Wachovia Bank In Foreclosure Controversy

Consumer bank Wachovia is got embroiled in controversy and backed out from a programme. It was offering a mortgage payment alternative that would permit borrowers to pay an amount that is less than the bank’s interest charges. It was one of the choices customers had to pick from Pick-A-Payment mortgage bouquet. It spread out before the client four different modes of payment. Wachovia withdrew the option termed less-than-full interest preference on all the new house loans.

The bank has also notified waiver of all pre-payment charges connected with the mortgages under the Pick-A-Payment scheme.

It has been pointed out by critics, that paying less then the interest being charged could lead to negative amortization. It will ultimately amount to the borrower owing more than the value of the house. This will put it at risk from foreclosure.

The turnabout has been an important step for Wachovia – the fourth largest bank in USA. It started offering this loan after buying off the mortgage firm of Golden West Financial, based in California in 2006. The Pick-A-Payment portfolio is right now worth about $120 billion.

The bank says that its main target is to avoid a repeat of the foreclosure scene of today. It will continue to offer three payment alternatives. One can pay the full amount of accrued interest or pay the principal with interest covering a time period ranging from 15 to 30 years. It has not clearly stated whether the name Pick-A-Payment will be dropped or not.

Tony Plath, professor of finance at North Carolina University says that Wachovia is taking out the option that smelt badly of foreclosure risk. None should take such a foreclosure prone loan today.

The foreclosure crisis has badly hit Wachovia like many others. The credit crunch is telling hard on its functioning. It pushed out its CEO Ken Thompson against the background of increasing loss in loans, a string of misuse – the worst being the decision of buying Golden West. The deal was made when the real estate market was booming and zooming.

The badly mauled stocks of Wachovia fell further by 69 cents. The downward trend had made the bank decide in April to revise the policies of underwriting. This would have made it difficult to sanction loans.

The irony is that bad loans have led to foreclosures and yet without loans the foreclosure disease cannot be remedied. Money coming from loans can take the houses off the shop shelves and set the market moving.