A new strategy for a thumped lender
After Bank of America signed up for the program that will modify second mortgages, here comes Well Fargo trying to follow suit with its clients benefiting the most. The bank still has to prove its point of buying Wachovia and so far, nothing impressive has been heard from the institution.
Welcome the best news since its glory days. The bank has committed to help underwater homeowners when it recently joined the Obama administration’s mortgage crusade. The Associated Press reports, “The modification program offers lenders who made “piggyback” loans — second mortgages that allowed consumers to make a small or no down payment during the housing boom — incentives to lower payments or eliminate the loans entirely. During the market’s peak, even customers with spotty credit history were extended second mortgages. The piggyback mortgage modification program could help relieve some drag in the housing market because lenders who extended second mortgages — fearing they won’t be repaid — can veto a borrower’s efforts to modify their primary mortgage. By signing up for the program, all customers of Wells Fargo or Wachovia who have already modified their first mortgage through the modification program, known as the Home Affordable Modification Program or HAMP, can now also modify their second mortgage.”
Being one of the top lenders in 2009, it shouldn’t be a wonder why Wells must join the HAMP which has already fallen short of the government’s expectations since it launched the program. The bank has announced that it has 140,000 loans that are currently in trial-loan modifications or permanent repayment plans. At this point, there’s no other immediate solution to this but a massive modification program.
One good effect that BofA and Wells Fargo can create is to put pressure on other banks that still have to sign up for the HAMP. Everyone’s wondering why it’s taking so long for others to step up to the plate. Are they still thinking about squeezing in every penny of those who thought that they could afford ARMs but still failed to fulfill their mortgage obligations? Or could it be that they’ve lost their trust to the government after the failure of the TARP?
There’s more concern that Gretchen Morgenson of the New York Times writes about, “Say a troubled borrower has a first mortgage owned by a pension fund in a securitization trust and a second lien held by the bank that services the loans. The servicer is happy to modify the first mortgage under the Treasury program because the pension fund holding that loan takes the biggest hit while the second lien is untouched. This hurts the investor who holds the first mortgage and the borrower, who must pay off the second lien, which typically has a significantly higher interest rate. The result? Yet another conflict of interest enriching financial companies while impoverishing investors and consumers.”
I’m just hoping the HAMP gets under fired less by the critics.