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Loan Modification Alternatives: Wells Fargo Interest Only Loans

by Andrew on November 9, 2009

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Big Banks are in trouble as more and more families are unable to pay their mortgages. The problem is that troubled homeowners are no longer the “typical” borrower with subprime loans with high interest rates. High unemployment is creating a whole new demographic of troubled borrower with “good” loans they can simply not afford anymore.

Another problem is the existence of billions of dollars in option-adjustable rate mortgages which are a totally different ball game to subprime mortgages or prime mortgages.

Wells Fargo & Co. the fourth largest U.S bank is a good representative of this situation with over $107 billion in option adjustable mortgages. This loan product is as typical as it gets in housing boom “crazy” products. Option adjustable mortgages allow (or allowed, not many are sold anymore funnily enough) borrowers to make small monthly payments in return for increasing their mortgage balance. This effectively allowed borrowers to choose how much to pay as their monthly mortgage payment. The result was that many of us fell for the belief that the housing boom would never end and that our homes would continue to increase in value offsetting any increase in mortgage balance due to small monthly payments below the cost of interest.

The problem now, of course, is that many Pick-A-Pay borrowers own homes that are worth much less than what they owe in mortgage debt and just about as many can’t afford a monthly payment that will pay off any of the mortgage principal.

What can banks do? Wells Fargo is taking one big gamble by issuing interest only loans in the thousands. These interest only loans will defer borrower’s balances for up to 10 years. The gamble is that housing prices and consumers income will rise, especially in the hardest hit parts of the country, and cover the billions of dollars in underwater debt.

Although borrowers that are struggling to pay their mortgages and fear losing their homes will probably be happy to take anything that will keep them afloat during these hard times it is hard not to see this measure as a very high risk one. One newspaper compared this “solution” as a game of kick the can down the road where the “problem” is kicked into the future hoping it will disappear. However with loan modifications hardly making a dent into the number of homeowners facing foreclosures it is hard to see many better alternatives to these extreme measures.

If you own a Pick-A-Pay mortgage and are struggling to pay enough to reduce your mortgage principal it is paramount that you get good personalized advice. The best advice comes from the government and they have a vested interest in your success. You can call HUD for approved housing counseling at 239 434-2397 or visit www.hud.gov.

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Related posts:

  1. Loan Modification: Wells and Fargo VP Vows To Improve Bad Service
  2. Wells Fargo Whacks Brokers Again on Jumbo Loans
  3. Where’s Wells Fargo in the TARP repayments?
  4. Sources: Wells Fargo to Eliminate 100% Financing
  5. Wells Fargo Subprime Lays Off 444

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  • danrawich
    Isn't Wells Fargo's solution a loan modification?

    On another note....Wells Fargo may be the worst culprit of doing nothing for borrowers when it comes to loan mods. Did you know that WF looks at the minimum payment of an option arm as the payment their borrower should be able to afford? Think about that for a minute. A borrower who's 'teaser payment' is 31 % of their monthly income, they are not getting a loan mod. That means if a borrower making $4000 a month has a teaser payment of $1240, they are not getting a loan mod. Does that seem right? Here is a borrower who was conned into an option arm who can barely afford the minimum payment. Now the lender says they must continue to eat more negative equity every month. What happens when that mortgage recasts?

    Let's face it. Lenders like Wells Fargo could care less.

    Sure they may be giving us a head fake by acting like they will help these borrowers. But they won't.

    The truth is they had a temper tantrum when the govt. gave WAMU to Chase. They wanted their seat at the table of cheap deposits. Now when they are throwing up a little in their mouths after looking at the condition of the Wachovia (formely World Savings) portfolio, they are acting like Mother Teresa. I don't buy it.

    And stop pointing your readers in trouble to HUD. What on Earth are the rocket scientists at HUD going to do to help them? Have you looked at the crap FHA is originating? You would be doing a better service for your readers if you starting calling out the banks who are doing nothing to solve this issue.
  • URNOTHELPING
    "The best advice comes from the government and they have a vested interest in your success."
    Really? The best advice comes from the government???? Based on the terrible advice that you are giving I can believe that you may actually believe this but that does not make it true. The government is not littered with the sharpest minds in America. It is a bunch of people who are trying to get re-elected. Do you really think they are looking out for my best interest? Did you ever stop to think that the banking lobby has the politicians in their back pocket. When you call HUD all they do is give you the number at the bank to call and answer some basic questions. Wow, what a great service they provide. Politicians tell people not to use loan mod companies because the banks don't want people to help them out. Wouldn't it be great if the person that was suing you for something was representing them self and you had a great attorney to help you out??
    Have you ever spent 6 months getting the run around from the bank while you stress out over the possibility of losing your home? Who has the time or mental energy or mortgage knowledge to negotiate with the banks? Do people know how to calculate their DTI or surplus/deficit? Did you know that most lenders have guidelines that are based on the monthly surplus/deficit and if you give them numbers that fall outside of those guidelines at any time during the 3-6 month negotiations or during the 3-6 month trial modification you will be DENIED? Can you imagine how somebody would feel if they went through hell for 6 months and then when they went through the final financial review after the trial mod they got denied because they got a bonus check or saw their income dip or had an unexpected expense pop up? Who is going to counsel them on how to manage their finances throughout this process and hold their hand in a great time of need... the government....yeah right. At least they have your great articles to fall back on. If you truly want to help people please educate yourself on what you are writing about before you start writing.
    Which bank do you work for?
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