Hat tip to both SM and RE for sending along the Wells Fargo announcement of neg-am bailouts. If principal reductions gain momentum (which is doubtful), the moral hazard would be hard to imagine – and it could start a revolution in the streets. From Eric at nctimes.com:
Wells Fargo & Co. agreed to modify $2 billion of mortgage loans and to pay $33 million to foreclosed California borrowers, the California Attorney General’s office said Monday.
The deal applies to borrowers with “pick-a-pay” loans, which typically included “teaser” periods of two to five years during which borrowers could make monthly payments for less than the monthly interest costs. At the end of the teaser period, interest rates could skyrocket, and outstanding balances were rolled into large fixed payments. This loan type became one of the hallmarks of the housing bubble because it allowed homebuyers to take out mortgages that far exceeded borrowers’ long-term ability to repay them.
“Customers were offered adjustable-rate loans with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford,” Brown said in a written statement. “Recognizing the harm caused by these loans, Wells Fargo accepted responsibility and entered into this settlement with my office.”
The settlement includes loans made by World Savings Bank and Wachovia Bank, both of which were acquired by Wells Fargo when they failed. No loans made by Wells Fargo were covered by this deal.
Under the agreement, 14,900 former World Savings and Wachovia customers will be eligible for $2 billion in loan forgiveness, much of which will include principal forgiveness, the statement said. A separate statement from Wells Fargo said they’d be working with customers between Monday and June 30, 2013, and the loan modifications could be worth $2.4 billion.
Roughly 12,000 borrowers will be eligible for the $32 million settlement worth an average of $2,650 each, the statement said.
The company will contact customers eligible for modifications or settlement cash, and maintain a help line for customers at 888-565-1422.
The Wells Fargo statement said the bank anticipated making payments for roughly these amounts when they bought Wachovia in 2008.
“The majority of Wachovia’s Pick-a-Payment customers reside in California,” Mike Heid, co-president of Wells Fargo Home Mortgage, said in a separate written statement. “We’re pleased that going forward the attorney general’s office will assist with outreach, so that we can continue to work with as many customers as possible on the options available to them to prevent foreclosures.”
Wells Fargo came to similar agreements with nine other states, including Florida, Arizona and Nevada.