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:

Boby said...

Hello. I find your blog very interesting. Recently, my friend had to deal with Wachovia company. It is not that he was dissatisfied with the services, but the charges are too high. I think that if the bank charges high fees then the customer service should be on the appropriate level. People, who commented on the bank on this great site www.pissedconsumer.com also think so.