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Wells Fargo Doubles Projected Cost of Refinance Program

Wells Fargo Boosts Lost-Income Forecast for Refinancing Program
Wells Fargo & Co. had forecast a $100 million reduction in annual net interest income in the filing three months ago. Photographer: Scott Eells/Bloomberg

Wells Fargo & Co., the largest U.S. mortgage lender, said a refinancing program may cut so-called lifetime interest income by as much as $1.7 billion, more than double what the firm estimated three months ago.

The new estimate of lost interest income from the program, part of a settlement of state and federal loan-servicing probes, climbed from the firm’s $720 million forecast in May, Wells Fargo said today in a quarterly filing. As many as 40,000 borrowers represent $8 billion in unpaid principal balance that may be refinanced by the bank under the program, up from a projection of 20,000 borrowers and $4 billion three months ago.

The estimates “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,” the San Francisco-based bank said.

The program is part of a $25 billion mortgage settlement signed in February by five banks, including Wells Fargo, with 49 states and the federal government. The accord, the largest federal-state civil settlement in U.S. history, ended a 16-month probe of abusive foreclosure practices stemming from the housing collapse. The banks committed $20 billion in mortgage relief plus payments of $5 billion to state and federal governments.

The program may cut interest income each year by as much $215 million at Wells Fargo, up from a forecast of $100 million in the filing three months ago. The fair value of loans involved may be reduced by as much $1.7 billion, an increase over the $700 million reduction forecast in May.

Wells Fargo erased gains of as much as 1.2 percent, falling 2 cents to $33.98 at 3:17 p.m. in New York trading, the third-worst performance in the 24-company KBW Bank Index, after Regions Financial Corp. and Capital One Financial Corp.

Bank of America Corp., the second-biggest U.S. bank by assets, said its share of the program may shrink annual interest income by as much as $130 million, the Charlotte, North Carolina-based lender said in a quarterly filing last week. As many as 25,000 loans with unpaid principal of $6.8 billion may be affected.

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