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.