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Mortgage Forgiveness Bad Idea: Wells Fargo CEO

Instituting a “top-down” plan to forgive payments for underwater mortgages, which has been proposed by state attorneys general in order to boost the ailing housing market, would offer "poor" incentives and be “bad” for the country, John Stumpf, CEO of the bank Wells Fargo, told CNBC Friday.

“I would be in favor of a standards, where we have one point of contact for a customer who’s having challenges, where we have an outreach program where we make sure we’re talking to customers and they’re talking to us,” added Stumpf.

Wells Fargo is the country’s top residential mortgage originator and the second in residential mortgage servicing.

“But a top-down wholesale, if you’re underwater, you would get a deal, would be destabilizing to the marketplace,” he added. “It would not make sense, it would have the wrong incentives, it would be bad for the country.”

Under the proposal from state attorneys general, which would not need congressional approval, lenders from the nation’s top five banks, including Wells Fargo, could be required to write downthe value of their loans to borrowers who owe more than their homes are now worth, according to the AP. The banks reportedly would be forbidden from starting foreclosure proceedings while a homeowner is trying to modify mortgage terms, and there would be an independent review if they denied a mortgage modification.

The GOP leadership in Congress has opposed the recommendation.

Stumpf said that 92 percent of its homeowners are current on their mortgages whether the value of their homes is underwater or not. He said that Wells Fargo uses principal forgiveness is a very limited way and has never priced it into the payment. The bank receives, on average, he added, $40 a month from the homeowner to take their payment and turn it over to the investor.