State residents can't bank on Pick-A-Payment mortgage restitution
Published 9:23 am, Saturday, December 25, 2010
While they had the same loans and encountered some of the same disastrous results, Connecticut residents who lost homes to foreclosure after taking out World Savings or Wachovia "Pick-A-Payment" mortgages don't have the same access to restitution funds as residents of some other states.
Wells Fargo & Co., which now owns Wachovia, has reached agreements with 10 states to offer modifications to homeowners with Pick-A-Payment loans and to establish funds to help those who already lost their homes to foreclosure.
In California, where the most recent agreement was struck, an estimated 14,900 borrowers could still have these types of loans and be eligible for modifications that could reduce principal and interest.
A fund of $32 million was also established to help Californians who already lost houses.
The loan's name is an exact description. Each month a borrower could choose to pay one of three payments. The minimum payment was so low that if a person continued to pay that amount, they could end up owing more than they originally borrowed.
Three of six World Savings foreclosure cases reviewed this week in Connecticut indicate borrowers were in just that situation.
The Wells Fargo developments are more fallout from the excesses in the mortgage lending market in which certain exotic products were overused, leaving banks and investors looking at portfolios filled with bad loans and families being forced out of houses. As the cleanup moves forward, the difference between who is receiving restitution and who is receiving a modification, in the case of Wachovia customers, appears to be a matter of timing.
In relation to Wachovia's Pick-A-Payment products in Connecticut, it looks like the answer lies somewhere in the timing of when you got into trouble. Those who stayed in their houses into 2009 have more options to modify their loans and keep their homes. But those with Wachovia mortgages whose homes were foreclosed on before 2009 are unlikely to get any kind of restitution or aid.
Teri Schrettenbrunner, senior vice president of Wells Fargo Home Mortgage Communications, said Thursday her bank has been offering modifications to any customer in any state, including Connecticut, who has a Pick-A-Payment loan, since 2009.
She explained that Wells Fargo didn't issue these loans; it inherited them when it bought Wachovia in December 2008. Wachovia had already acquired World Savings in 2006 as a part of its purchase of Golden West Financial.
Wells Fargo is willing to reduce the principal, interest and extend the length of the loan to help borrowers who still have some income and who can prove they suffered some hardship, she said. People with these loans should call Wells Fargo to discuss modifications.
"What is not available (in Connecticut) is the cash settlement," Schrettenbrunner said.
The bank is in talks with state officials across the country where Pick-A-Payment loans were offered in high concentrations, but Schrettenbrunner said she couldn't confirm whether Connecticut is considered one of those high-concentration states.
Though its difficult to say how many of these loans are or were out there, according to the state Judicial website, Wachovia is involved in thousands of foreclosure cases in Connecticut, as is Wells Fargo. World Savings has a smaller presence but is also involved in foreclosure actions.
Attorney General and U.S. Sen.-elect Richard Blumenthal, D-Conn., said his office is reviewing the California settlement and is investigating any similar lending practices that may have occurred in Connecticut.
His office said it has only received four specific complaints about these products since 2007. Divine Mortgage Solutions, a Bridgeport ministry involved in helping area residents stave off foreclosure, was able to find at least two cases involving Pick-A-Payment loans that it's worked on in the last year. One has been modified and a modification has been offered to the other one.
The loans themselves weren't illegal. Schrettenbrunner said her bank is doing this to be fair to homeowners and to try to stabilize the housing market.
Fairfield mortgage broker Mark Ballaro said he's not sure restitution should be paid, at least not to everyone.
"I don't have any love for the big banks, but I can't blame Wells Fargo and the big banks" for using these loans, Ballaro said. "Consumers are playing dumb -- 99 percent knew what they were doing."
He said there was some abuse, and those cases should be followed up, but it's time to admit that it wasn't just the greedy banks that made mistakes.
He said monthly statements told people how much they owed and if they were falling behind. In Connecticut, people definitely should have known what they were getting into because they're required to have a lawyer present to explain it to them, he said.
"If the banks are culpable, the attorney who represents the buyer is culpable, too, if he didn't explain it," Ballaro said. "I just don't believe people are this dumb."