In its effort to shed troubled Pick-A-Payment mortgage loans, Wachovia Corp. is turning to outside brokers for help contacting customers about refinancing options, sources have told the Observer.
The use of brokers gives the Charlotte bank another way to reach more than 500,000 customers about the possibility of converting their Pick-A-Pay loans into traditional loans. Wachovia, which is wrestling with massive mortgage losses, in July announced that it was assigning 1,000 of its own employees to the initiative, known internally as “Project Green Earth.”
The tack comes a little more than a month after the bank stopped making new mortgages through brokers. It now relies only on its own loan officers, call centers and Web site to originate home loans. Brokers have faced criticism for helping fuel the U.S. housing crisis because they had little incentive to properly vet borrowers.
Bank spokesman Don Vecchiarello said the refinancing effort is in the early stages and declined to disclose details. Chief executive Bob Steel is expected to address the topic at an investor conference on Tuesday.
The bank no longer makes new Pick-A-Pay mortgages, but it still holds $122 billion of the loans, which are showing higher delinquencies than traditional ones. The mortgages, inherited in the 2006 Golden West Financial Corp. acquisition, offer customers multiple monthly payment options, including a minimum payment that doesn't cover all of the interest owed. The bank has said it expects cumulative losses of 12 percent, or more than $14 billion, on the portfolio.
Wachovia has said it's seeking to refinance Pick-A-Pay customers into Federal Housing Administration and other conventional products, which could be sold off to investors. But sources said refinancing the loans is proving difficult because plunging home values in states such as California mean borrowers owe more on their mortgages than their homes are now worth. The bank is offering to reduce the principal owed and in some cases is willing to provide home-equity loans to make the deals work, sources said.
Wachovia's goal is to “minimize ultimate losses” in the portfolio, Sandler O'Neill + Partners analyst Kevin Fitzsimmons wrote in a report last week. “As a result, the company may be taking more ‘hits' on the respective loans earlier than it otherwise would if the loans weren't restructured,” he wrote.
Chief Financial Officer Tom Wurtz, who has said he is retiring after a successor is named, is leading the refinancing initiative. When he departs, the task will be handed to David Carroll, head of the bank's capital management group.
Carroll has often been assigned key jobs, from running merger integrations to winding down operations of The Money Store Inc., a lender that Wachovia predecessor First Union Corp. closed in 2000. Carroll has been closely tied to former CEO Ken Thompson, who was ousted in June, but the new responsibilities indicate he's remaining at the company under Steel.
Wachovia's refinancing initiative comes as the bank is eliminating 5,000 of 11,500 jobs in its mortgage unit to cut costs. Insiders describe a difficult work environment in which some employees have little to do as they wait for their jobs to expire.
In some cases, there is tension between original Wachovia employees and former Golden West employees, with each blaming the other company for the mortgage unit's problems, sources said.
Under the merger agreement, Golden West employees were promised severance packages that can be worth twice as much as their Wachovia counterparts, according to documents obtained by the Observer. The more generous severance, however, expires Oct. 1, leaving some employees worried they will miss out.
Vecchiarello, the bank spokesman, said he expects most of the displacements will be completed by the Oct. 1 deadline. “It's the right thing to do for employees” and beneficial to the company to cut costs as soon as possible, he said.