I had the privilege of receiving a new study done on Wells Fargo via email by Valparaiso University law professor and member of the Federal Reserve Board’s consumer advisory council, Alan M. White this past week.  The study concentrated on a pool of Wells Fargo mortgages and gives us all a not too common look under the hood of one of the major investors and players in the mortgage market.

Mr. White found that Wells Fargo working with distressed homeowners to modify their mortgages had failed to reduce the principal balance in 98% of the 4,300 cases studied. Nearly half the loan modifications did not even reduce the monthly payment amount.

In the email, Alan White said, “I have just finished a study based on servicer monthly remittance reports for the last 12 months, to see what kind of loan modifications subprime servicers are actually doing.  Among other things, I found that principal write-downs are almost non-existent, and only about half of loan mods reduce the borrower’s monthly payment.  The number of completed modifications, and whether they improve or worsen the loan terms, also varies tremendously from one servicer to another, even though all the pools I looked at had the same trustee (Wells Fargo).

This is no surprise to me and I am sure the majority of housing counselors and non-profit consumer advocates would agree. Wells Fargo and their servicing arm, AKA, American Servicing Company (ASC) are notoriously unhelpful and what is commonly known in the loan workout industry as a “predatory servicer.” Gouging their clients with fees and filling them with foreclosure fear is their MO (Method of Operation).

Financial Week:

Mr. White faulted “groupthink in the mortgage industry” that “still seems to be very wary of principal write-downs” for the problem. 

“We believe that structural barriers inherent in the mortgage-servicing industry will hamper the effectiveness of any voluntary programs,” Tara Twomey of the National Consumer Law Center told the panel, citing Mr. White’s findings.


Rewriting Contracts, Wholesale: Data on Voluntary Mortgage Modifications from 2007 and 2008 Remittance Reports 


To better understand the effectiveness of the voluntary mortgage crisis resolution plan, this paper reports detailed empirical information from a newly-created database. Loan-level information on the number and type of negotiated mortgage modifications was compiled from monthly servicer remittance reports from July 2007 through June 2008 for twenty-six mortgage loan pools.The data show that while the number of modifications rose rapidly during the crisis, mortgage modifications in the aggregate are not reducing subprime mortgage debt. Mortgage modifications rarely if ever reduced principal debt, and in many cases increased the debt. Nor are modification agreements uniformly reducing payment burdens on households.


About half of all loan modifications resulted in a reduced monthly payment, while many modifications actually increased the monthly payment. Finally, there is tremendous variation in the extent, if any, of payment relief offered by different mortgage servicers.


The combined effect of dwindling refinancing activity and modifications that do not write down mortgage debt, and in many cases do not even reduce monthly payments, is to delay, but not prevent, large numbers of foreclosures. Given the continuing accumulation of loans in the foreclosure and real-estate-owned categories, the subprime crisis will be worked out only over many years through painstakingly slow repayment, foreclosure and disposition of properties.


Read the Working Paper Series Here