Choices with Wachovia (or citi? or wells fargo?)

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There are a lot of reasons that the US economy is in the mess that it is currently in — bad mortgages, corporate greed, bad accounting practices, strange accounting regulations, more corporate greed, individual greed, more bad mortgages, etc.  As Senator Obama stated last night in the Presidential debate, as a country (collectively and individually) we must stop living beyond our means [editorial note: he probably wasn’t addressing himself, at least I would hope not . . . for most of us, $4.2 million would be tough to live beyond, although I am sure I could make a run at it]. 

If you have read some of my past posts on the MTA loan (also known as the Pick-a-Payment loan by Wachovia, branded by some as the Option-ARM, or a PayFlex loan, or a PaySelect loan (which by the way were all cute-branding names meant to under-advertise the loan for what it really was — a negative amortization adjustable rate mortgage), if you have read them, then you know that the MTA loan was the ultimate loan for consumers to live beyond their means. 

Banks and mortgage lenders took in huge amounts of these loans partly due to the catchy branding mentioned above, partly because consumers were jumping at the idea of having twice the house for half the payment and partly because mortgage brokers were doing these types of loans in droves.  If you have a mailbox, or an email address or internet access you probably saw an advertisement claiming that you could get a $250,000 mortgage for only $650 per month?  Too good to be true?  No, actually it was true (if you were willing to take on an adjustable rate mortgage with negative amortization).  Not too good to be true . . . but too risky to be good.

These option ARMs with negative amortization — which means if the consumer decided to make the lowest monthly payment (the minimum payment, which likely did NOT cover the monthly interest on the mortgage), the difference would be added to the loan amount.  So, essentially, if only the minimum payment is made each month, the loan balance will slowly and steadily increase.  Combine an increasing loan amount with a decreasing property value and you have yourself a banking/accounting nightmare.  Now the bank’s collateral that was once an asset (a house that is worth more than the mortgage owed) is now a liability (a mortgage with a balance more than what the home is worth).

A few months ago, I wrote a post discussing Wachovia’s decision to no longer offer these types of loans to consumers — the spokesman for Wachovia stating that they want to make sure that “consumers have the right products to meet their needs,” which trust me, I know, really sounds like the opposite of canceling the program.  Check out my post for what I think the spokesman really meant to say.  So after knowing what I know, you can imagine my surprise when I walked in to my local Wachovia Bank branch last week and saw these brochures laid out on every counter.

“Get something you never expected from a mortgage” . . . negative amortization.  Whoops, nope, sorry, I read that wrong.  I meant “Choices.”  I guess the marketing folks are probably right.  You really can get something you never expected from a mortgage: some negative amortization and maybe even a new mailing address to send in your mortgage payment to Citi . . . or is it Wells Fargo?    

 

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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One Response to “Choices with Wachovia (or citi? or wells fargo?)”

  1. Matt Hanson Says:

    Good writing. Keep up the good work. I just added your RSS feed my Google News Reader..

    Matt Hanson

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