CHARLOTTE, N.C. – Wachovia Corp. (NYSE: WB) will begin calling would-be borrowers interested in certain adjustable-rate mortgages, to explain the risks of such loans, according to Bloomberg News.
Setbacks including a projected loss of more than $4.5 billion on delinquent ARMs spurred an executive-suite shakeup at the company early this month. But “Wachovia is a strong institution and well-positioned even in the face of the unprecedented conditions in the financial services industry,” Chairman Lanty Smith said at the time. (READ MORE) The company has not yet announced a replacement for former CEO Ken Thompson. Smith is serving as interim chief executive until a permanent replacement is found.
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Wachovia acquired $120 billion in option ARMs– which it calls Pick-A-Payment loans –when it acquired Golden West Financial Corp. two years ago, for $24 billion, Bloomberg News reported today. At the time, Golden West was the market leader in such loans. The mortgages allow borrowers to determine the size of their initial payments, which can range so low they don’t cover accrued interest.
Nearly 70 percent of Wachovia’s option-ARM borrowers chose to pay as little as possible, so their loans’ principal mounted over time. That, combined with falling home prices, has left many borrowers “under water,” owing more than their homes are currently worth.
Now, Wachovia has begun contacting customers through independent mortgage brokers to ensure that each option-ARM applicant “understands the key features of the Pick-A-Payment loan product,” according to a June 11 memo from loan-origination chief Tim Wilson that was obtained by Bloomberg News.
But the new policy “is far too little and far too late, and indicative of how bad it is,” William Purdy, a lawyer in Soquel, Calif., who concentrates on home refinancing, told Bloomberg News. “These loans are ticking time bombs. and probably the worst thing the bank can say it has ever done to its customers.”
Wachovia Corp. (NYSE: WB) is the nation’s fourth-largest bank holding company, based on assets, with offices in 21 states, including Rhode Island, plus Washington, D.C. Its Wachovia Securities LLC division is the nation’s third-largest full-service brokerage firm, based on number of financial advisors. The company also offers a range of corporate and institutional services, in the United States and abroad. For more information, visit www.wachovia.com.
