Wells Fargo & Co., which gained a portfolio of option adjustable-rate mortgages when it bought Wachovia Corp. last year, has cut the principal for delinquent borrowers in some cases by as much as 30%.
The San Francisco banking company has forgiven an average of $46,000 in principal, or 15%, on the 43,500 option-ARM loans it modified this year through September, according to Franklin Codel, the chief financial officer at its mortgage unit.
Codel said that, for most delinquent borrowers, Wells has capped its principal discounts at 22% but, in "rare exceptions," had gone as high as 30%.
"Right away we decided we wanted to go after the highest-risk borrowers," Codel said in an interview Wednesday at the Des Moines headquarters of Wells Fargo Home Mortgage. "Principal forgiveness is one of the arrows in the quiver."
Wells is using other strategies to help borrowers, including interest rate reductions, term extensions and interest-only loans, Codel said.
Wells modified about $15.7 billion of option-ARMs in the first three quarters of this year, Codel said. It wrote down $2 billion in loan balances, leaving $13.7 billion in modified mortgages that no longer fit the description of option-ARMs, according to a third-quarter presentation.
