The Wall Street Journal is reporting that Wells Fargo & Co. (WFC) is agreeing to an estimated $2.4 billion is mortgage modifications for California homeowners.
California is the ninth state to reach an agreement with Wells Fargo. The action is being taken as part of the bank’s ongoing investigation and discovery stemming from risky mortgages made by Wachovia Corp and Golden West Financial Corp.
At the core of the agreement with the state’s attorney general, Wells Fargo is offering California homeowners “pick-a-payment” adjustable-rate loans.
California is the latest state that Wells Fargo has been able to reach an agreement with. In October, Wells Fargo reached an agreement with eight other U.S. states that investigated risky mortgages made by Wachovia Golden West.
Terms of the deal announced Monday were similar to those in the October agreement. However, Wells Fargo’s biggest concentration to “pick-a-payment” is in California.
The fourth-largest U.S. bank in assets said it also is seeking to reach an agreement with other states. “I’d love to get all 50 states in,” said Franklin Codel, chief financial officer of the San Francisco bank’s mortgage unit, in an interview. “We are pleased to be in this agreement” with California.
In addition to the loan modifications, Wells Fargo agreed to pay $33 million to California for customer outreach and to prevent or reduce the effects of foreclosures in California communities.
A spokesman for the California Attorney General said the office “has been in discussions with Wells for the last couple of months,” but “because of the scope of California’s mortgage market, it took longer” than the agreement between Wells Fargo and other states.
Wells Fargo has already written down the value of the mortgages qualifying for modifications under Monday’s agreement, meaning it won’t have to take an additional charge.
The $2.4 billion in modifications could increase if the economy deteriorates, Mr. Codel said. If the economy improves and unemployment goes down, Wells Fargo might not have to modify as many loans, he added.
The agreements essentially reflect loan-modification efforts put in place since 2008. But state attorneys general “were very worried that we were going to stop or slow down” modifying loans, and this is “an assurance that we continue,” Mr. Codel said.
Wells Fargo has modified more than 50,000 “pick-a-payment” mortgages in California, most involving a reduction of the loan’s principal. Those principal reductions total $2.9 billion. The deal includes the possibility of principal forgiveness even for stressed borrowers who make payments, Mr. Codel said.
The loans were made either at Wachovia, which Wells Fargo bought in 2008, or at Golden West’s World Savings Bank unit, which Wachovia had bought prior to its own takeover by Wells Fargo.
