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To Pick-A-Pay loans: Goodbye, good riddance

Wachovia's Pick-A-Payment loans allowed payments that didn't cover all the interest, permitting balances to grow rather than shrink. The practice was adding to nationwide mortgage woes and pushing some consumers into financial quicksand.

Now, after the mushrooming mortgage mess claimed Wachovia chief executive Ken Thompson as a casualty, the bank has scrapped the controversial loans. It should have done so sooner.

Pick-A-Pay loans had showed higher delinquencies than traditional mortgages for quite a while. Federal regulators cautioned banks about such risky nontraditional loans and about “improperly” directing customers to particular loans.

Yet Wachovia continued to offer such loans. A bank spokesman in April telling the Observer that Wachovia was scrupulous with such loans, analyzing the borrower's ability to repay and capping the amount the loan could increase. Bank officials acknowledged such loans weren't right for all customers, but they felt they did them the right way.

Such loans accounted for increasing bank losses, however. The risks clearly outweighed any benefits. Wachovia was one of the last major lenders still making the loans – mortgages the bank acquired in 2006 from Golden West Financial when Wachovia purchased it in a $24 billion deal.

Consumer advocates said the loans were right for only a small group of sophisticated borrowers. So it's also good that Wachovia also is waiving all “prepayment” fees charged to Pick-A-Payment borrowers, allowing them to refinance to other loans without penalty. Wachovia says it has worked with 18,000 homeowners in this way over the last 12 months to help them make more manageable payments and avoid foreclosure.

In today's roiling economy, homeowners need all the help they can get. Three months ago, we – and others – said lenders should avoid practices that add to their troubles. We're glad Wachovia finally agreed.

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