Modifying Pay-Option-Arms

It looks like this is Wells Fargo’s new strategy and in my opinion it is a big gamble.  Since Wells Fargo never offered these loans it must be the loans from Wachovia where most of the loans were originated from Golden West and World Bank, 2 banks Wachovia acquired. 

The reason I state it is a gamble is that 2/3rds of modified loans end up back in default.  Now keep in mind in part of that statistic are loans that were modified that ended up with a higher payment after the modification.  Regardless, the majority of borrowers who took these loans out never could afford the property from the beginning.  Some of the calls I get amaze me where someone is behind on their mortgage, trying to get a new mortgage, and they wouldn’t even qualify for half of the mortgage that they current have.  And that has nothing to do with tighter restrictions, etc. 

“To solve that conundrum, Wells Fargo is taking a gamble: The San Francisco company is issuing thousands of interest-only loans that will defer borrowers’ balances for as long as six to 10 years. Wells Fargo is wagering that an eventual rise in housing prices in the worst-hit regions of the U.S. and a rise in consumer income, will eventually cover the bank’s underwater Pick-A-Pay debt. “We’re banking on the fact the economy will improve and recover over time,” Michael Heid, co-president of Wells Fargo Home Mortgage, said in an interview.”

http://online.wsj.com/article/SB125728972492326499.html?mod=rss_whats_news_us_business