Wells Fargo Reduces Up to 30% in Principal From Loans
Principal Reduction on Mortgages
Wells Fargo & Co., the bank that gained a portfolio of option adjustable-rate mortgages when it bought Wachovia Corp., cut the principal for delinquent borrowers in some loans by as much as 30%.
Wells Fargo has forgiven an average of $46,000 in principal, or 15%, for the 43,500 option-ARM loans it has modified this year through September.
“Right away we decided we wanted to go after the highest- risk borrowers,” Franklin Codel, chief financial officer at Wells Fargo Home Mortgage. “Principal forgiveness is one of the arrows in the quiver.”
The US House Financial Services Committee met on Tuesday to discuss the private industry and government response to the mortgage foreclosure crisis — the main topic Home Affordable Modification Plan (HAMP).
Experts in their testimony criticized the HAMP program — arguing that targeting mortgage payment reduction is destined to fail. The program is not address the real problem, mainly negative equity which are causing many borrowers to default. Instead, the experts argue, HAMP program focus on principal reduction.
HAMP modifications are primarily a payment reduction plan — which aims at reducing interest payments and delaying principal payments for eligible homeowners.
The HAMP program, initially projected to help 3 to 4 million borrowers, works by reducing homeowner payments to an affordable level, defined as a 31% debt-to-income ratio of the borrowers. Since the start of the program in February 2009, approximately 650,000 homeowners are now in a trial modification, yet only a fraction of those have received a permanent loan modification.
The Private Sector and Government Response to the Mortgage Foreclosure Crisis
House Financial Services Committee
Tuesday, December 8, 2009
Wells Fargo Cuts as Much as 30 Percent in Principal From Loans
