In a rare indication that there may be some reasonably intelligent executives running things at America's top banks, Wachovia Corp. (NYSE: WB) has decided that it will stop offering a mortgage that allows customers to pay less each month than the bank charges in interest.Hold on. What? The "Pick-a-Payment" mortgages allowed borrowers to choose one of four payment options each month -- as in, "Do you want to pay off your mortgage or do you want to buy a new television and every season of Golden Girls on DVD?"
You can probably guess which option many people chose. The problem was that paying less than the interest each month led to negative amortization -- owing progressively more on the house each month. Recently it's been discovered that home values are not contractually obligated to go up every year and the result is that many people could end up owing more than the home is worth, trapping them in it -- and leaving the bank with a hefty loss in the event of foreclosure.
Wachovia has hired Goldman Sachs (NYSE: GS) to evaluate its loan portfolio and suggest alternatives. I wonder how much they're paying. I could have told them that letting borrowers decide whether they want to pay the interest on their mortgages was a bad idea.
Entrepreneur's Journal: Putting together a solid sales contract
The week in preview: Earnings from Walmart, Macy's, and other retailers
Six top trades for the rest of 2009
Reader Comments (Page 1 of 1)
7-01-2008 @ 11:00PM
GoBoilers said...
They were stupid to ever bring it back. Especially given that they have some of the worst mortgage losses in the banking industry.
Dirt on Housing: http://www.beyondthemargin.net/2008/06/dirt-on-housing.html
Housing Bailout Bill:
http://www.beyondthemargin.net/2008/06/housing-bailout-close-to-fruition.html
7-02-2008 @ 10:15AM
mlk said...
I have that kind of Wachovia mortgage. The default choice of payment when it's an auto deduction from your bank is to pay less than the interest each month. It's like they're saying, here, keep more of your money. It's ok!