Wachovia Scraps Neg-Am One Week After Goldman Sachs Audit

Last week, I discussed possible outcomes of the Goldman Sachs audit of Wachovia’s loan portfolio. Goldman was just hired, and already this week Wachovia announced that they’re discontinuing the negative amortization option on their Option ARMs. This is the case I was making when discussing it last week. Option ARMs have come to be defined as neg-am loans, but that’s just not true, they’re just loans with options.

We saw this change on rate sheets in advance but the public press release announcing it shows Wachovia is committed to do what they need to do to maintain their portfolio while still maintaining flexibility and proper underwriting guidelines. The Goldman audit is just beginning, so this could be one of many tightening steps, but hopefully the borrowers will benefit. The ability to access equity through the neg-am feature is now gone, but they do have a 30yr fixed conversion option on Option ARMs that may be extended to borrowers who already have Wachovia Option ARMs.