Wells Fargo & Co. is betting on a recovery by trading in thousands of option ARMs, or so-called Pick-a-Pay mortgages, in favor of interest-only loans that defer borrowers’ balances for six to 10 years.
This allows Wells Fargo to avoid hefty write-downs on Pick-a-Pay mortgages on which it has foreclosed, but it doesn’t help strapped home owners much and it could leave the lender with billions of dollars tied up in distressed markets, economists say.
"Borrowers have the choice of defaulting, and that's what we're going to see," says Morris A. Davis, a former economist for the Federal Reserve Board who is now an urban land economics professor at the University of Wisconsin-Madison.
Source: The Wall Street Journal
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