Deceptive Marketing Ghosts Come Back To Haunt Wells Fargo

August 19 00:00 2011

New York, August 18 ( – Wells Fargo (WFC: NYSE) is trying to contain the deceptive marketing ghost that is haunting it ever since it purchased Wachovia Bank during the financial turmoil in 2008. Wachovia itself had earlier acquired Golden West in 2006 and the combined entity specialised in Adjustable Rate Mortgages (ARMs). They were also offering products like interest payment only mortgages. These mortgages were mostly being used by speculators to pay off the financing cost and benefit from capital gains when home prices went up. However, the flipside was that since the Principal was never paid off, the interest payments would not decrease and hence the total cost of mortgage went higher.

According to allegations by the Connecticut government, the implications of these mortgages were not clearly explained to consumers. Hence it is a case of mis-selling and deceptive marketing by Wachovia. And since Wells Fargo has assumed the liabilities on buying out Wachovia, they must make good the losses faced by Connecticut.

Wells Fargo representatives in the meanwhile struck an agreement with the state of Connecticut to allow 1535 mortgages to undergo modifications and also contributed $741,465 to Connecticut government’s foreclosure prevention efforts. This is not the first case that Wells Fargo had to strike out an agreement with a state government. Similar agreements have already taken place with Governments of California and Nevada. Both analysts as well as Wells Fargo senior management are sceptical about what more implications will Wells Fargo have to face for acquiring Wachovia for $19.8b in 2008.