Wells Fargo acquired both banks in late 2008. Colorado will receive $900,000 under the multistate settlement.
The deal settles accusations that World Savings and Wachovia misrepresented and failed to disclose material terms to consumers who took out adjustable rate mortgages, known as Pick-a-Pay loans. Problems arose, in particular, because the banks emphasized the low teaser rate, which ranged from 1.5 percent to 2.95 percent.
This rate was good for only one month. The actual interest rate was in the range of 5 percent to 6.75 percent and adjusted each month. The banks also failed to inform borrowers that any unpaid interest would be added to the loan’s principal balance – and that the loan came with a prepayment penalty.
The state will use the funds to pay restitution to borrowers with the Pick-a-Pay loans who have gone through foreclosure. The money also will be used for foreclosure-relief efforts. With the assistance of Wells Fargo, the Colorado attorney general’s staff will be identifying these borrowers and providing restitution. These borrowers will be identified between now and the end of the year. Eligible borrowers will be contacted after the first of the year.
In addition to paying damages and fees to the eight participating states, Wells Fargo has agreed to provide loan modifications to borrowers that are 60 days or more delinquent or in danger of imminent default prior to June 30, 2013. Wells Fargo will be handling the modifications directly for Pick-a-Pay borrowers that are behind on their mortgages. Wells Fargo has established a hotline for these customers to call: 1(888) 565-1422.