Yesterday I saw a television ad from Wachovia touting their “Fixed Rate Pick-a-Payment Mortgage” as a sensible choice for homeowners.
It struck me as a bit odd and out of place for the Charlotte, NC-based bank to showcase a hybrid option-arm loan program on national television with all the negative press swirling over the last year and change, especially given the fact that our nation is in the midst of a major mortgage crisis.
However, it didn’t seem to stop them from running these commercials claiming the option arm can lower monthly mortgage payments and free up cash so homeowners can put their money to good use elsewhere, like socking away funds for retirement.
I took a look at the fine print on their website and discovered that this option arm is just as toxic as the ones being pitched years ago by Countrywide and other lenders when home prices were actually appreciating.
The loan program has the standard four payment options, with 1-yr, 3-yr, or 5-yr fixed options, and of course a minimum payment option which allows for negative amortization up to 125% of the original loan amount.
Although they do throw in this disclaimer in the small print: “Choosing the minimum payment will increase your mortgage balance and the aggregate amount you are required to pay over the mortgage term. You should compare the advantage of using your home’s equity for other purposes against the disadvantage of the increase to your mortgage balance.”
It’s hard to consider these loans “fixed mortgages” considering they’re really just adjustable-rate mortgages with a short fixed-rate period; perhaps hybrid would be more fitting.
But more upsetting is the fact that shortly after Wachovia acquired Golden West Financial/World Savings, the unit was sued for deceptive practices tied to these very loans.
And no more than six months later, the mortgage lender is back to pushing these loans above all other options, when most banks and lenders in the industry have focused on offering traditional 30-year fixed-rate mortgages to steer away from the risk and the negative connotation.
Now I’m sure the down payment requirement is a lot greater than it used to be, and you may need more assets and possibly income verification.
But this just proves how fickle and unrelenting the mortgage industry is, and why we will fall right back into the same mess if lenders and homeowners don’t face reality.