Wells Fargo & Co.'s $590 million proposed settlement of a class-action lawsuit centers on controversial "Pick-a-Pay" loans issued by Oakland, Calif.-based World Savings.
LOS ANGELES — The legal fallout from high-risk, boom-era mortgage lending never stops, it seems — the latest example being Wells Fargo & Co.’s $590 million proposed settlement of a class-action lawsuit centering on controversial “Pick-a-Pay” loans issued by Oakland, Calif.-based World Savings.
The San Francisco bank disclosed the deal Friday in its quarterly report to the Securities and Exchange Commission. It would settle claims brought against Wachovia, the big bank Wells took over during the financial crisis, which, in turn, had acquired World Savings’ parent, Golden West Financial, in 2006.
Wells said its financial reporting would not be affected because it already had set aside funds to cover the gigantic settlement.
Wells admitted no liability or wrongdoing by Wachovia in settling with the plaintiffs, mainly pension funds who had bought bonds and preferred stock from Wachovia in 2007 and 2008.
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In several lawsuits consolidated before a federal judge in New York, they alleged that Wachovia had been negligent in failing to disclose the risks embedded in the portfolio of Pick-a-Pay loans, which gave borrowers the option of paying so little that the amount they owed went up instead of down.
The accounting firm KPMG, which audited Wachovia’s books, has agreed to provide an additional $37 million as part of the settlement, bringing the total to $627 million, said Darren Robbins, a San Diego attorney representing the plaintiffs.
That would be the largest total settlement so far of any securities class-action claims stemming from the credit crisis, Robbins said. The runner-up: a $624 million settlement by Bank of America and KPMG in federal court in Los Angeles of a shareholder class action alleging that Countrywide Financial, now part of Bank of America, misled investors about its financial condition and lending practices.
Bank of America recently agreed to pay a far greater amount — $8.5 billion — to settle demands by a group of big investors that it buy back soured Countrywide loans that had been bundled up to back mortgage securities. Many big banks, including Wells Fargo, are facing similar demands by investors in bonds backed by subprime and other high-risk mortgages.
A Wells Fargo spokeswoman, Mary Eshet, said the bank agreed to the settlement “to avoid the distraction, risk and expense of ongoing litigation.”