[analyst]

[quote=ctr70]http://www.thetruthaboutmortgage.com/wells-fargo-converting-option-arms-into-interest-only-loans/

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.

[analyst]

[quote=ctr70]http://www.thetruthaboutmortgage.com/wells-fargo-converting-option-arms-into-interest-only-loans/

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.

[analyst]

[quote=ctr70]http://www.thetruthaboutmortgage.com/wells-fargo-converting-option-arms-into-interest-only-loans/

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.

[analyst]

[quote=ctr70]http://www.thetruthaboutmortgage.com/wells-fargo-converting-option-arms-into-interest-only-loans/

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.

[analyst]

[quote=ctr70]http://www.thetruthaboutmortgage.com/wells-fargo-converting-option-arms-into-interest-only-loans/

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.

[analyst]

[quote=bayparkgal]Why would anyone want a 40-year interest only loan? What exactly do you own? I believe that is called renting. That has got to be the dumbest plan ever![/quote]

You would own the right to collect the amount of future price increases.

You would want a fixed-rate interest-only loan (of any number of years) if the loan amount/payment was tolerable, and you were confident that the property value would increase to your liking within that number of years. You get a place to live, and you get the profit with the lowest carrying cost.

The evidence is as yet incomplete. I don’t think Wells Fargo is offering a 40-year fixed-rate interest-only loan at 4.5%. If they are, there would be many takers, including me.

[analyst]

[quote=bayparkgal]Why would anyone want a 40-year interest only loan? What exactly do you own? I believe that is called renting. That has got to be the dumbest plan ever![/quote]

You would own the right to collect the amount of future price increases.

You would want a fixed-rate interest-only loan (of any number of years) if the loan amount/payment was tolerable, and you were confident that the property value would increase to your liking within that number of years. You get a place to live, and you get the profit with the lowest carrying cost.

The evidence is as yet incomplete. I don’t think Wells Fargo is offering a 40-year fixed-rate interest-only loan at 4.5%. If they are, there would be many takers, including me.

[analyst]

[quote=bayparkgal]Why would anyone want a 40-year interest only loan? What exactly do you own? I believe that is called renting. That has got to be the dumbest plan ever![/quote]

You would own the right to collect the amount of future price increases.

You would want a fixed-rate interest-only loan (of any number of years) if the loan amount/payment was tolerable, and you were confident that the property value would increase to your liking within that number of years. You get a place to live, and you get the profit with the lowest carrying cost.

The evidence is as yet incomplete. I don’t think Wells Fargo is offering a 40-year fixed-rate interest-only loan at 4.5%. If they are, there would be many takers, including me.

[analyst]

[quote=bayparkgal]Why would anyone want a 40-year interest only loan? What exactly do you own? I believe that is called renting. That has got to be the dumbest plan ever![/quote]

You would own the right to collect the amount of future price increases.

You would want a fixed-rate interest-only loan (of any number of years) if the loan amount/payment was tolerable, and you were confident that the property value would increase to your liking within that number of years. You get a place to live, and you get the profit with the lowest carrying cost.

The evidence is as yet incomplete. I don’t think Wells Fargo is offering a 40-year fixed-rate interest-only loan at 4.5%. If they are, there would be many takers, including me.

[analyst]

[quote=bayparkgal]Why would anyone want a 40-year interest only loan? What exactly do you own? I believe that is called renting. That has got to be the dumbest plan ever![/quote]

You would own the right to collect the amount of future price increases.

You would want a fixed-rate interest-only loan (of any number of years) if the loan amount/payment was tolerable, and you were confident that the property value would increase to your liking within that number of years. You get a place to live, and you get the profit with the lowest carrying cost.

The evidence is as yet incomplete. I don’t think Wells Fargo is offering a 40-year fixed-rate interest-only loan at 4.5%. If they are, there would be many takers, including me.

[analyst]

[quote=ctr70]

Who said there was no free lunch? You get to make a 1% teaser payment for 6 years and then have your balance reduced, and convert to a 4.5% 40 yr fixed IO.[/quote]

Please tell us where we can read about this deal.

The example given in most accounts was of a 6-year interest-only, with no statement about what was to happen after 6 years.

“One borrower, Danny Annan, an Orange County, Calif., engineer, just finished weighing one of Wells Fargo’s loan modifications. The bank offered to reduce his loan balance by $100,000 and transfer the remaining balance to a six-year interest-only loan with an initial interest rate of about 4.9%, Annan said. The offer will still leave Annan more than $100,000 under water on his home.”

The use of the phrase “initial interest rate” generates the need for follow-up investigation.

Several observations.

Accounts are imprecise whether what is being offered is a loan modification or a refinance into a new loan. If the latter, non-recourse purchase loans may be converted into recourse loans, with dire consequences down the road.

There is probably no principal reduction involved. The balance reduction is probably in the amount of interest not paid by the borrower during the negative amortization period. Wells Fargo reportedly acquired these loans from Wachovia at a 20.4 percent discount from book value, which my arithmetic says may be a good approximation of the percentage of balances attributable to negative amortization (income claimed even though not received).

From the information available so far, there is nothing about this plan that should be appealing to a borrower (from a financial point of view).

[analyst]

[quote=ctr70]

Who said there was no free lunch? You get to make a 1% teaser payment for 6 years and then have your balance reduced, and convert to a 4.5% 40 yr fixed IO.[/quote]

Please tell us where we can read about this deal.

