Wachovia Waives Prepayment Penalty on Option ARMs
By Barbara E. Hernandez
Monday, June 30th, 2008 at 4:13 pm in Mortgage Mania, The Market.
Well, when a lender waives prepayment penalties on “pick-a-pay” option-ARM, things must be pretty bad. And it wants out of the whole neg-am loan business. And here’s the proof:
Effectively immediately, Wachovia is waiving all prepayment fees associated with its Pick-A-Pay mortgage to allow customers complete flexibility in their home financing decisions. This includes all Pick-A-Pay mortgages on 1-4 unit residences.
Additionally, for all new loan originations, Wachovia is discontinuing offering products that include payment options resulting in negative amortization.
“I think they’ve come to the stark realization that the product was risky,” said Kevin Stein, associate director of the California Reinvestment Coalition. “They’re bleeding.”
Wachovia shares fell 3.9% to $15.58 during afternoon trading on Monday. The stock has lost 70% of its value in the past year.
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July 1st, 2008 at 12:40 pm
This goes to show that most people did not understand the benefits and pitfalls of “neg am” arms.
This product is not risky to the bank nor to the consumer if done properly.
Wachovia, from North Carolina, did not understand,nor do the politicians or the so called “consumer” advocates, how to make this product work but World Savings was successful:
1. Maximum 80% loan. If there is an equity line, or maximum 75%.
2. A reasonable start rate. By reasonable I don’t mean 1% but a start rate that is closer to the real rate so payment shock is gradual and not huge (3% is today’s market)
3. Keeping the loan in the portfolio rather than sell to Wall St. so that if the borrower falls behind, the bank can work it out and negotiate to help the borrower and save the home.
4. Make these loans only to those who have very good credit (FICOs 660 and up). There was never a problem with “no tax return” or “stated income” loans. The problems were with mediocre credit, no job history, no low money down clients.
World Savings made lots of money on these loans and had a very low default rate. Wachovia is not suffering from the World Savings loans when it bought World.
These loans helped build California and would help tremendously to reduce the number of bank owned properties on the market and help the housing market return to stability.
July 2nd, 2008 at 5:20 pm
What Wachovia did is a crime. They bought World Savings, a good profitable company with one of the best loan programs and they destroyed the company and the program. The negative amortization loan is the best loan for many people. Like most politicians and many people in the press Wachovia never understood what they had in the World Savings Option ARM loan.Even though it is not politically correct to promote negative amortization loans research shows that nobody ever lost his home because he was payng the minimum. What you are actually doing is borrow more money from the bank every month you pay the minimum. Also the bank will never take your home because the market value of your home is lower than the principle balance of your loan.
World Savings has had the least amount of forecosure than any other bank of equal size in the country. Wachovia loses come primarily from the MBS and the CDO’S they invested in and not from World Savings.
If the Board of Directors of Wachovia knew what they had in the Neg-Arm loan they would had aggressively promote it, look at this as an oppotrunity to increase their market share, make up all their losses and more.
The biggest loser in all this is the consumer. We live in the midst of historic unpresedented turmoil in the mortgage industry. Lenders are going out of business, loan programs are disappearing, hard working families are losing their homes and the banks are tightening their underwriting standards. The neg-arm loan is the best loan to bring in more buyers and provide much needed stability in the market. Homeowners would want to keep their homes if they can afford the monthly payment. Investors would keep their investments if the properties cash flow. We would not need any bail out programs. The passage of time and the market would provide the bail out.
July 21st, 2008 at 1:54 pm
Yes i agree, all Wachovia had to do was keep the loan in house DO NOT sell to secondary and follow World Savings guidelines.
As simpl as that, wachovia wanted to become Country wide or Wells Fargo who have been in business for decades Wachovia is still brand new……they made bad moves and now they are out of Mortgage Wholesale soon to be completely out of business meaning all branched to be shut down. And no is going to buy them out is way too risky for anyone to buy them out. Bear Stearns was purchased at a rock bottom price by JP Morgan now JP is looking at going out of business.
US is getting more scary on the daily basis, with the economy being the way it is.
August 6th, 2008 at 8:34 pm
As a mortgage originator I am extremely disappointed to see this loan be taken away from the consumer. I firmly believe in the value of the pay option arm. I have one myself. I have been able to make the minimum payment each month and make investments into my savings account, IRA, and home improvements. This move is taking the consumer backwards. I wish World Savings never sold off to Wachovia. Hopefully some really smart people can figure this out, and create another company and take off where World Savings left off. The pay option loan made logical sense every direction you looked at it. Math doesn’t lie.
August 18th, 2008 at 10:53 am
RE: Alice Schneiderman,
You do realize that no matter the bank or Savings and loan, or Credit union, if they wanted to offer that product they would have to carry the loan, on there own, the reason it worked was people like yourself and companies could make what on any other day would be considered a HIGH RISK loan, as the plan was to package them up (securitize) and pass then off with some good loans, some so so loans and etc.., THAT MARKET DOES NOT EXSIST in the trade, I really hope you understand that as by the sound of your post, you seem to think it is the oridganator that has choosen NOT to, It is not that, NO secondndary market exsists, Use google and type in just like this, Define:Securitize in the google box and read the result please. Thank you I am glad those loans are gone, it is in fact in large part the reason we got in so deep on top of some other reasons.
September 8th, 2008 at 9:44 am
I was wondering if there is any way to request a refund of a prepayment penalty paid within the last 2 years to World/Wachovia on a mortgage pick-a-pay program… does anyone know?
September 13th, 2008 at 1:38 pm
Who Dat: Regarding the prepayment refund request. Here’s my refund request content suggestion:
Dear Wachovia,
The World is a much happier place since it was taken over by you! Could you please return the repayment penalty I gave to World. Pretty pretty please!
Dat Said, Who Dat respectfully awaits da money got by World to be given back by you!
Tanks!
Who Dat