Call it the “drip-drip-drip” before the flood, as Wells Fargo (Stock Quote: WFC) is the first major bank to offer compensation to homeowners who bought those quirky “pick-a-payment” mortgages that, more often than not, wound up costing borrowers a bundle.
Wells Fargo is busy on the mortgage document repair front these days. Aside from the “pick-a-pay” issue, the bank just announced it would re-file documents for some 55,000 foreclosed mortgage cases. Only a few weeks ago, Bank of America (Stock Quote: BAC) and JP Morgan Chase (JPM) announced they would suspend foreclosure proceedings nationwide in the aftermath of the “robo-signing” scandal. But Wells Fargo’s foreclosure processes were supposed to be unaffected by the scandal, as it kept its foreclosure pipeline flowing.
With the announcement that it would re-file these documents, Wells Fargo has cast a cloud over its mortgage documentation practices. Ohio Attorney General Richard Cordray, who recently filed a lawsuit against Ally Bank over the robo-signing scandal, said he was “pretty unhappy” over the Wells Fargo flip-flop.
"We had talked to them and they assured us they didn't have any of these problems," Cordray told Reuters. “[It] makes it hard to believe any of the big financial firms in terms of what their process has been."
Wells Fargo also announced this week that it would pay $23.7 billion to eight U.S. states to help modify and reduce mortgages for bank customers who may have been hoodwinked into buying those “pick-a-pay” mortgages. Most of the loans originated with Wells’ subsidiary Wachovia Bank.
Those mortgages gave homeowners the option to make their payments in several ways:
- Make full principal and interest payments.
- Pay interest and nothing more.
- Make a “minimum” payment that didn’t even cover the loan interest.
- Make a 15-year or 30-year amortizing payment.