Comment by shaftway | Hacker News Reader

Comment by shaftway | Hacker News Reader

I'd appreciate some clarification from someone...

I get that generally changing the terms of a loan after everything is signed is sketchy. But in this case it looks like they were trying to do the customers a service:

>The changes, which surprised the customers, typically lowered their monthly loan payments, which would seem to benefit borrowers, particularly those in bankruptcy. But deep in the details was this fact: Wells Fargo’s changes would extend the terms of borrowers’ loans by decades, meaning they would have monthly payments for far longer and would ultimately owe the bank much more.

I guess the devil is in the details, but if they just lowered the minimum payment what's the harm to the consumer? AFAIK the vast majority of loans in the US are simply calculated. If you make your payments as expected on time you wouldn't be effected. If you aren't able to do that, then of course you're not paying off the principle as quickly and the term would be extended. Just like making extra payments will shorten the term.

To be clear: changing the rate? Adding fees? Sure, that's really bad; rake them over the coals. But if it's just changing the minimum payment amount I'm missing the problem.

Changing the terms of the contract without explicit approval from both sides is beyond sketchy. At minimum, it's an unapproved amendment and therefore doesn't apply. At worst, it's a new contact that at least one side didn't agree to and therefore doesn't apply. It looks like people agreed without understanding the details.

In this case, I'd wager by lowering the payments, less loans were "risky" and therefore their assets look better. That probably was for the benefit of repackaging those "assets" and/or better guarantees from the Fed.

The most specific allegation is that they extended the maturity of the loan, which as a consequence lowered the minimum payment. Under normal circumstances, and with clear communication to the borrower, this is a change that can only be better for the borrower; they can continue to pay on the old schedule, or pay less on the new schedule over more time without going into default. However, many of the borrowers were in bankruptcy at the time of the change. During this process they were not in control of their own assets; the bankruptcy trustee was paying their bills for them. If the bankruptcy trustee paid the new lower minimum payment, it would result in the borrower paying more in interest than they otherwise might have.

You literally quoted the answer in your comment. There's a short-term benefit and a much greater long-term harm. Offering this facility to consumers is fine, doing it unilaterally isn't. Many consumers won't realize the long-term impact because they're not good at financial planning.

Read up on this important court case: https://en.wikipedia.org/wiki/Williams_v._Walker-Thomas_Furn....

From the article:

One customer had nine years left on their mortgage. Wells Fargo extended that to forty years, giving Wells Fargo an extra $40,000 in interest.

Another customer had fourteen years left on their mortgage, it was extended to forty years, giving Wells Fargo an extra $85,000 in interest.

If you're expecting to retire with your house paid off, the additional 31 or 26 years of payments could ruin your life.

The "ultimately owe the bank much more" part is why this is really bad.

Even while you're filing for bankruptcy, you would want to structure the mortgage so that you are paying it off as quickly as you can specifically because compounding interest really hurts.

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