Same as Renting From the Bank?


One lender is trying to help some of their borrowers' mortgages go from bad to ... slightly less bad. Wells Fargo, the fourth largest U.S. bank, inherited roughly $100 billions in "Pick a Pay" Option ARMs when it took over Wachovia.

As part of their mortgage modification plans, Wells Fargo is offering interest-only mortgages for a six to 10 year term, with the assumption that home prices and incomes will go up, so the owners can either sell or refinance at the point when their home will be worth more.

The problem here is that the home owner could still end up with little or no equity in the home, so if they make the interest payments for six years and then foreclose anyway, the bank gets six years of payments and the owner gets nothing. This is sometimes referred to as "just renting from the bank."