Pick Your Posion
April 3, 2008 – 2:27 pmWachovia may end Pick-A-Payment mortgage loans in 17 California counties hardest hit by falling home prices and rising foreclosures. The loans offer customers four different payment options each month. Critics say the loans can cause borrowers’ balances to increase and carry higher rates:
Kevin Stein, associate director of the lower-income advocacy group California Reinvestment Coalition, said he had reservations about the marketing of option ARMs as “affordability products,” when in fact they were appropriate for only a limited number of borrowers.
If the loans are discontinued, it would adversely impact subprime and Alt-A borrowing in the region:
If Wachovia cuts back, it could further disrupt distressed housing markets where the recent tightening of credit has compounded the problems caused by easy-money lending earlier this decade.
“This product was the last remaining hope for the sub-prime borrower,” said broker John Diamond of Bancorp Funding in Chino.
Whether scam or good plan, the bank has yet to make a decision one way or the other.
The bank appears to be hanging on to the program out of pride, after shelling out so much to acquire it in December, 2006, in the form of the Golden West acquisition. We figure reality may finally be starting to trump pride.
2 Responses to “Pick Your Posion”
Like any creative product, the “Pick a Pay” loan works very well for its intended purpose. These are quite appropriate for those whose income is seasonal or comes in lump sums infrequently- like movie crew and staff who go six or eight months with no income and then make 21,000 per week for 9 weeks. Commissioned professionals. That kind of borrower. Like anything, the problem is the abuse and borrower fraud, nothing more. Even when this product adjusts, it is a market index based on average savings products like passbook accounts, which don’t spike and are the last thing to rise. The note rate comes in at or under market consistently. I think they are a great product and reflect contemporary incomes. It would be a shame to do away with this. In this case, it seems more a function of Wachovia fka World Savings desire to build in a cushion to their products by avoiding areas in rapid decline.
Oh, and it’s “POISON” if that’s what you’re trying to say.
By Mike on Apr 10, 2008