CHICAGO (CN) - Wells Fargo will provide $39.5 million in mortgage relief to Illinois homeowners as part of a larger settlement. The bank is to offer $772 million worth of loan modifications to 8,715 customers in eight states, Attorney General Lisa Madigan said.
The sum includes $17 million in principal forgiveness for Illinois homeowners, and at least 531 Illinois borrowers will be considered, under the settlement.
Madigan said Wells Fargo also will pay her office $2.2 million to distribute to borrowers who lost their homes.
The agreement culminates an investigation into risky option-adjustable rate mortgages offered by failed lenders Wachovia and Golden West. Wells Fargo bought the portfolios containing these loans from those banks.
The investigation focused on whether Wachovia and Golden West violated state laws, including the Illinois Consumer Fraud Act, by failing to explain to borrowers that the minimum payment on their loans did not cover the full amount of accrued interest, and that choosing to make the minimum payment would increase the amount of the loan.
Many borrowers faced higher loan balances and unaffordable monthly payments when they had to begin making full principal and interest payments.
"The mortgage crisis has devastated thousands of Illinois families, leaving them struggling with unfairly high interest rates, unfair loan terms and mushrooming loan balances," Madigan said in a statement. "Our investigation brings homeowners relief at a critical time and holds Wells Fargo accountable to struggling homeowners."
Wells Fargo will offer loan modifications to eligible, qualified residential borrowers who are either 60 days delinquent or facing imminent default, between Dec. 18, 2010 and June 30, 2013, the settlement states.
Madigan said Wells Fargo must adequately staff help lines for consumers, including Spanish-speakers; provide a single, primary point of contact to assist borrowers seeking modifications; make decisions on modifications within 30 calendar days of receiving a complete application; and establish a formal second look or appeal process for borrowers who are turned down for a modification.
Loan modifications are expected to be offered to 8,715 eligible borrowers for an estimated total of $772 million, Madigan said. Arizona, Florida, Colorado, New Jersey, Washington, Texas and Nevada are also part of the settlement.
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