Blog

Under a new state law, any lender who agrees to a short sale, which by definition will yield insufficient funds to cover the
outstanding loans on a property, must accept it as payment in full for all loan balances. That is a good thing for upside-down
homeowners who need to sell, says the California Association of Realtors.  ”The signing of this bill is a victory for California
homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale
closes, and demand an additional payment to subsidize the difference,” said association President Beth L. Peerce.  ”SB 458
brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale
payment on a property, all lien holders — those in first position and in junior positions — will consider the outstanding
balance as paid in full and the homeowner will not be held responsible for any additional payments on the property,” she
added.

Wells Fargo, in a settlement with California’s attorney general announced Monday, agreed to provide $2 billion worth of loan modifications to nearly 15,000 homeowners.  Under the deal, the bank is also paying a total of $32 million to borrowers who lost their homes to foreclosure, according to the AG.  Attorney General Jerry Brown said Wells Fargo will offer modifications to 14,900 homeowners, who have so-called “pick-a-pay” loans.  ”Customers were offered adjustable-rate loans, with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford,” said Brown, who takes over as California’s governor next month. “Recognizing the harm caused by these loans — Wells Fargo accepted responsibility and entered in this settlement with my office.”  Pick-a-pay loans, where the rate changes throughout the life of the loan, became notorious during the housing market meltdown.

According to the AG’s office, payments often started low — at levels that were “insufficient to cover the monthly interest owed, and the unpaid interest was added to the loan balance.” The loans would ultimately increase “dramatically,” soaring to unaffordable heights for the homeowner and creating the risk of foreclosure.  In addition to the loan modifications, Wells Fargo will pay $32 million in restitution to more than 12,000 pick-a-pay borrowers who lost their homes through foreclosure in California.  The attorney general noted that the loans were not made by Wells Fargo, but by banks that it acquired: World Savings and Wachovia.  Wells Fargo stated that so far it has already extended significant home payment relief to more than 50,000 at-risk, pick-a-payment homeowners in California — through interest rate reductions, term extensions, tax forgiveness, insurance advances and principal forgiveness.  This adds to the list of pick-a-pay settlements that Wells Fargo has previously signed with attorney generals in Arizona, Colorado, Florida, Illinois, Nevada, New Jersey, Texas and Washington.