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Possible Relief in Sight for New Jerseyans Holding "Pick-a-Pay" ARMs

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During the real estate boom, many New Jersey residents, in an effort to get more house for their money, went for a special type of adjustable rate mortgage (ARM) offered by Wachovia Bank and others,  called a "pick-a-pay" plan.  These types of ARMS offer borrowers the ability to make payments that total less than the accrued interest for that month.  Unfortunately, this interest accrued over time and was added to principal, until said principal exceeded 125% of the original loan amount.  At that time, the borrower would have to make a traditional payment including all of the interest and some principal.  In far too many cases, this payment was unaffordable, and the homeowner was stuck.  Well, now there may be some relief in sight.

Wells Fargo and Company, which bought out Wachovia, has agreed to provide about $67 million in mortgage relief to up to 900 New Jersey homeowners who have these plans, reported The Philadelphia Inquirer today.  Said agreement also requires them to pay New Jersey $3.98 million to settle allegations that Wachovia did not properly warn borrowers of the significant downside of these plans.  So far, they have forgiven $3.4 billion in principal owed on these loans.  In addition, they must provide "across the board forgiveness of accrued interest and late fees for eligible delinquent borrowers who live in the homes" purchased by these mortgages.

I have at least one client with this type of mortgage, and they ended up in a chapter 13 bankruptcy trying to straighten things out!  Therefore, New Jersey holding banks like this accountable is a good thing, and anyone holding this type of mortgage should look into this program to see if they can get some relief.  However, this plan will not necessarily help everyone.  As the article pointed out, a Philadelphia consumer expert has observed that the likelihood is good that only a small percentage of those that need the help will get it.  Irv Ackelsberg of Langer Grogan & Diver, PC, said, "The people who are going to get relief here are people whose mortgage payments are really high relative to their income."

This is not to say that, if you have this type of mortgage, you should not try to benefit from this.  You should contact the New Jersey Division of Consumer Affairs or call Wells Fargo at 888-565-1422.  It could make staying in your home more affordable and reduce the risk of foreclosure in the future.
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