Not all banks are simply shrugging as struggling mortgage borrowers complain they were deceived. Wells Fargo has agreed to aggressively modify 8,715 mortgages and thereby forgo more than $772 million in economic value through reduced interest rates, term extensions, and principal reductions. This is a pretty big move by the bank. It's notable in three key ways.
First, the sheer dollar sizes here are pretty amazing. That $772 million in lost economic value will only be divided up by a mere 8,715 mortgages. That breaks down to an incredible $88,583 each, on average. That's an awful lot of money to be losing on each one of these loans.
It's a little unclear how that money will be divided up between various sorts of losses for Wells. Some will be lost fees and lost interest, but you can back into the conclusion that a fair amount will also be spent on principal reductions. Dow Jones Newswires reports that 694 Nevada homeowners will receive $78 million, more than $45 million of which will be principal forgiveness. That means these loans will average a balance reduction of nearly $65,000 each, meaning that 58% of the total aid will be used to reduce principal.
Cleaning Up a Mess It Didn't Make