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Kansas has reached a settlement with a nationwide bank that will net the state approximately $2.8 million.
The settlement, with Wells Fargo Bank, was announced Wednesday by Kansas Attorney General Steve Six.
The settlement provides loan modifications for consumers who had payment option adjustable rate mortgage loans (POA’s) with two companies acquired by Wells Fargo in 2008 — Wachovia Corporation and Golden West Corporation. Close to 500 Kansas consumers have been identified and will benefit from the settlement.
Since its inception last year, Operation Homestead has led to the recovery of over $3.5 million on behalf of Kansas consumers, according to Six. In addition, consumers with certain Countrywide mortgages recovered over $12 million during fiscal year 2010.
“Certain lenders downplayed the risks involved with their products, and many Kansas families were duped into loans that ultimately led to serious financial distress,” Six said. “This settlement is part of the larger effort to keep Kansans in their homes.”
The loans in question were commonly referred to as “Pick A Pay” mortgages. The pay options marketed were: 1) a minimum payment that does not cover principal or interest, 2) interest, or 3) principal. If the consumer had picked the minimum payment (option 1), the loan resets after a certain period and recapitalizes the unpaid interest and principal.
Six said, due to the loans being negative amortizing, the unpaid interest was applied to the principal and constantly recalculated.
In materials marketing Pick A Pay mortgages, Wachovia and Golden West did not fully explain that borrowers who made minimum payments were adding unpaid interest to their principal, leading to borrowers facing much larger loan balances than expected when regular monthly payments resumed.
“These loans targeted Kansas homeowners who were already struggling with a down economy by falsely promising to lower their payments and keep them in their homes,” Six said.
Under the agreement, Wells Fargo will offer modifications to eligible, qualified residential POA borrowers who reside in their homes and who are either 60 days delinquent or facing imminent default. Borrowers will first be considered for the federal Home Affordable Modification Program (HAMP), and if the borrower cannot qualify under HAMP or elects not to accept a HAMP modification, Wells Fargo will consider the borrower for its new modification program, known as MAP2R (Mortgage Assistance Program 2). The agreement sets those terms from Dec. 12, 2010 to June 30, 2013.
Six said modified loan terms will vary according to the circumstances of the borrower but can include principal forgiveness, loan extension, interest rate reduction, and principal forbearance (which gives the borrower additional time to pay off the loan principal).
Borrowers who remain current on their modified payments over three years may be able to earn additional principal forgiveness.
Borrowers who qualify may also convert into a fixed rate loan.
Matthew Clark can be reached at matthew.clark@morningsun.net or at 620-231-2600, Ext. 140
Kansas has reached a settlement with a nationwide bank that will net the state approximately $2.8 million.
The settlement, with Wells Fargo Bank, was announced Wednesday by Kansas Attorney General Steve Six.
The settlement provides loan modifications for consumers who had payment option adjustable rate mortgage loans (POA’s) with two companies acquired by Wells Fargo in 2008 — Wachovia Corporation and Golden West Corporation. Close to 500 Kansas consumers have been identified and will benefit from the settlement.
Since its inception last year, Operation Homestead has led to the recovery of over $3.5 million on behalf of Kansas consumers, according to Six. In addition, consumers with certain Countrywide mortgages recovered over $12 million during fiscal year 2010.
“Certain lenders downplayed the risks involved with their products, and many Kansas families were duped into loans that ultimately led to serious financial distress,” Six said. “This settlement is part of the larger effort to keep Kansans in their homes.”
The loans in question were commonly referred to as “Pick A Pay” mortgages. The pay options marketed were: 1) a minimum payment that does not cover principal or interest, 2) interest, or 3) principal. If the consumer had picked the minimum payment (option 1), the loan resets after a certain period and recapitalizes the unpaid interest and principal.
Six said, due to the loans being negative amortizing, the unpaid interest was applied to the principal and constantly recalculated.
In materials marketing Pick A Pay mortgages, Wachovia and Golden West did not fully explain that borrowers who made minimum payments were adding unpaid interest to their principal, leading to borrowers facing much larger loan balances than expected when regular monthly payments resumed.
“These loans targeted Kansas homeowners who were already struggling with a down economy by falsely promising to lower their payments and keep them in their homes,” Six said.
Under the agreement, Wells Fargo will offer modifications to eligible, qualified residential POA borrowers who reside in their homes and who are either 60 days delinquent or facing imminent default. Borrowers will first be considered for the federal Home Affordable Modification Program (HAMP), and if the borrower cannot qualify under HAMP or elects not to accept a HAMP modification, Wells Fargo will consider the borrower for its new modification program, known as MAP2R (Mortgage Assistance Program 2). The agreement sets those terms from Dec. 12, 2010 to June 30, 2013.
Six said modified loan terms will vary according to the circumstances of the borrower but can include principal forgiveness, loan extension, interest rate reduction, and principal forbearance (which gives the borrower additional time to pay off the loan principal).
Borrowers who remain current on their modified payments over three years may be able to earn additional principal forgiveness.
Borrowers who qualify may also convert into a fixed rate loan.
Matthew Clark can be reached at matthew.clark@morningsun.net or at 620-231-2600, Ext. 140
