Wells Fargo 2015 Annual Report Download - page 74

Risk Management – Credit Risk Management (continued)
Pick-a-Pay Portfolio The Pick-a-Pay portfolio was one of the
consumer residential first mortgage portfolios we acquired from
Wachovia and a majority of the portfolio was identified as PCI
loans.
The Pick-a-Pay portfolio includes loans that offer payment
options (Pick-a-Pay option payment loans), and also includes
loans that were originated without the option payment feature,
loans that no longer offer the option feature as a result of our
modification efforts since the acquisition, and loans where the
customer voluntarily converted to a fixed-rate product. The Pick-
a-Pay portfolio is included in the consumer real estate 1-4 family
first mortgage class of loans throughout this Report. Table 25
Table 25: Pick-a-Pay Portfolio – Comparison to Acquisition Date
provides balances by types of loans as of December 31, 2015, as a
result of modification efforts, compared to the types of loans
included in the portfolio at acquisition. Total adjusted unpaid
principal balance of PCI Pick-a-Pay loans was $23.8 billion at
December 31, 2015, compared with $61.0 billion at acquisition.
Primarily due to modification efforts, the adjusted unpaid
principal balance of option payment PCI loans has declined to
15% of the total Pick-a-Pay portfolio at December 31, 2015,
compared with 51% at acquisition.
December 31, 2015 December 31, 2008
Adjusted Adjusted
unpaid unpaid
principal principal
(in millions) balance (1) % of total balance (1) % of total
Option payment loans $ 16,828 39% $ 99,937 86%
Non-option payment adjustable-rate and fixed-rate loans 5,706 13 15,763 14
Full-term loan modifications 21,193 48 — —
Total adjusted unpaid principal balance $ 43,727 100% $ 115,700 100%
Total carrying value $ 39,065 $ 95,315
(1) Adjusted unpaid principal balance includes write-downs taken on loans where severe delinquency (normally 180 days) or other indications of severe borrower financial
stress exist that indicate there will be a loss of contractually due amounts upon final resolution of the loan.
Pick-a-Pay loans may have fixed or adjustable rates with
payment options that include a minimum payment, an interest-
only payment or fully amortizing payment (both 15 and 30 year
options). Total interest deferred due to negative amortization on
Pick-a-Pay loans was $431 million at December 31, 2015, and
$606 million at December 31, 2014. Approximately 97% of the
Pick-a-Pay customers making a minimum payment in
December 2015 did not defer interest, compared with 95% in
December 2014.
Deferral of interest on a Pick-a-Pay loan may continue as
long as the loan balance remains below a pre-defined principal
cap, which is based on the percentage that the current loan
balance represents to the original loan balance. A significant
portion of the Pick-a-Pay portfolio has a cap of 125% of the
original loan balance. Most of the Pick-a-Pay loans on which
there is a deferred interest balance re-amortize (the monthly
payment amount is reset or “recast”) on the earlier of the date
when the loan balance reaches its principal cap, or generally the
10-year anniversary of the loan. After a recast, the customers’
new payment terms are reset to the amount necessary to repay
the balance over the remainder of the original loan term.
Generally, Pick-a-Pay option payment loans have an annual
7.5% maximum payment increase reset unless a recast event
occurs. If a recast occurs it may cause the payment reset to
exceed 7.5% and result in a significant payment increase, which
can affect some borrowers' ability to repay the outstanding
balance. The amount of Pick-a-Pay option payment loans we
would expect to recast and exceed the 7.5% payment increase
through 2020 is $1.8 billion ($1.2 billion for 2017) assuming a
flat rate environment. Recast risk associated with our Pick-a-Pay
PCI portfolio is covered through our nonaccretable difference.
As a result of our modification efforts, Pick-a-Pay option
payment loans have been reduced to $16.8 billion at
December 31, 2015, from $99.9 billion at acquisition.
Wells Fargo & Company
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