A lender memo sent out earlier in the week by Wachovia Corp. announcing that it would no longer offer its infamous Pick-A-Payment loans might have been premature, but sources told Housing Wire on Thursday that it’s only a matter of time before the Charlotte, NC-based bank pulls the plug on its Option ARM product in key California counties. The Associated Press first reported on the memo earlier in the week, which said the company would no longer offer the loans in 17 California counties hit hardest by the housing downturn. Wachovia’s media reps quickly confirmed that the memo had been sent “prematurely,” according to a report Thursday in the Los Angeles Times. From the Times:

Wachovia paid $24 billion in 2006 for California adjustable-mortgage specialist Golden West Financial Corp. Golden West’s savings and loan, World Savings Bank of Oakland, pioneered the option ARMs … If Wachovia cuts back, it could further disrupt distressed housing markets where the recent tightening of credit has compounded the problems caused by easy-money lending earlier this decade. “This product was the last remaining hope for the sub-prime borrower,” said broker John Diamond of Bancorp Funding in Chino. According to Diamond, Wachovia managed its risk by relying more on conservative appraisals even as it gave less weight than many lenders did to credit scores. With the tightening of loan standards by the government-sponsored mortgage buyers Fannie Mae and Freddie Mac, and other lenders afraid or unable to lend, “this could be the ‘straw that breaks the camel’s back,’ ” Diamond said.

The so-called “pick a payment” loans represented $119.6 billion of Wachovia’s mortgage portfolio at year’s end, by far the largest segment of the bank’s mortgage loan holdings. Among these loans, $2.76 billion — or 2.31 percent — were classified as non-performing during Q4; Wachovia has seen NPAs in this loan category increase by $1 billion within one quarter. Disclosure: The author held no positions in WB when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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