This is the link to the actually post about Wells reducing pincipal balances on option arms and converting to IO loans.[/quote]
The links provided so far (and others I have found separately) do not agree with the poster’s description.
Nowhere, so far, is the loan described as fixed-rate during any time period.
The interest-only period is described as 6-10 years, not 40.
The balance written off is probably not “principal”, but “interest accrued but not paid” (during the original negative amortization period). Wells Fargo bought the loans at a discount that covers this write-down, so is not taking any loss.
Any person offered this deal who can sell and break even should immediately take the offer and sell, which is a good (and fair) outcome for all.
For most borrowers, this deal will be a loser. It is (from the documentation so far) a garden variety variable rate mortgage with a 6-10 year interest-only period, an initial rate of less than 5% being nothing special for such a loan. In coming years the variable interest rate will adjust with the market.
Interest rate is likely to go up, which would send house values down, and a non-recourse loan may have been traded in for a recourse loan.
This is nothing more than a plan by Wells Fargo to slow down foreclosures on this portfolio of loans while maximizing cash flow received, and will appeal only to borrowers who still have a bubble mentality.
