Mortgage principal reduction at Wells Fargo.

While Wells Fargo does offer various type of mortgage assistance and foreclosure prevention programs, one option they are increasingly turning to and offering is the one in which they reduce the principal of borrowers. They have greatly increased the number of homeowners in which they have reduced the principal those families owe on their mortgage. In fact, according to chief financial officer Franklin Codel, they have reduced the principal for delinquent borrowers on average by 15%, however in some cases the reduction has been closer to 30%. Principal forgiveness is one of the more effective options they offer.

How much has principal been reduced by Wells Fargo?

To put some numbers around this, Wells Fargo has forgiven an average of about $45,000 in principal on tens of thousands of loans, or 15 percent of the loan, for the 50,000 or so Pick-a-Pay and option-ARM loans it has modified this year. The San Francisco-based bank has cut as much as 30 percent off the loan principal some cases in which the homeowner is facing an extreme hardship. However usually the reduction is maxed out at around 20% of principal.

The amount of families and individuals who need help is staggering. In the second quarter, over 15 percent of Pick a Pay and option-ARMs were what they called seriously delinquent, which is almost triple the 5.3 percent rate for all home loans.

Note that the federal government also strongly supports banks and lenders reducing principal. What has happened is that as U.S. home prices declined, the Federal Deposit Insurance Corp., the Obama administration, and the Center for Responsible Lending have called for banks and other lenders to reduce the principal for borrowers who owe more than their property is worth. This option has been shown to be very effective to saving homes from a foreclosure filing.





During 2009, Wells Fargo has already modified about $15.7 billion of option-ARMs in the first three quarters of the year, according to Codel. In total, the bank wrote down over $2 billion in loan balances, which is then leaving it with $13.7 billion in modified mortgages that no longer qualify as higher risk option-ARMs. Read more on principal reduction programs from other banks and lenders.

Pick-a-Pay and Option-ARMs loans originated by Wells Fargo and Wachovia let borrowers defer interest payments on the loans, and instead these loans added the interest to the principal. To make things worse, some of the loans had lower initial interest rates that increased later. So as home values declined people would often find they owe more on their mortgage then the home was worth. And as million of people across the county lost their jobs, they found it all but impossible to pay their mortgage, and since the home was worth less than the mortgage, they oftentimes just walked away from the home.

Additional good news is that Wells Fargo is using other programs, resources, and strategies to assist borrowers, including term extensions, interest-rate reductions, and interest-only loans. So homeowners have many options available to them.

Dial 1-866-234-8271 to learn more about Wells Fargo principal reduction.




By Jon McNamara

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