Beset Wachovia Stops Controversial Mortgage Loan Payment Option

[Jul 8, 2008.]

In the wake of financial difficulty and criticism from consumer-interest groups, the North Carolina-based bank Wachovia Corp. has made the decision to stop giving customers one of its most oft-disputed mortgage payment options. It has also canceled all of the initial fees entailed in its Pick-A-Payment mortgages.

With its Pick-A-Payment mortgages, Wachovia Corp. infamously offered home buyers the option to choose between four different types of payment on their home loans every month. Customers could pay in a new way each month. One of the ways was making a minimum payment amounting to some a portion of the borrowed money plus an amount corresponding to less than the monthly interest rate on the loan. Wachovia canceled this payment option, after waves of criticism from economic analysts as a result of the mortgage and housing crisis.

Paying less than the full monthly interest on your mortgage payment could drive a homeowner to foreclosure. That is because not paying the interest in full can cause negative amortization, a phenomenon wherein the total value of a home is less than the owner is indebted for on his or her home loan. Offering an option that could so clearly lead to unnecessary foreclosure is a risky move in the wake of the US subprime mortgage and housing crisis. Thus, after two years (the company started offering the option in 2006, after its acquisition of the mortgage-focused lender Golden West Financial Corp), Wachovia has decided to stop doing so.

The bank reports that it will continue providing the three other payment options available as part of its Pick-A-Payment mortgages. One of the options is to pay for the total interest on the loan. The other two options are to pay off portions the principal and the interest over the course of 15 or 30 years. The banks is also contemplating whether or not to change the name of the mortgage. Pick-A-Payment is starting to sound too risky.

Recent News:

P2P Sites Can Formalize Personal Loans Between Family Members
Last week we looked at how regulators are taking more notice of how peer-to-peer (P2P) lending online is allowing people who need personal loans to get the funds they need without using banks. Even people who plan to borrow money from family members can benefit from using a site like Virgin Money to structure their personal [...]
[January 6th, 2009]
Retirees Look For Alternatives To Home Equity
In a recent MSNBC.com article, options are laid out for Americans nearing retirement who planned to tap their home’s equity to get them through their golden years. Many Americans have recently found themselves changing retirement plans after losing a substantial amount of home equity as the housing market and the overall U.S. economy struggle. These folks [...]
[January 6th, 2009]
Feds to buy $500 billion in mortgage backed securities
Mortgage Interest Rates Dropped Towards the end of November 2008 the Federal Reserve announced they would buy $500 billion in mortgage backed securities and another $100 billion in corporate debt issued by Fannie Mae and Freddie Mac. When they initially made the announcement, mortgage interest rates dropped quickly and considerably. Markets Price Ahead of News As usually happens, [...]
[January 5th, 2009]
Four Things You Need To Know About The Tax Deductions On Your Home Equity Loan
One of the benefits of owning a home is that you can save money on your taxes by claiming deductions on the interest you pay on your mortgage. With a second mortgage or home equity loan, you can still take advantage of these tax breaks but the process can be a bit more confusing. Although [...]
[January 5th, 2009]
Federal Reserve Begins Buying Mortgage-Backed Securities
The Federal Reserve Bank of New York began buying mortgage-backed securities (MBS) guaranteed by Fannie Mae and Freddie Mac today. The goal is to help capitalize financial institutions so they can begin lending again while also driving down the cost of borrowing to help stimulate the housing market. The program, initially announced Nov. 25, allows the [...]
[January 5th, 2009]

Easily subscribe to the rebuild.org news feed.

Read our news without even visiting our site!

Subscribe to our news

Rebuild.org monthly news archive