Tuesday, July 1, 2008

Wachovia Discontinues "Pick-A-Pays", Waives Prepayment Penalties

Wachovia has finally admitted that allowing borrowers to decide their own mortgage payments through its "Pick-A-Pay" loan product was completely idiotic.  The beleaguered lender announced yesterday that it was discontinuing the now world-famous "Pick-a-Pay" loan.  Wachovia also announced that it would waive all prepayment fees associated with its pick-a-pay mortgage to "allow customers flexibility in their home-financing decisions."  I must take a moment to comment on Wachovia's generosity.  After years of waiving principal and interest payments on its loans, it is now waiving the prepayment penalties!  I suppose Wachovia believes that waiving the prepayment penalties will encourage all of the borrowers currently trapped in pick-a-pays to refinance.  However, many of the current pick-a-pay borrowers have opted to pay just the bare minimum allowed, while their principal balances balloon and housing prices fall.  59% of them live in California, 10% in Florida.  Can any of these people actually qualify for any other mortgage currently offered?  If not, do any other lenders still offer option arms?  If so, give me a call, I have a few more puts to buy.  This brings me back to the question I pondered last Thursday in my last story about Wachovia: What is the $120 billion portfolio that Wachovia hired Goldman to "evaluate" actually worth? I'm guessing these loans aren't trading at par.  How big of a discount the loans would garner in the marketplace is a very serious question.  If it is anything higher than 50 cents on the dollar, I will be genuinely surprised.  Judging from the recent price action in the stock, investors are not waiting around for an answer.  

1 comment:

Anonymous said...

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