Wells Fargo CEO Says Principal Write-Downs Could Do More Harm than Good
3/11/11
Wells Fargo CEO John Stumpf spoke out against a proposal to reduce the amount of principal in outstanding US loans, saying the action could end up doing more harm than good. Stumpf made the comments while addressing other bank executives at Citigroup's Financial Services Conference. He explained that principal write-downs would have a huge impact on mortgage giants Fannie Mae and Freddie Mac, and some owners would be tempted to default, believing they can get a better deal.
Wells Fargo and other large US banks are currently in talks with attorneys general from all 50 states and federal regulators about reaching a settlement to conclude the far-reaching probe into the firms' foreclosure practices. A key proposal for the settlement being discussed is the idea of fining the banks and applying that money to write down the principals of many outstanding loans.
But Stumpf, and other bank executives, believe the proposal is a bad idea. "Its a tool in our toolbox, but it's not always the answer," he explained, noting that Wells Fargo has already forgiven some $4 billion in loan principal for mortgages currently on its books. "It makes no sense to (entice) people not to pay their debts," Stumpf said.
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