Wells Fargo 2012 Annual Report Download - page 81

as the impact will be recognized over a period of years in the
form of lower interest income as qualified borrowers benefit
from reduced interest rates on loans refinanced under the
Refinance Program. The impact of this forgone interest income
on our future net interest margin is anticipated to be modestly
adverse and will be influenced by the overall mortgage interest
rate environment. The Refinance Program also affects our fair
value for these loans. The estimated reduction of the fair value of
our loans for the Refinance Program is approximately
$1.0 billion to $1.2 billion, based upon the range of loans we
estimate will be refinanced.
The expectations discussed above about the volume of loans
that we are refinancing, the resulting reduction in our lifetime
and annual interest income, and the reductions in fair value of
loans for the Refinance Program exceed the amounts that would
result from just meeting our minimum commitments under the
Program due to the significantly higher than expected response
we have received from our customers, which was partially driven
by product changes and the decision to hold interest rates
consistent with the prevailing market environment.
Although the Refinance Program relates to borrowers in good
standing as to their payment history who are not experiencing
financial difficulty, we evaluate each borrower to confirm their
ability to repay their mortgage obligation. This evaluation
includes reviewing key credit and underwriting policy metrics to
validate that these borrowers are not experiencing financial
difficulty and therefore, actions taken under the Refinance
Program are not generally be considered a TDR. To the extent
we determine that an eligible borrower is experiencing financial
difficulty, we generally consider alternative modification
programs that are intended for loans that may be classified and
accounted for as a TDR.
Independent Foreclosure Review (IFR) Settlement
On January 7, 2013, we announced that, along with nine
other mortgage servicers, we entered into term sheets with the
OCC and the FRB that provide the parties will enter into
amendments to the Consent Orders, which would end our IFR
programs created by Article VII of an April 2011 Interagency
Consent Order and replace it with an accelerated remediation
process. The amendments to the Consent Orders have not yet
been entered into with the OCC or FRB.
In aggregate, the servicers have agreed to make direct, cash
payments of $3.3 billion and to provide $5.2 billion in additional
assistance, such as loan modifications, to consumers. Our
portion of the cash settlement is $766 million, which is based on
the proportionate share of Wells Fargo-serviced loans in the
overall IFR population. We fully accrued the cash portion of the
settlement in 2012, along with other remediation-related costs.
We also committed to foreclosure prevention actions which
include first and second lien modifications and short
sales/deeds-in-lieu of foreclosure on $1.2 billion of loans. We
anticipate meeting this commitment primarily through first lien
modification and short sale activities. We are required to meet
this commitment within two years of signing the agreement and
we anticipate that we will be able to meet our commitment
within the required timelines. This commitment did not result in
any charge as we believe that this commitment is covered
through the existing allowance for credit losses and the
nonaccretable difference relating to the purchased credit-
impaired loan portfolios. With this settlement, after incurring
some trailing expenses in the first quarter of 2013, we will no
longer incur costs associated with the independent foreclosure
reviews, which approximated $125 million per quarter during
2012 for external consultants and additional staffing.
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