This morning started with the news that Wachovia’s banking operations will be sold to CITI for only $1 per share of their stock. Why is a company with such a storied past taken such a decline?
It can be locked down to one set of the loans they made: Pay-Option ARMs. With this particular product a borrower could buy a home with a mortgage and each month when their payment came due, had the option to choose to pay one of three or four payments. The options were as follows: 30 year fixed, 15 year fixed, Interest Only, and the most toxic of all the choices – a reverse amortization loan.
What is reverse amortization: The borrower makes a payment that does not even cover the minimum interest due on the note. The difference between the interest due and the payment made is added on as part of the principal in the loan. Of course these payments are the lowest and most choose them. For more information see : http://en.wikipedia.org/wiki/Negative_amortization
OF course thousands of these borrowers now owe significantly more than their original amount. Therefore making the portfolio of these loans worth less and less, down to in some cases just pennies on the dollar.
At Omega Lending we don’t allow these types of loans. We work with each of our borrowers to ensure that they are building equity with each payment. Some of our borrowers after even just a year might have up to 10% in equity or more. Money that had previously been thrown away on rent in most cases.
Posted by omegalending 
