http://stream.publicbroadcasting.net/production/mp3/knau/local-knau-927891.mp3
Phoenix, AZ – The deal involves those who obtained what's called a "payment
option adjustable-rate mortgage" from Wachovia and or Golden
West. Goddard said this involves not only a low interest rate for
the first five years but overall payments that don't even cover
the principal. The net result is negative amortization where the
amount owed actually increases over time. He said these mortgages
originally were designed for sophisticated investors who were
quickly turning around homes in the rising real estate market.
(Now there's a big difference between a real estate investor
who's moving in and out of properties all the time as their main
business and a homeowner who is getting a loan for their single
residence and is not an expert in this type of financing. And as
they moved this from a specialty product to a mass-marketed
product, that's where I believe the deceptions became more
apparent.)
Goddard said customers were not made aware of the pitfalls of
this very low monthly payment and how it could turn around to
bite them financially if home values stopped going up, as they
eventually did. Under the deal with Wells Fargo, which acquired
both firms, the bank will reduce the amount due to the current
value of the homes, saving them an estimated $82 million, along
with some interest rate relief. Wells Fargo admitted no
wrongdoing in agreeing to the plan. For Arizona Public Radio this
is Howard Fischer.