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Banking giant Wells Fargo has reached a settlement with the attorneys general of eight states over claims that its subsidiary Wachovia marketed its adjustable rate mortgages in a deceptive manner. The bank will pay a total of $24 million, and make loan modifications in the amount of $772 million under the terms of the settlement which was announced October 6.
The states' claims against Wachovia, acquired by Wells Fargo in 2009, have to do with the way the "pick-a-payment" adjustable rate mortgages were presented to consumers, reports Bloomberg. The program allowed borrowers to pick the payment option they wanted to use. However, the lowest payment option advertised by the bank often did not include the charges for monthly interest, increasing the debt load. This lead to defaults and foreclosures, according to the claims of the states involved.
"In many cases, those who seek out these 'minimum payment' option mortgages are the very people who have the most limited financial resources," New Jersey Attorney General Paula T. Dow said in a statement. "Signing them up for loan terms that sound attractive without warning them of the potential pitfalls is wrong."
According to Bloomberg, under the Wells Fargo settelment, the bank has agreed to include forgiveness for late fees and interest for some delinquent borrowers of the adjustable rate mortgages. In addition, 8,715 borrowers will be offered opportunity for loan modification according to a statement by Arizona AG Terry Goddard.
The sates who were party to this action, in addition to New Jersey and Arizona, are Colorado, Florida, Illinois, Nevada, Texas and Washington.
The Wells Fargo settement will apply the $24 million payment to help states with customer outreach and to prevent or mitigate the impacts of foreclosures in their communities.
"In light of the unprecedented changes in our economy, Wells Fargo will continue to work with leaders across the nation to help stabilize communities," Mike Held, co-president of Wells Fargo Home Mortgage, said in a statement.
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