Wachovia executives (possibly) take advice from “the Mortgage Blog” (but not likely)

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After writing about the risks of the MTA loan at the end of 2006 here on “the Mortgage Blog”, only a short two years later, Wachovia apparently agrees with me, and this week announced that they will no longer offer their “Pick-A-Payment” Option ARM to consumers.  You can read the corporate-speak as to why they are no longer offering these types of loans, but the spokesman for Wachovia said that they want to make sure that “consumers have the right products to meet their needs,” which would actually be the opposite of what they have done by cancelling the program.  What if that program was the right product to meet someones needs?  Honestly, if there was ever a time to have an option ARM, (to be able to make a monthly payment less than the monthly interest as a last resort to avoid foreclosure) now would be the time to use that product.  What about all the great marketing with lots of smiling people and different color doors where you can pick the payment you want??? 

What the spokesman for Wachovia probably MEANT to say is this . . . While in the past we offered the option ARM program as a way to provide payment flexibility to our customer-base, in light of the current market conditions, this product is no longer a wise risk for the bank and it’s quite probable that it is no longer a wise risk for consumers.  In addition, due to fears of declining value markets (by the way, “the mortgage blog” by Jeffrey Pinkerton provided some great insight into this as well as a very funny video), the negative amortization feature of the option ARM program puts the bank in a miserably risky situation should a borrower continue to only make the minimum payment (not covering the monthly interest), hence the loan balance increasing, while at the same unfortunate time, the value of the home (our collateral) decreasing.  Not to mention, that this was not a good program for most consumers — also highlighted by Mr. Pinkerton in his blog. (end of what I think the spokesman meant to say).

The unfortunate reality (for me and other mortgage professionals like me) is that these types of products are actually GREAT profit engines for companies.  Much like the interest-only LIBOR ARMs from a handfull of years ago (1 month and 6 month varieties), these programs create multiple loan transactions — practically guaranteed.  If I put you in a mortgage loan product that will most certainly need to be refinanced in a few years, it’s like two-for-one.  One now . . . and one when it’s time to refinance. 

For me, I’ll stand by original advice on MTA loans and be glad that none of my clients have the worry of that type of loan (even if it means there will be fewer refinances in the future).  Unless, of course, the consumers who got placed into these types of products don’t go back to the person who sold them the idea in the first place — and call me instead.  : ) 

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.

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2 Responses to “Wachovia executives (possibly) take advice from “the Mortgage Blog” (but not likely)”

  1. Choices with Wachovia. I mean Citi, no, Wells Fargo. « Says:

    […] few months ago, I wrote a post discussing Wachovia’s decision to no longer offer these types of loans to consumers — […]

  2. Choices with Wachovia (or citi? or wells fargo?) « The Mortgage Blog Says:

    […] few months ago, I wrote a post discussing Wachovia’s decision to no longer offer these types of loans to consumers — […]

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