Pay Option ARM Business Almost Disappears

The payment option ARM market — once a $300 billion a year business — appears to be nearly dead. According to new figures compiled by the Alternative Products Quarterly Data Report, just one lender, Wachovia Mortgage, owned up to originating POAs in the fourth quarter. Wachovia, which is now part of Wells Fargo & Co., originated just $40 million of the loans, compared to $5.5 billion in Q407. Last year Wachovia said it would no longer offer a "negative amortization" option on its POA product. In general, a POA offers borrowers four different payment plans each month, including negative amortization which allows the consumer to keep his payments low by adding to the debt owed. POAs have been blamed for fueling the housing bubble because the neg am option allowed more consumers to become homebuyers by keeping their payments artificially low. Also, critics of the loan said consumer loan disclosures on the product did not adequately describe the risks involved with neg am. Two years ago 45 lenders actively originated and disclosed their POA volumes. Today, very few lenders offer POAs.