Mortgage lenders and servicers have generally been going at a snail's pace, or slower, in modifying homeowners' loans. Many applications to do so have been actually declined for a variety of reasons. Some borrowers have just plain given up on the process due to all the hoops they have to jump through and still not get anything meaningful done. And all the well-meaning government programs introduced so far have produced at best mixed results.
A major mortgage provider, Wells Fargo, is doing something different now. It is taking the lead in home loan mods by taking in the so called Pick-A-Pay mortgages, an option ARM product it inherited with the recent Wachovia purchase, from distressed borrowers and replacing them with interest-only paper with due dates possibly as far down the road as 6 to 10 years.
The plan also includes the much sought-after mortgage principal reduction that every home owner who is underwater can appreciate. According to Wells Fargo its modifications to date have resulted in about $2 billion worth of balance cutbacks, averaging roughly $46,000 per loan. From what it looks like is that the bank is offering to reduce the underwater portion by about half. Let's say a home has a loan balance of $400,000 and is now worth only $200,000, Wells Fargo would propose a new interest-only mortgage amount at $300,000.
Las Vegas valley - including Summerlin, Henderson, Southern Highlands, Anthem, Mountains Edge and Green Valley - home owners who are currently on Wells Fargo mortgages could benefit from this. It's predictable that it is mainly targeting the most-ravaged real estate markets where being underwater is very common. Las Vegas certainly qualifies here. This could also inspire other mortgage lenders to come up with similar modification programs.
People are increasingly walking strategically away from their home loans which has obviously influenced Wells Fargo's decision makers. It clearly makes decent sense to give up half of the negative equity than the whole thing when a foreclosure sale is the other option. Every home owner isn't going to buy into this plan because it can still leave them on the hook for years to come. Most-affected Las Vegas residents, for instance, are likely looking at years in double digits before their home values recover to match their mortgage balances, provided the economy here gets back on its feet soon.
The healing of the housing market, in Las Vegas and nationwide, will come. Although it could be painfully slow. Wells Fargo is evidently betting that it is doing that within ten years and it could be right. Everyone would be happy to hoist a cold pint for that.