By Ari Levy on Bloomberg:
Wells Fargo & Co., the second-biggest U.S. home lender, offered to cut mortgage balances for some Wachovia Corp. customers by 20 percent as defaults rise and officials pressure banks to modify loans to avoid foreclosures.
Wells Fargo mailed letters to those borrowers, asking for proof of current income and a 2007 income-tax statement, bank spokeswoman Debora Blume said today in an e-mail. Customers are provided a number to call to speak with a consultant. Wells Fargo didn’t say how many customers received the letter.
“We are encouraged by the response we are getting to our outreach efforts, as it means we will be able to help more people with a solution that works,” Blume wrote.
Regulators and lawmakers are pressing the nation’s biggest lenders to pick up the pace of loan workouts after foreclosures soared 81 percent in 2008. San Francisco-based Wells Fargo inherited billions of dollars in future losses when it bought Wachovia for $12.7 billion. Wells Fargo said last week that Wachovia’s option adjustable-rate mortgage portfolio has close to $60 billion of impaired loans.
Wells Fargo rose $2.87, or 18 percent, to $19.14 at 4:05 p.m. on the New York Stock Exchange, reducing its decline for the year to 35 percent.
Citigroup Inc., the New York-based bank that received a $346 billion government bailout, bowed to pressure from U.S. Senators Richard Durbin and Charles Schumer and agreed to support “cram- down” legislation that allows bankruptcy judges to cut borrowers’ mortgage principal. Other banks have opposed the plan, saying foreclosures can sometimes minimize write-offs, and undeserving borrowers may seek relief.
Wells Fargo’s pilot program aimed at Wachovia borrowers is part of a plan announced on Jan. 26 to help avoid “preventable foreclosures.” As many as 478,000 Wachovia customers have access to the wider program and those who are in or at risk of foreclosure have until Feb. 28 to contact the bank. Customers may also win reduced interest rates and extensions of up to 40 years.
“It’s very positive that they are willing to look at principal reductions but they need to extend a moratorium for these borrowers” beyond the February deadline, said Kevin Stein, associate director of the California Reinvestment Coalition in San Francisco. “Wells needs time to implement the program.”
After purchasing Wachovia, Wells Fargo controls 16 percent of the mortgage-servicing market, behind Bank of America Corp., with 19 percent, according to trade publication Inside Mortgage Finance. JPMorgan Chase and Co. accounts for 14 percent and Citigroup has 7 percent. Wachovia loans resulted in Wells Fargo’s first quarterly loss since 2001.
FDIC Chairman Sheila Bair endorsed a plan by President Barack Obama to boost spending on modifications. The agency created a “mod-in-a-box” program to help borrowers at least 60 days past due make payments by reducing interest rates, deferring principal or cutting payments.