Attorney General Eric Schneiderman also said Tuesdat that he's dropping a similar action against Bank of America, which has agreed to reforms of its lending system.
The settlement of charges of improper lending practices sets standards that prohibit lenders from pursuing foreclosures while negotiating loan modifications. The standards require the banks to acknowledge refinancing applications in writing within three business days, notify borrowers of missing documents within five days and make decisions on complete applications within 30 days.
Schneiderman said the settlement has brought relief to thousands of New York homeowners during the housing crisis and recession.
"While we have brought much needed relief to thousands of New Yorkers, too many homeowners in our state are facing unnecessary challenges as they fight to keep their homes," Schneiderman said. "Both of these cases should send a strong message that the big banks must comply with the legally binding servicing standards negotiated in the national mortgage settlement or face the consequences."
Wells Fargo said it remains committed to the national settlement, which was agreed to by 49 states, including New York.
"We are continuously implementing additional customer-focused measures based on the constructive feedback we receive from our customers, the Monitoring Committee and individual states," it said in a statement. "We have has been a leader in preventing foreclosures and helping families maintain home ownership with more than 880,000 modifications nationwide."
Bank of America said it was happy to resolve the case.
"We're pleased with the significant assistance Bank of America has extended, and continues to extend, to homeowners through the National Mortgage Settlement, and we will continue working with attorneys general nationwide to continually improve the experience for customers eligible for these important programs," Bank of America spokesman Dan Frahm said.
Wells Fargo had said in May that it was committed to full compliance with the settlement and its standards. It criticized Schneiderman then for failing to "engage in a constructive dialogue."
The move by Schneiderman comes as the Department of Justice and his office have been in extensive negotiations with the biggest U.S. bank, JPMorgan Chase & Co., over its sales of mortgage-backed securities in the years preceding the financial crisis. A possible settlement requiring Chase to pay as much as $11 billion has been under discussion.
If such an agreement is reached, it could be used as a template for deals with other banks for their conduct in mortgage securities.