, 2009, the Company provided banking, insurance, investments, mortgage and consumer finance from more than 10,000 stores under various types of ownership and leasehold agreements.
Shares of Wells Fargo & Co. (NYSE: WFC) traded up 0.18% during mid-day trading on Wednesday.
