Amid ballooning loan losses, Wachovia Corp. is taking more steps to unwind its troubled $122 billion Pick-A-Payment mortgage portfolio. But it's not going to be a quick fix — or a cheap one.
Wachovia last month said it would stop offering a minimum payment option that causes a borrower's loan balance to increase, essentially eliminating the Pick-A-Payment product. Now it's taking more steps to refinance existing Pick-A-Pay customers into traditional loans, including reassigning 1,000 employees to contact customers.
In some cases, borrowers will be offered a reduction in their principal owed as part of a refinancing, the bank said. In other cases, troubled borrowers may be encouraged to sell their homes at a loss to avoid foreclosure.
These loans, which give customers monthly payment options, were the core product the Charlotte bank inherited in its 2006 acquisition of California-based Golden West Financial Corp. But the huge plunge in U.S. housing prices, particularly in California and Florida, has sent many of these borrowers spiraling into default.
Wachovia also will stop making loans through outside brokers, instead using only its own loan officers. Outside brokers, a Golden West mainstay, have emerged as a trouble spot in the nation's mortgage meltdown because they can have less incentive to properly vet loans.
One step Wachovia is not taking now: an outright sale of the Pick-A-Payment portfolio. Chief executive Bob Steel said it didn't make sense to sell the loans into a "distressed market." Instead, the bank will let the loan book gradually "roll off."
