Wachovia’s option adjustable rate loan program “Pick A Pay” is imploding and the company is doing everything it can to get borrowers out of it. The company is now waiving the pre-payment penalty that was designed to keep borrowers from refinancing the loans early.
The option ARMs are killing these companies as it accelerates the borrowers ability to get upside down in the mortgage. While not a terrible product in a rising market these loans are lethal to borrowers in our declining market. Wachovia recognizes that homeowners in the Pick a Pay program are just walking away from the loans instead of trying to refinance them due to an onerous pre-payment penalty.
By waiving the penalty, it may allow homeowners to refinance and save their homes, creating a win win situation for both Wachovia and the homeowners.
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 interest, 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. via WSJ.com.
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