The example given in most accounts was of a 6-year interest-only, with no statement about what was to happen after 6 years.

“One borrower, Danny Annan, an Orange County, Calif., engineer, just finished weighing one of Wells Fargo’s loan modifications. The bank offered to reduce his loan balance by $100,000 and transfer the remaining balance to a six-year interest-only loan with an initial interest rate of about 4.9%, Annan said. The offer will still leave Annan more than $100,000 under water on his home.”

The use of the phrase “initial interest rate” generates the need for follow-up investigation.

Several observations.

Accounts are imprecise whether what is being offered is a loan modification or a refinance into a new loan. If the latter, non-recourse purchase loans may be converted into recourse loans, with dire consequences down the road.

There is probably no principal reduction involved. The balance reduction is probably in the amount of interest not paid by the borrower during the negative amortization period. Wells Fargo reportedly acquired these loans from Wachovia at a 20.4 percent discount from book value, which my arithmetic says may be a good approximation of the percentage of balances attributable to negative amortization (income claimed even though not received).

From the information available so far, there is nothing about this plan that should be appealing to a borrower (from a financial point of view).

[analyst]

[quote=ctr70]

Who said there was no free lunch? You get to make a 1% teaser payment for 6 years and then have your balance reduced, and convert to a 4.5% 40 yr fixed IO.[/quote]

Please tell us where we can read about this deal.

The example given in most accounts was of a 6-year interest-only, with no statement about what was to happen after 6 years.

“One borrower, Danny Annan, an Orange County, Calif., engineer, just finished weighing one of Wells Fargo’s loan modifications. The bank offered to reduce his loan balance by $100,000 and transfer the remaining balance to a six-year interest-only loan with an initial interest rate of about 4.9%, Annan said. The offer will still leave Annan more than $100,000 under water on his home.”

The use of the phrase “initial interest rate” generates the need for follow-up investigation.

Several observations.

Accounts are imprecise whether what is being offered is a loan modification or a refinance into a new loan. If the latter, non-recourse purchase loans may be converted into recourse loans, with dire consequences down the road.

There is probably no principal reduction involved. The balance reduction is probably in the amount of interest not paid by the borrower during the negative amortization period. Wells Fargo reportedly acquired these loans from Wachovia at a 20.4 percent discount from book value, which my arithmetic says may be a good approximation of the percentage of balances attributable to negative amortization (income claimed even though not received).

From the information available so far, there is nothing about this plan that should be appealing to a borrower (from a financial point of view).

[analyst]

[quote=ctr70]

Who said there was no free lunch? You get to make a 1% teaser payment for 6 years and then have your balance reduced, and convert to a 4.5% 40 yr fixed IO.[/quote]

Please tell us where we can read about this deal.

The example given in most accounts was of a 6-year interest-only, with no statement about what was to happen after 6 years.

“One borrower, Danny Annan, an Orange County, Calif., engineer, just finished weighing one of Wells Fargo’s loan modifications. The bank offered to reduce his loan balance by $100,000 and transfer the remaining balance to a six-year interest-only loan with an initial interest rate of about 4.9%, Annan said. The offer will still leave Annan more than $100,000 under water on his home.”

The use of the phrase “initial interest rate” generates the need for follow-up investigation.

Several observations.

Accounts are imprecise whether what is being offered is a loan modification or a refinance into a new loan. If the latter, non-recourse purchase loans may be converted into recourse loans, with dire consequences down the road.

There is probably no principal reduction involved. The balance reduction is probably in the amount of interest not paid by the borrower during the negative amortization period. Wells Fargo reportedly acquired these loans from Wachovia at a 20.4 percent discount from book value, which my arithmetic says may be a good approximation of the percentage of balances attributable to negative amortization (income claimed even though not received).

From the information available so far, there is nothing about this plan that should be appealing to a borrower (from a financial point of view).

[analyst]

[quote=ctr70]

Who said there was no free lunch? You get to make a 1% teaser payment for 6 years and then have your balance reduced, and convert to a 4.5% 40 yr fixed IO.[/quote]

Please tell us where we can read about this deal.

The example given in most accounts was of a 6-year interest-only, with no statement about what was to happen after 6 years.

“One borrower, Danny Annan, an Orange County, Calif., engineer, just finished weighing one of Wells Fargo’s loan modifications. The bank offered to reduce his loan balance by $100,000 and transfer the remaining balance to a six-year interest-only loan with an initial interest rate of about 4.9%, Annan said. The offer will still leave Annan more than $100,000 under water on his home.”

The use of the phrase “initial interest rate” generates the need for follow-up investigation.

Several observations.

Accounts are imprecise whether what is being offered is a loan modification or a refinance into a new loan. If the latter, non-recourse purchase loans may be converted into recourse loans, with dire consequences down the road.

There is probably no principal reduction involved. The balance reduction is probably in the amount of interest not paid by the borrower during the negative amortization period. Wells Fargo reportedly acquired these loans from Wachovia at a 20.4 percent discount from book value, which my arithmetic says may be a good approximation of the percentage of balances attributable to negative amortization (income claimed even though not received).

From the information available so far, there is nothing about this plan that should be appealing to a borrower (from a financial point of view).

[Author]

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