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Wells Fargo last week announced it will let some at-risk borrowers pay interest only on their mortgage loans in order to stay current and remain in their homes.
The announcement makes you to stop and think: Wells is gambling on a housing recovery to make up for losses. That sounds very similar to the mid-decade business models of so many lenders who, counting on continuous rises in home values, bet the ranch on interest-only loans. We know how well that went.
So Wells’ action has the feeling of a very ironic twist. But the lender’s new strategy does indeed improve credit quality --- or at least the appearance of it in the short term --- and no doubt will reduce the number of homeowners who might otherwise simply mail in the keys.
It’s a very strange world that we’re muddling through, isn’t it?