Pick-A-Pay Goes Away...

When Wachovia bought Golden West Financial two years ago, executives at the Charlotte-based bank gushed about how they could take the “Pick-A-Pay” mortgage that was Golden West’s signature product and expand it to the rest of its customer base nationwide. The product was a mortgage that gave borrowers several choices each month on how much to pay—a regular payment (the kind you’d make on a 30-year mortgage), a payment covering only interest, and a minimum payment that only covered a portion of the interest due and lumped the rest back on top of the principal amount. That created a situation called “negative amortization,” in which the loan balance could actually grow if borrowers only made the minimum payment.

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