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Wells Fargo: ‘leading the way’ in cramdowns?
By Giang Hoang-Burdette • Dec 11th, 2009 • Category: real estate newsflash
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After acquiring $117.3 billion dollars worth of option adjustable rate mortgages (ARMs) in its acquisition of Wachovia last year, banking giant Wells Fargo is now practicing a rare but effective loan modification strategy: the cramdown.
Through September of this year, Wells Fargo has forgiven an average of $46,000 on approximately 43,500 high-risk loans in its portfolio. The typical debt reduction is around 20% of the loan principal, though in rare cases Wells Fargo has cut as much as 30%. Reports put the six-month default rate of loans modified by Wells Fargo at 15-20%, less than half the current rate of 40% suffered by the rest of industry’s extend-and-pretend modifications.
Debt reduction is only one of many tools Wells Fargo is using to aid its distressed borrowers, and is currently not being used as a blanket fix for all underwater homeowners.
first tuesday take: While this is a national story and certainly only a very small slice of the current problem pie, a mortgage lender taking into account the need for principal reduction is a big acknowledgement that the underwater state of many homeowners’ mortgages require this type of treatment. This is something other lenders and Congress need to understand when considering the mortgage quandary. Continuing to “kick the can down the road” with “extend and pretend” modifications will do nothing to solve the massive negative equity problem. The fact that the small glimmers of hope — in the form of cramdowns — are coming from a lender and not the regulators really speaks to the hands-tied, head-buried-in-the-sand mentality which must be overcome if we are to move ahead with a recovery.
Re: Wells Fargo Cuts as Much as 30 Percent in Principal from the Wall Street Journal
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Copyright © 2012 by the first tuesday Journal Online - firsttuesdayjournal.com;
P.O. Box 5707, Riverside, CA 92517
Readers are encouraged to reproduce and/or distribute this article.
Copyright © 2012 by first tuesday Realty Publications, Inc. Readers are encouraged to reprint or distribute this information with credit given to the first tuesday Journal Online — P.O. Box 5707, Riverside, CA 92517.
Giang Hoang-Burdette is a licensed real estate agent and the first tuesday Journal Online editor. She is also lead editor for the Forming Real Estate Syndicates, Buying Homes in Foreclosure and Legal Aspects of Real Estate books.
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About time someone got their head out of their (insert word).
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I have heard tell that only performing assets are fully valued in a bank sale.
Well’s is making a business decision. People should stop looking for “feel good” answers to business problems.
I hope it doesn’t happen, but if “extend and pretend”, along with the other “feel good” solutions result in another large hit to housing, these “well treated” homeowners who received a cram-down will again be blaming the bank for taking advantage of them.
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