Wachovia Corp., hit by rising loan losses, is taking new steps to make sure applicants for its adjustable-rate mortgages know how the loans work, a spokesman said Wednesday.
The Charlotte bank is contacting customers applying for so-called Pick-A-Payment mortgages through independent brokers to make sure they understand the product and the broker relationship, bank spokesman Don Vecchiarello said. The goal is to prevent any possible fraud and to enhance customer service, he said.
These loans give borrowers payment choices, including a minimum option that doesn't cover the principal or full interest. That causes the loan balance to balloon, which can be a particular problem in a time of falling home prices.
Previously, Wachovia contacted borrowers about halfway through the application process, Vecchiarello said. Now they're hearing from the bank at the outset. About 30 percent of the bank's home loans are made through brokers, and Wachovia remains committed to using them to originate mortgages, especially in areas where it doesn't have branches, he said.
Brokers have faced criticism in the nation's mortgage meltdown because they raked in fees by making more loans, sometimes with little concern for whether borrowers could make their payments.
When it bought Golden West Financial Corp. in 2006, Wachovia picked up its $120 billion Pick-A-Payment portfolio, which has a heavy concentration in troubled California markets. In the first quarter, the bank set aside $2.8 billion to cover bad loans, largely because of these mortgages. The rising losses helped spur the ouster this month of chief executive Ken Thompson.
Despite difficult market conditions, Wachovia is “comfortable” making the loans after it tightened lending standards in April, Vecchiarello said. When making these loans, the bank now requires minimum credit scores and employment verification. It's also evaluating loans based on the state of local housing markets. The bank has said it is analyzing its overall mortgage business strategy but hasn't disclosed details.
Charlotte-based Bank of America Corp. stopped making Pick-A-Payment-style loans last year and has said it will continue that policy after its planned acquisition of troubled mortgage lender Countrywide Financial Corp.