Wachovia May Take More Hits on 'Pick-a-Pays'

Wachovia Corp., the nation's largest payment-option ARM investor ($122 billion at last count), is treating its portfolio like a "distressed asset" and will be taking more hits on the loans, according to a new report issued by Sandler O'Neill. Wachovia, whose option adjustable-rate mortgage product is called "Pick-a-Pay," is trying to refinance some of its customers into Federal Housing Administration loans, Sandler reported. Wachovia inherited much of its option ARM exposure from Golden West Financial of Oakland, a thrift operated by the husband-and-wife team of Herb and Marion Sandler. Wachovia bought the lender two years ago, right before the housing market began its historic decline. Sandler analyst Kevin Fitzsimmons and other investors recently met with new bank chief executive Robert Steel, who indicated that Wachovia is trying to get foreclosures off its books as quickly as possible. The bank is forecasting 12% losses on its Pick-a-Pay portfolio.