Wachovia Waiving Pick-A-Pay Fees in California
chovia Corp. is waiving all prepayment fees associated with its “Pick-A-Pay” mortgage program to help customers cope with declining home values and the credit crunch.
The struggling bank is also becoming the latest lender to stop offering loans known industrywide as option adjustable-rate mortgages. Earlier this month, Washington Mutual Inc., the nation’s largest thrift, said it would end all negative-amortizing loans — borrowings in which monthly payments don’t cover accrued intrest, thus causing the loan’s outstanding balance to increase.
Pick-A-Pay, which has been at the heart of Wachovia’s troubles - let borrowers choose between four monthly payment amounts on fixed- and adjustable-rate loans, including partial-interest payments. Lenders have taken fire from consumer groups and analysts for offering such products, which critics say encourage borrowers to fall behind in repaying their mortgages, leading to more frequent delinquencies and foreclosures.
In April, Wachovia reported a $350 million first-quarter net loss, due in large part to big losses within its $120 billion of Pick-A-Pay loans, a legacy of Wachovia’s ill-conceived 2006 purchase of Golden West Financial Corp. Wachovia conceded then that losses on those loans could eventually reach 7% to 8% of their value.
First-quarter losses totaled $1.1 billion, accounting for more than one-fourth of the $4.1 billion in asset write-downs and loan-loss provisions that Wachovia reported.
Almost 60% of Wachovia’s current Pick-a-Pay mortgages were written in the now-tanking California housing market, which is also the former stomping grounds of Golden West.
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