I went out there today to take the corner trim off to see what needed to be done. The trim wraps around the corner and behind the siding on the front of the house, so I couldn't pull it all the way off. I did open it up enough to see inside there better. I brushed all the dead yellow jackets out of there and got rid of their nests.
I don't know why it looked like the wood was ruined under there the last time I looked. It may have been because in the place where I looked behind it, there is a bead of old, gray caulk that is the same gray color as the exposed wood. The wood beyond it wasn't easy to see with just a flashlight, so I guess my eyes were playing tricks on me

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Anyway, I did get it opened up today and the wood is in very good shape. Thank God there was no termite damage. There are no bad spots in it, but there are gaps between the 2x4's where there is no insulation and the cold air could get right through to the exterior side of the drywall, causing the condensation. For now, I pushed some fiberglass insulation into the gaps between the 2x4's, covered all of the wood with a thin layer of insulation and nailed the trim back in place. If we have a warm day in March, I'm planning on using some spray foam to fill all the gaps.
I googled 'yellow jacket nests' and found out that they don't eat wood, but if they get in your attic or behind a wall in your house, they'll eat right through drywall and get into your house. My sister's friend here in Michigan had that happen in her daughter's bedroom. They ate through from the back of the drywall and there were dozens of them flying around in the room. If you google it, there are some cool pictures of huge nests. (I hope the 4 pictures show up here to go with the quotes)
These are 2 pictures of a '55 Chevy.
Quote:
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I became aware of reports of a giant yellow jacket nest in the backseat of an old car in Tallassee. Word was that is was very big. I told myself I had to go see this! So two Extension entomologists, Dr. Charles Ray and Dr. Xing Ping Hu, and I went to see this unusual natural phenomenon. My description won’t do it justice but let’s just say - unbelievable! The yellow jacket nest covered the entire interior of the old car. There were tens of thousands of yellow jackets everywhere. The entomologists nor I had every seen anything like that.
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YELLOW JACKET NEST IN AN ATTIC IN MICHIGAN

"Honey, do you hear a buzzing sound?"
"It's just the power lines outside, dear."
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One attribute of being an Extension Agent is that I just never know what to expect next; never know what kind of phone call I might get. Sure, I get calls on the common stuff like tomatoes diseases, spots in the lawn, and armadillos digging in the yard, but its those unusual things that sparks my curiosity and gets me excited. This year, the call of the year, has to be the reports of giant yellow jacket nests. If you have been paying attention to the newspapers and TV, you are likely familiar with this intriguing story. Now I didn’t quite believe it myself until I saw the giant nests in person. Let the record show - they are for real!"